Undo the maths

August 27th, 2012

Published on en.Le Monde Diplo, by Serge Halimi, August 2012, (translated from french by Barbara Wilson);

There’s a famous scene in Casablanca where the police chief, Captain Renault, arrives to close Rick’s cafe and announces: “I’m shocked, shocked to find that gambling is going on in here!” A croupier hands him a bundle of notes: “Your winnings, sir.” Renault pockets the cash and orders: “Everybody out at once!” (see the video of 0.19 min).

In the financial scandal surrounding the fraudulent fixing of the London Interbank Offered Rate (Libor), it is hard to see who is the corrupt policeman since there are so many likely candidates. Every day, 20 or so major financial establishments (Barclays, Deutsche Bank, HSBC, Bank of America, etc) fix the Libor.  

It serves as a benchmark rate for transactions totalling $800,000bn (no, that’s not a misprint), especially on the derivatives market. The sums are so enormous that they encourage the non-financial press to concentrate on more human-scale sins: parents on family allowances who let their children dodge school, Greek workers who supplement their low incomes with black market earnings. These are the people who incur the wrath of governments and the European Central Bank.

The manipulation of the Libor may appear to be complicated but it is as enlightening as the arrangements at Rick’s. The big banks sought to present their state of health in the best possible light to raise funds more cheaply, and since their word was generally trusted, they understated their borrowing rate year after year. The rate they declared determined the Libor and their own future borrowing rate. Bob Diamond, CEO of Barclays, who claimed to have felt “physically sick” when he “discovered” that his bank had been guilty of fraud, resigned on 3 July. The governor of the Bank of England, Mervyn King, also claimed that he only learned of the swindle a few weeks ago (1) … (full text).

Links:

Poverty Research Archive on Weitzenegger;

Visitors benefit monkeys more than people: Borneo’s ecotourism problem, on en.Le Monde Diplo, by Clotilde Luquiau, August 2012: The idea was to use tourism to protect Borneo’s remaining virgin jungle and its wildlife, and reward locals for abstaining from illegal logging. It isn’t working out quite that way …

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