Wednesday, 30 January 2013

Advice to any MP seeking to embezzle

“Libor Lies Revealed in Rigging of $300 Trillion Benchmark” is the startling headline in Bloomberg News, exposing what it calls:
...the biggest and longest-running scandal in banking history. Even in an era of financial deception -- of firms peddling bad mortgages, hedge-fund managers trading on inside information and banks laundering money for drug cartels and terrorists -- the manipulation of Libor stands out for its breadth and audacity.
In case anyone is in any doubt, financial scandals don’t get any bigger than this:
“We will never know the amounts of money involved, but it has to be the biggest financial fraud of all time,” says Adrian Blundell-Wignall, a special adviser to the secretary-general of the Organization for Economic Cooperation and Development in Paris.
However, it is unlikely any politician will hear this issue raised on the doorstep. If voters express any concern about financial corruption, it will probably be about the parliamentary expenses scandal, even though that is now history, and even though the amounts of money involved are dwarfed by the immense size of the Libor fraud.

Why is this? It’s not as if Libor doesn’t affect most people’s lives. It determines the interest people pay on their mortgages or receive from their savings accounts.

To begin with, most people don’t know what ‘Libor’ means. (Since you ask, it is an acronym for ‘London Interbank Offered Rate’, a daily reference rate based on the interest rates at which banks borrow unsecured funds. Is that clear?). But people do understand the terms ‘banker’ and ‘corruption’, so this doesn’t really explain the apparent lack of popular concern.

The reason is something else; it is that hardly anyone can imagine $300 trillion. Converting that to pounds (£190 trillion) doesn’t make it any easier. In the UK (as in the USA), a ‘trillion’ means a thousand billion. The annual GDP of the UK is only about one and a half trillion pounds, and most people can’t even get their heads round that amount. It’s like when astronomers talk about the distances to other galaxies; the sheer size of the numbers renders them practically meaningless.

If people cannot imagine the sums involved, the abuse of such sums cannot shock them. Fiddle your expenses to spend £800 on a wide-screen TV, however, and most people can imagine that all too easily.

So here’s the lesson for any politician contemplating embezzlement. If you’re going to commit fraud, make it either a very small amount or a very big one. Nick a biro from the office and no one will mind – everyone does that. Or trouser several trillion pounds and no one will understand what you’ve done. It’s the middling amounts that really upset people.


  1. Another reason why the public and hence politicians weren't bothered was that the Libor manipulation didn't affect their everyday life. Indeed, if anything, the fraud tended to depress retail interest rates.

    1. If Libor manipulation depressed retail interest rates, it helped borrowers but harmed savers.


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