The Fed Knew LIBOR Was Corrupt in 2008. So Why Didn’t It Act?

How to Make Government Work
July 17 2012 6:53 PM

The Fed Knew LIBOR Was Corrupt in 2008. So Why Didn’t It Act?

148471001
Can we rely on the Fed to police itself?

KAREN BLEIER/AFP/GettyImages.

To hear Ben Bernanke tell it, the Federal Reserve did everything it should have about the suspicious activity surrounding the LIBOR scandal. Chairman Bernanke informed a Senate committee today that the Fed told everyone it was supposed to when it first suspected the London Interbank Offered Rate was being manipulated by the major banks.

Told is the critical word here. What exactly did the Fed say—and what did they do thereafter—when they began suspecting a problem?

Advertisement

Bernanke testified: "Importantly, it informed all the relevant authorities in both the U.K. and the United States ... and the New York Fed also communicated with the FSA and the Bank of England in the United Kingdom."

But there is dispute about whether the Fed did inform all the relevant parties that the rate was being rigged. Mervyn A. King, governor of the Bank of England, said he did not receive a warning in 2008 that the rate was being gamed. Instead, King says, the Bank of England just got an email from Tim Geithner, who was president of the N.Y. Fed at the time, suggesting reforms to the LIBOR system. Yet it is uncontroverted that, at the time, the Fed had evidence of LIBOR’s integrity problems.

So, issue one: What did the Fed tell other parties, and when?

Issue two: Even if the fed passed along its concerns, there's no evidence of follow up designed to stop the illegal behavior and determine why and how the most important international rate was being manipulated.

There is no question it's the Fed's responsibility to help ensure the integrity of that rate. All of which brings us back to where we've been for several days. The Fed's performance as a regulator is highly suspect, and it has to be investigated by someone who is at arm's length from it. The Fed's own governing structure is too warped by conflict—with a board dominated by banks that are at the center of the controversy.

No one believes the Fed can properly analyze or dissect its own role in this. We need an investigator we can trust—to bring trust back into the system.

TODAY IN SLATE

Politics

Meet the New Bosses

How the Republicans would run the Senate.

The Government Is Giving Millions of Dollars in Electric-Car Subsidies to the Wrong Drivers

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Cheez-Its. Ritz. Triscuits.

Why all cracker names sound alike.

Friends Was the Last Purely Pleasurable Sitcom

The Eye

This Whimsical Driverless Car Imagines Transportation in 2059

Medical Examiner

Did America Get Fat by Drinking Diet Soda?  

A high-profile study points the finger at artificial sweeteners.

The Afghan Town With a Legitimately Good Tourism Pitch

A Futurama Writer on How the Vietnam War Shaped the Series

  News & Politics
Photography
Sept. 21 2014 11:34 PM People’s Climate March in Photos Hundreds of thousands of marchers took to the streets of NYC in the largest climate rally in history.
  Business
Business Insider
Sept. 20 2014 6:30 AM The Man Making Bill Gates Richer
  Life
Quora
Sept. 20 2014 7:27 AM How Do Plants Grow Aboard the International Space Station?
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Tv Club
Sept. 21 2014 1:15 PM The Slate Doctor Who Podcast: Episode 5  A spoiler-filled discussion of "Time Heist."
  Arts
Television
Sept. 21 2014 9:00 PM Attractive People Being Funny While Doing Amusing and Sometimes Romantic Things Don’t dismiss it. Friends was a truly great show.
  Technology
Future Tense
Sept. 21 2014 11:38 PM “Welcome to the War of Tomorrow” How Futurama’s writers depicted asymmetrical warfare.
  Health & Science
The Good Word
Sept. 21 2014 11:44 PM Does This Name Make Me Sound High-Fat? Why it just seems so right to call a cracker “Cheez-It.”
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.