Matt Taibbi and other Libor-Scandal exploiters, distracts us from correcting a much worse interest rate manipulation.

The regulators, for absolutely no reason at all, allowed banks to hold immensely less capital when lending to the “infallible”, among these some sovereigns and the AAA rated, than when lending to the “risky”, among these the small and medium businesses and entrepreneurs. 

That completely distorted the access of the real economy to bank credit, as well as the most important reference rate, the borrowing rates of the most solid sovereigns, usually the proxy for the risk-free rates. 

And that has signified an enormous tax, paid directly by all those bank borrowers perceived as “risky”, and indirectly by the society, by means of the many lost economic growth and job creation opportunities. 

For me the real cost of the society of that regulatory manipulation of bank capital, could be about a million times higher than all the costs for the society produced by the Libor rate manipulation 

I explain: one day the quoted Libor could be somewhat higher than its true rate, and on that day, Libor based borrowers would pay somewhat more, and investors earn somewhat more; other days the quoted Libor could be somewhat lower than its true value and the opposite would hold. But, in the long run, not much distortion was created and very few were really harmed. 

I certainly do not condone any Libor rate manipulation and those guilty of it should be punished with prison sentences which requires them having to pay for their own prison costs, but I do object to Matt Taibbi and other’s so scandalous agenda driven attacks on "Gangster Bankers", because that only distracts us from correcting a much worse interest rate manipulation.

PS. Matt Taibbi quotes MIT professor Andrew Lo saying that the Libor Scandal “dwarfs by orders of magnitude any financial scam in the history of markets.” If it is true he said that, then this professor has no idea of what he is talking about. If Professor Andrew Lo were to accept to debate the issue, he might do himself a favor by looking at the following material for a small quiz.

PS. Below two comments on Matt Taibbi’s article which I posted on the RollingStone web. 

1. Anyone capable of explaining the payoff in “The Biggest Price-Fixing Scandal Ever” being some “sushi rolls from yesterday”? 

2. The Libor Manipulation Scandal started because of the reporting of Libor rates which were lower than what they should have been... not higher... and so all borrowers who were on a Libor plus spread basis had to pay banks less interests. Can someone explain the irony of that?