Libor, Damn Libor, And Statistics, Part 2

The Libor manipulation scandal surrounding some of the world's biggest banks is obviously pretty huge, and the banks are now scrambling for a settlement, much cheaper than the tens of billions or more it would cost them to go to court.

Such discussions are preliminary, and it is unclear if regulators will enter these talks, aimed at resolving allegations that banks attempted to manipulate the London interbank offered rate, or Libor, a benchmark that underpins hundreds of trillions of dollars in contracts.

Still, there are powerful incentives for the banks to enter joint negotiations.

Barclays Plc was the first to settle with U.S. and British regulators, paying a $453 million penalty and admitting to its role in a deal announced June 27. Its chief executive, Bob Diamond, abruptly quit the next week, bowing to public pressure and erosion of the bank's reputation.

The sources told Reuters that none of the banks involved now want to be second in line for fear that they will get similarly hostile treatment from politicians and the public. Bank discussions about a group settlement initially took place before the Barclays agreement, and picked back up in the aftermath.

It is unclear which banks are involved in the potential settlement talks. More than a dozen banks are being investigated in the scandal, including Citigroup, HSBC, Deutsche Bank and JPMorgan Chase. They all declined to comment.

Of course they declined to comment.  Nobody likes to speak ill of the dead when you're on death row yourself.

Very few banks came out of the financial crisis looking good. But JPMorgan and Barclays were in that elite club. Their apparent rectitude raised the possibility — as JPMorgan CEO Jamie Dimon said over and over again — that what we’d had were a few bad banks, not a hopelessly corrupted financial system. Fast forward a couple of years, and JPMorgan and Barclays are not looking so good anymore. And the particular way in which they’re not looking so good points to the fact that we did, indeed, have a hopelessly corrupted financial system.

If you haven’t been following the Libor scandal, read Dylan Matthews’ great primer. But if you refuse to do even that, here it is in a few sentences: Libor is the rate at which banks lend to each other. It’s considered a measure of how safe the financial system is. As such, many banks use it as a benchmark to set the rate on the consumer debt you and I buy — they start with the Libor rate and then they add on whatever they think our risk is. But there’s something odd about Libor: It’s a rate the banks report themselves. And, in recent weeks, we’ve found out Barclays was lying about it.

Going to go fast from here, I suspect.