The hubris of bankers which caused the Great Recession of 2008 inspired Bitcoin’s creation in 2009. Lest anyone doubt, Satoshi Nakamoto permanently inscribed a headline about bank bailouts into Bitcoin’s genesis block. Now, a new exposé by Andy Verity reveals never-before-seen quotes of bankers as they manipulated and lied about collusion in setting the London Inter-Bank Offered Rate (LIBOR).
LIBOR was once the most important interest rate in the world. For decades, it contended with the US Federal Funds Rate as the world’s primary benchmark for short-term interest rates.
Due in part to allegations of price-fixing and collusion, UK regulators began phasing out LIBOR in 2021 in favor of a new interest rate called Secured Overnight Financing Rate (SOFR).
LIBOR collusion by the most powerful central bankers
In his new book Rigged, Verity describes how US banks lied to other banks about the subprime loans they were selling. On the UK side, Verity provides evidence of bankers colluding to price-fix the interest rate they charged other bankers for loans during the Great Recession.
According to Verity, the Bank of England, the European Central Bank, three European national central banks, and the Federal Reserve Bank of New York conspired to rig LIBOR and the European Union’s equivalent interest rate, Euribor. Rigged also describes the UK government’s extreme pressure on bankers that led to LIBOR collusion.
According to Verity, Barclays was at the center of the scandal with its refusal to lower LIBOR. A deputy governor named Paul Tucker had warned Barclay’s officials that the matter was going to earn attention from the UK government. However, it took going over a senior manager’s head and making several phone calls to get results.
Barclays dropped its LIBOR rate by 60 basis points but remained at the high end for interbank loan interest rates. The bank’s employees had expressed concern about the real cost of loans but made the cuts anyway. Banking officials such as Peter Johnson were later implicated in a LIBOR-fixing scandal.
Serialized by the same newspaper that Satoshi Nakamoto read
Verity secured the backing of a publisher, The Times, for his exposé. The Times serialized Rigged for publication in daily installments and describes the LIBOR collusion scheme as “state-led.” Verity alleges that jurists in smaller interest rate-fixing cases never saw evidence of central bankers’ and government officials’ involvement.
The Bank of England, UK Financial Conduct Authority, and European Central Bank told The Times they told the full truth during ethics probes. They also claim they acted within the law. The Bank of England vehemently denied most of Verity’s allegations.
Bitcoin disintermediates third parties like banks
Longtime Bitcoin community members remember that Satoshi Nakamoto quoted a headline from The Times: “Chancellor on brink of second bailout for banks.” Nakamoto criticized the mainstream banking system.
Bitcoiners have always criticized credit bubbles, the weaknesses of fractional reserve banking, and their repeated debasement of fiat currencies. Nakamoto emphasized that the current financial system required too much trust of third parties who had not earned that trust.
Bitcoin is supposed to disintermediate trusted third parties altogether. Bitcoin’s whitepaper contains more than a dozen references to removing trust in any financial entity or authority. Decentralization is Bitcoin’s most important attribute.
Andy Verity’s new book, Rigged, accuses the world’s most powerful central bankers of LIBOR collusion, price-fixing, and lying about methods for setting the global benchmark for short-term interest rates. Their behavior affected trillions of dollars worth of interbank loans. This newly unveiled LIBOR-fixing scandal is yet another outgrowth of the Great Recession.