Rebirth of England

In Barron's previous life, Barclays Bank faced a total fine of more than $450 million for alleged manipulation of LIBOR.

UBS Group and Royal Bank of Scotland Group were also fined more than $2.5 billion by British and American regulators for manipulating interest rates. More than a dozen financial institutions around the world were investigated for manipulating LIBOR and eventually received sky-high fines.

But the consequences were far more than that. In the end, the British Banking Association was deprived of the responsibility of formulating and supervising LIBOR, and the British government re-selected the "new owner" to control LIBOR.

At that time, the competition for the right to formulate LIBOR included the London Stock Exchange and Reuters Group. In the end, NYSE Euronext, the parent company of the New York Stock Exchange, acquired BBA Libor Ltd, the operator of the London Interbank Offered Rate (Libor), from the British Bankers Association for a symbolic price of 1 pound.

The reason behind this, if there is no pressure from the US government, I am afraid no one will believe it.

After all, the competition for the right to formulate LIBOR is actually a battle for financial pricing power and discourse power.

In fact, as early as last year, Geithner, president of the Federal Reserve Bank of New York, proposed six suggestions to the governor of the Bank of England to improve the LIBOR mechanism. The core of the suggestions is to strengthen the voice and pricing power of American banks on LIBOR.

Geithner's six suggestions include strongly demanding that more American banks be allowed to join the pricing mechanism; adding a new LIBOR interest rate variety specifically for the American money market; and eliminating the motivation of bank manipulation and misreporting as much as possible. The key is to increase the number of banks participating in pricing, especially American banks.

However, the British side directly rejected these proposals at the time.

Baron knew that the Federal Reserve was well aware of the many problems with the LIBOR mechanism, but deliberately held back, waiting for the best time to act.

After all, the Federal Reserve has always been dissatisfied with the British Banking Association and the British Commercial Bank's long-term dominance of the mechanism. It has repeatedly strongly demanded that the pricing power and voice of American commercial banks be increased, but the Bank of England has always ignored it.

Until three years later, the reputation of the British banking industry was destroyed by the LIBOR manipulation scandal, and the fairness and effectiveness of LIBOR were generally doubted. The Federal Reserve immediately seized the opportunity and quickly proposed to replace it with a new benchmark interest rate.

In other words, before the LIBOR manipulation scandal broke out, and even earlier, the British government, including Chancellor of the Exchequer Darling, had already heard about the British Banking Association's manipulation of LIBOR.

There are many reasons why they have not made any response or conducted any investigation.

First of all, Darling and others underestimated the severity of these big banks' manipulation of LIBOR. This needs no further explanation. After all, before the subprime mortgage crisis, perhaps these banks did not manipulate LIBOR on a large scale, and at most it was just a tacit understanding between some traders.

But after the outbreak of the subprime mortgage crisis, due to large-scale losses in investment and liquidity crisis within the bank, in order to increase profits and make their own banks perform better in the eyes of the outside world, this manipulation of LIBOR will become more and more intense - otherwise, the United States would not have to wait until 2012 to start the scandal.

In addition, the more important task of the relevant financial regulatory authorities in the UK is to ensure the stability of its banking industry - for this reason, they even do not hesitate to take action against the media reporting on it, and temporarily ignore the "small matter" of possible manipulation of LIBOR.

And in Darling's view, perhaps these banks' small manipulation of LIBOR is also forced, after all, they need to ensure everyone's confidence in the banking industry. Under such a mentality, they also have reasons to indulge a little.

Finally, it involves the Federal Reserve - the United States has always wanted to increase or even completely control the formulation and supervision of LIBOR. How could the British side not know these thoughts?

Darling, who believed that the British Banking Association's manipulation of LIBOR was just a small violation of the line before conducting a thorough investigation, naturally did not want to hand the Fed a knife and give them a reason to get involved because of "self-exposure" at this time...

But Barron knew that the severity of this matter was not something that the British side could cover up by not pursuing it. No one understood that it might be just an experimental "manipulation" at first, but after tasting the sweetness, how could the bankers keep the bottom line?

Here we have to bring out the classic argument in "Das Kapital":

If capital has a 50% profit, it will take risks; if it has a 100% profit, it will dare to trample on all human laws; if it has a 300% profit, it will dare to commit any crime, even the risk of being hanged...

Especially under intentional or unintentional connivance, the Banking Association's manipulation of LIBOR will become more and more excessive until the Federal Reserve takes the initiative to expose it.

By that time, the consequences for the UK had already been seen in Barron’s previous life…

Not only did the credibility of the Banking Association and those big banks among the people collapse, but the United States also took away the right to set LIBOR from the UK.

What happens when the pricing power and even the regulatory power of LIBOR are controlled by the United States?

This means that the importance of Britain in the global financial system is greatly reduced, and then the status of London as a financial center begins to decline.

This is naturally not in Barron's interest, which is why he raised this matter to Darling and hoped that the financial regulatory authorities in Britain would intervene.

After all, although LIBOR is issued by Reuters Group, Standard Chartered-Merrill Lynch will not profit from the formulation of LIBOR - at least not directly.

And if this continues, their interests will be damaged in the long run.

It is better to die than to die as a tour guide.

And if Britain takes the initiative to correct this, it will not reach the level of "die poor".

Anyway, at least institutions such as Barclays Bank, UBS and Bank of Scotland will not receive sky-high fines like in his previous life. This can be regarded as Barron's deep love...

After Barron stated the pros and cons, Darling's expression turned serious and he said:

"If this is really the case, Your Highness, we will intervene..."

After a pause, he continued:

"In the most appropriate way, but before that, we will conduct a comprehensive investigation."

"You should know, sir, in fact, this will not involve any interests for me, but for the position of our Britain in the financial industry, I have to come forward to promote this matter..."

"Thank you, Your Highness, you are a true patriot."