Skepticism of Experts and the End of Libor

For decades, the public generally placed its trust in technocrats, the people perceived to be skillful and knowledgeable managers of economically and politically important institutions (including banks). The thinking was that aspects of the economy and politics had become too complex for ordinary citizens to understand and that the best way to handle this complexity was to allow the experts to take over. The events of 2008 – 09 shattered that belief.
Its demise has swept away some of the old ways, and the next casualty is Libor, the London Interbank Offer Rate. This is the benchmark interest rate that many of the largest banks in the world charge one another for loans. It underlies an estimated $350 trillion in debt and debt-related derivatives worldwide, including everything from mortgages to corporate loans to student debt.
In July, the Financial Conduct Authority, which regulates Libor, announced that the rate would be phased out over the next four years, ending in 2021. It’s unclear what will replace it, but whatever it is won’t be as easy for bankers to manipulate.
Nearly a decade later, the 2008 – 09 financial crisis is still reverberating through the system, demanding the attention of regulators and affecting the global political environment. It is for this reason that the true impact of the crisis can’t be understood in purely economic terms.

This post was published at Mauldin Economics on AUGUST 28, 2017.