Barclays, LIBOR and Recycled Fiber Prices.
The scandal which has broken out over LIBOR (London Inter Bank Offering Rate) has the potential to be the worst piece of financial news in the past five years, and that is really saying something. Problems with LIBOR were hinted at as early as the spring of 2008, but no one paid attention. However the scandal that has burst on the scene in the past couple of weeks may yet bring down Barclays, a bank over three hundred years old.
The LIBOR is used to set the interest rates of almost every financial instrument around the world. For financial rate setting in commercial loans, the LIBOR has been used because it has been the only universally published rate available. It was assumed to be reasonably accurate. Now, we find it is full of falsehoods.
It reminds me of the situation in our own industry with prices for recycled fiber. Here at Paperitalo Publications we have complained about published prices for years. The problem with them, just like with LIBOR, is that they are set in private. Hence, they are subject to manipulation and there have been almost continuous rumors of manipulation since recycled fiber hit the mainstream in the late 1980s.
Both the LIBOR and Recycled Fiber prices suffer from the same thing -- lack of transparency. Fixing the transparency problem seems elusive but is vital if business is to be conducted in a healthy way. It all boils down to trust.