Friday, 13 July 2012

Wood, trees, Nelson and the Bank of England

The piece in today's DT entitled, "Libor's ripples cross the Atlantic" gives me a sense of deja vu. The gist of the story is that the NY Fed in 2008 had contact with Barclays over how Libor rates were being set, raised their concerns in 2008 with the London regulators and even went as far as suggesting reforms of the Libor process to these regulators. It is further alleged that on 28th April 2008, Timothy Geithner the US Treasury, had a meeting in his diary called "Fixing Libor".

As I noted previously even in my days in the BoE which ended in late 2003 I had concerns about easy it would be to manipulate Libor. That Geithner in Washington was worried about this in 2008 but Paul Tucker, then BoE Markets Director, London appears to have been unaware until the recent Barclays scandal broke is deeply worrying particularly as Tucker chaired the Sterling Money Markets Group where this matter may also have surfaced.

It all reminds me a bit of the Barings' fiasco where Leason's activities and Barings' horrendous loss positions were well known to those working on the Singapore futures exchange but not to the Barings board or the Bank of England. Poor old Eddie George had only just arrived the chalet for his ski holiday when the phone rang and John Major appointee, DG Pennant Rea, later more famed for bonking than banking, was telling Eddie they had a problem and could he please come back pronto.

That little banking failure only cost £2bn plus the end of Barings. The Libor scandal with its possible links to the collapse of Bear Sterns and Lehmans could cost one hundred times that. That is why the BoE were not unhappy to give up Bank regulation which nobody notices until things go wrong and stick to nice safe monetary policy where academic reputations can be made. Reputations can only be trashed and lost in regulation.

What has happened is as old as the hills. People don't want to hear bad news especially in good times and tend like Nelson to ignore it. Nelson was lucky but does Paul Tucker have the Nelson touch?

His fate is in the hands of wee George Osborne. Perhaps PT's old bag man, Matthew Hancock, new Tory MP and friend of GO will put in a good word for his old BoE boss. Mind you, post Trafalgar, poor Emma got shafted by the British political establishment in more senses than one.

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