Most of us never heard of Libor before the latest scandal to hit the 24 hour news cycle. It is very easy to dismiss as something that doesn’t effect me. Umair Haque defines Libor in a recent article in The Harverd Business Review. Take five minutes and read what Umair has to say.
“To the long, dismal list of fatally broken institutions — GDP, governments, schools, corporations — we can add the mysterious Libor, and its conveniently comfortable calculation. It’s difficult to overstate what a pillar of the global economy Libor is — it’s used in setting interest rates that affect the daily lives of pretty much every citizen of every advanced economy across the globe. And it’s difficult to overstate how troubling it is that this, too, is an institution rigged by the few, for the few; that this institution too, is, corrupted.
This scandal isn’t about price-fixing. It’s not about a bank. It’s not even about power and privilege, corruption and compromise. It’s about life, tragedy, and human potential. It’s about the capacity to create a worthwhile future. It is, in short, about you and I, and the places we seek for ourselves in the world.
Let me couch this for you in the pedestrian terms of financial hydraulics — the tawdry terms which seem to substitute for thinking in what’s become of our thin, shallow economic and political discourse. The most basic function of a financial system is to price money. If a financial system can’t undertake that simple task effectively — if the price of money is fixed like a roulette wheel stuck on red — all else must necessarily fail: investment must become malinvestment, speculation must precede creation, “profit” must become divorced from benefit, and wealth is effectively transferred from poor to rich, in a form of quiet but lethally effective institutionalized theft.”
Read the complete article at The Harvard Business Review.