I'd argue that there were three.
The first, and unquestionably illegal, was what Tom Hayes did i.e. collusion between actors at multiple banks to move Libor. I don't think he should have got the sentence he did but prison was definitely justified.
The second was swaps traders getting their own setters to go in high or low. I'm not at all sure this was illegal. Given that Libor was completely broken at the time, I'm not even sure I'd argue that it was unethical. As there was, essentially, no uncollateralised inter-bank borrowing, any figure was wrong. And, as you say, the effect was minor and not particularly directional.
I think your second point, the systemic low balling of Libor by senior management, is, by far, the most important. It's also the one that has had the least public attention. What is particularly problematic about it is the influence that governments had. Because of the latter, I'm sure that it won't ever be properly investigated.
On the low balling, interestingly I am not sure the impact on the market was nefarious. It was certainly material but I do not believe that when borrowers and lenders referenced Libor in their loan contract, they really meant to index their interest rate paid on the 3 month credit risk of a bank. I think they did on the assumption that large international banks had near zero credit risk for 3 months borrowing (which was true until 2007) and that Libor was a convenient way to measure a 3 month risk free rate on top of which they would add a credit risk margin. When Libor started shooting up in 2008, it was not because of the general levels of interest rates (central banks were slashing interest rates at the same time) but because of bank credit risk. So though contractually borrowers should have paid a higher interest rate during that period, the low balling probably had the effect to make the interest rate closer than what borrowers and lenders probably intended when they referenced Libor in their contract.
The difference is that collusion between banks is cartel price fixing and is very illegal. The majority of reported cases of traders requesting rate moves did not fall into this category unlike the Hayes case.
For the cases where the traders were just asking their own setters to move the rate, there was no collusion. They work for the same company and not even in separate, Chinese walled departments.
Also, in the intra-bank cases, I don't recall seeing any where the setters were actually breaking BBA rules. The problem was that the rules were meaningless when there was no uncollateralised borrowing.
> I am not sure the impact on the market was nefarious
You're making a lot of assumptions. What is clear is that the interventions were material and directional. And that would have had an effect on both institutional and retail customers. That's usually the time when regulators get all medieval.
There was a move towards collateralised transactions so the overnight rates become more important for funding than the unsecured rates.
Whether it's "legal" or not is almost beside the point; it's not going to be punished. And it took place in a (hopefully) completely unique scenario, so hopefully there's little risk of moral hazard.
2. Swap traders influencing their own banks Libor.
3. Banks fixing their Libor contribution to mis-represent the health of their business (possibly egged on by a government that doesn't want banks to fail)
It was well written and very interesting if folks are more interested in the folks involved and how all of this went down and their personalities etc.
IMHO prison is never justified for people that pose no physical danger to others. A reasonably big (as big as he can actually afford) fine and ban on working on government and financial positions could be enough.
That's not what was suggested. What was suggested was "as big as he can actually afford and a ban on working on government and financial positions".
That's called "punitive damages" when they scale to what the criminal can bear, rather than what damage they caused.
I do think these criminals would care about losing _most_ of their money and being barred from working in their field.
Implicit in your comment is that these people have a network that will make them whole no matter what.
A) That’s only true for the very top.
B) Even if they are made whole, the more times the network has to “make someone whole” it gets harder to justify the criminality. Over time the network will start leaving people out to dry.
Also, your comment is unnecessarily dismissive. Your position is valid, you can just state it without trying to insult my intelligence and we can carry on a conversation.
For this person, I think I could support just a fine and a ban on working in the finance industry. I think it's likely he regrets what he did, and is unlikely to cause further harm to society. But there are people like Bernie Madoff (and people who only aspire to be as big a scammer as Madoff) who I think pose a continued, further harm to society.
This is no punishment at all.
> What makes you think there would be more money than what the scammer took?
They probably had something before they have committed the scam and they also might have been getting their fancy salary during the scam too...
Unsure what the legal justification is though
Replace the ellipsis with almost any organization - theocracies on down.
I maintain that this feature is the real purpose of all human organizations. With some dither for the smallest.
I'm really curious what you mean by that. Is it just that they bring good money, or why don't you get rid of them?
Problem, the portfolio of subprime RMBS consists in a lot of small transactions, which don't necessarily have an active market, and that led to disputes between the protection seller and the protection buyer on what the CDS contract was really worth (you can't translate 1 for 1 a rise in delinquencies - % of subprime borrowers ceasing to make payments on their mortgages - and the ultimate loss suffered on the portfolio of mortgages after the property has been foreclosed and sold several months/years later). It mattered not just because the other party would have to post more collateral, but also because the other party would have to mark a loss if the agreed value was less than what it marked the position for in its books and records.
One thing to understand is that there was not one but two distinct manipulations of Libor.
The first is the one this article refers to, which is before the financial crisis, swap traders influencing the libor submitters to move their contribution to the fixing by a tiny amount, often a couple of basis points, to fit the massive future positions they were sitting on. Completely unethical and illegal but unlikely to have any noticable effect on the market, kind of like stealing a penny from a million bank accounts. It’s still stealing, but the impact on the market is limited.
The second manipulation was of a different nature. It is at the height of the financial crisis, when banks were failing as a result of bank runs every week, libor submitters, probably under instruction / tacit consent from their management and regulators, low balled their contribution to the libor fixing to not appear to be struggling to fund themselves (by having a high cost of borrowing) since these contributions were public and investors were trying to infer what bank was next to fail. These low balling were probably in the 50-300 basis point range, ie with a material impact on the wider maket (borrowers should have paid significantly higher interest rates during that period). And this is the one whistle blowers complained to regulators about, falling into deaf ears.