Front page, above the fold of the Sunday NYTimes... "US Is Building Criminal Cases in Fixing of Interest Rates". Well... not really. Near the end of the piece you get the real story:
The investigation into the global banks is unusually complex and it could continue for years, and ultimately end in settlements rather than indictments, said the officials close to the case. For now, regulators are building investigations piecemeal because the facts of the cases vary widely. That could make it difficult to compile a global settlement, although some banks would prefer an industrywide deal to avoid the harsh glare of the spotlight, said a lawyer involved in the case. Unless the DOJ can prove collusion between bank A and bank B (and I'm almost certain they can't) then the banks have done absolutely nothing wrong. But the political hacks at the DOJ know that the banks are weak and wounded, so they can't resist the urge to take a bite. It's raw, blatant political opportunism aggressively promoted by New York Times reporters who are sick with envy at the wealthy banking execs. And although the lefty reporters and regulators think they'll get the banks to pay, it will be the people who need loans who will inevitably bear the cost of this apple cart being tipped over and set on fire.
This Libor thing can be made to sound bad to those who don't know the banking industry. That's probably why the Times has been promoting the story so aggressively. On Squawk box every morning the exasperation of Andrew Ross Sorkin becomes evident every time another industry insider fails to see this story as worth his time. Even so, the phrase "fixing of interest rates" is easily misunderstood if you don't understand banking any better than a New York Times reporter. And if you're one of those people who doesn't trust market forces to constrain people's actions in the first place, then this might seem like a real story.
But there wasn't any wrongdoing ... at least ... up to the point that the DOJ got involved. What will happen now though is that the DOJ (along with the idiot bank regulators and their cheerleaders at the Times) in an effort to get the banks a little further under their thumbs, will define a new (more political) process for 'fixing Libor rates'. That process will be far more easily gotten around than the dynamic forces of the market currently in place, so the next time someone wants to cheat things a little they'll be able to. The net result of all of this is that it will become much harder to get an accurate valuation for credit risk, which is what Libor is supposed to define in the first place.
Which may be exactly what the regulators wanted all along.
We've entered very dangerous ground here. If the political worker bees at the department of Justice think they can do a better job of designing how international banking works than what has grown up naturally over the last three hundred years, we're in for a lot of trouble. They are fiddling with dials and switches they don't understand, in the belief that whatever consequences come of this will be minor and blamed on someone else. But the best analogy for this is a &$& full of innocent people. If they just shove the flight crew out of the way and start testing things to see how they work, only bad things can come of it - and not just for the flight crew.
Of course, it will be the regulators along with their confederates at the Times are the ones who decide who get's blamed when the plane strikes the mountainside, so I can see why they think it's OK to muck around a little. But this is delicate and dangerous machinery that they should leave to the people who really understand it, or someone (probably everyone) is going to get hurt.
the banks are not the problem here. The US Department of Justice is the problem here. And we had better get these people back under control.