U.S. Markets open in 3 hrs 18 mins

Libor Scandal Will End With Lawsuits and a Whimper: Karabell


More than 3 weeks after the Barclays (BCS) Libor scandal hit the headlines it's still hard to find any organic outrage. Very few people have any reason to know what Libor is and those who do are mostly financial professionals too jaded to be shocked by anything done by a bank to make money. Libor is theoretically the basis for rates impacting trillions of dollars in loans, but in actual practice it's not so clear cut. The facts remain murky and the collective response something akin to an international shrug.

"This is a media story and a populist story that's been set in stone," says Zachary Karabell, president of RiverTwice Research in the attached video. The narrative is basically that banks are wicked entities in the business of creating human misery then profiting from it. Banking execs might as well walk around dressed like Snidely Whiplash for all the sympathy they engender. In part they earned the stereotype but, as Karabell points out, the firms haven't done anything to effectively rebut the image.

Karabell notes the distinction between the Fed Funds rate which is set as a function of policy and Libor which is a self-reported average run through a *wink* objective party. Libor amounts to an honor system number. Treasury Secretary Tim Geithner won't say it out loud but the reason he didn't follow up on his complaint to the Bank of England was probably because he didn't really care.

The banks will be sued, even possibly by one another, but Karabell says it's going to be "nearly impossible to come up with a numerical harm that came up with this." Not that it won't keep lawyers from trying. Big banks are an easy target given their reputation and the fact that they have cash when others don't.

"This plays out with banks paying out a huge bunch of money," says Karabell. Hundreds of millions will be thrown at the problem and Libor will end with a whimper. Weep not for the criminals, the victims, or the media trying in vain to make people care. Everyone involved with have something to really get worked up over soon enough.