The Libor scandal hit US shores this week, but bank regulators just shrugged their shoulders.
It appears from their reactions that problems with the London Interbank Offered Rate — which is used to price trillions of dollars in US mortgages, car loans and credit cards as well as derivatives — aren’t a big deal.
Fed chief Ben Bernanke said during Capitol Hill testimony last week that he was troubled by the Libor manipulation.
But he went on to say that the Fed had no information that the banks were manipulating rates “for profit,” only that they were “possibly submitting low rates to avoid appearing weak” during late 2008 and 2009.
Still, the manipulation of Libor is “very troubling,” he said.
Treasury Secretary Tim Geithner released e-mails from his days as president of the New York Fed, stating that he was aware that Libor was a rigged rate and that he sent a memo to his counterparts over at the Bank of England to alert them to the price manipulation of its own overnight lending rate.
And that was it. Sent a missive and let the matter stand.
So it appears that Geithner acted to the letter of the law, but certainly not to the spirit. Even as the head of Treasury, Geithner did nothing to change how US banks charged Americans on their debt.
Certainly there are other benchmarks that could be used to price these various instruments. The prime rate issued by the Federal Reserve is a very good benchmark, since it is a US lending rate and not affected by manipulative European bankers.
Ironically, these very same regulators — who knew about the Libor fraud and did nothing to implement a fix to the problem — have now put themselves in charge of sorting out the trillion-dollar mess.
The problem is, the Fed and regulators here and in London were fully aware of it at the highest levels, and their failure to act on the matter has shaken economic confidence.