Click here to advertise on CatholicCulture.org

Public Trust and the Libor Scandal

By Dr. Jeff Mirus (bio - articles - email) | Aug 27, 2012

Now that Barclays (the second largest bank in Britain) has admitted that it routinely rigged the London InterBank Offered Rate (Libor), the condemnations are starting to pour in. Libor determines the price of $800 trillion in financial instruments, affecting the prices of such common things as adjustable rate mortgages and student loans. Barclays manipulated the rate to increase profits, with (apparently) the tacit approval of regulators, and probably in conjunction with many other large banks.

The comment I like best is the editorial in London’s Financial Times, which notes that few scandals have “shone such an unsparing light on the rotten heart of the financial system” which has enabled “nothing less than a long-running confidence trick played on the public.” Moreover, the editors are shocked—shocked!—at the “casual way in which this con was perpetrated.” They conclude that banking’s culture of recklessness cannot be fixed through regulation (“rule tweaks”). Instead, there needs to be a wholesale change of culture to keep the industry from permanently losing its last ounce of public trust.

It is a little strange, but it seems that Pope Benedict XVI made this same point over three years ago, in his landmark social encyclical Caritas in Veritate:

[T]he social doctrine of the Church has unceasingly highlighted the importance of distributive justice and social justice for the market economy, not only because it belongs within a broader social and political context, but also because of the wider network of relations within which it operates. In fact, if the market is governed solely by the principle of the equivalence in value of exchanged goods, it cannot produce the social cohesion that it requires in order to function well. Without internal forms of solidarity and mutual trust, the market cannot completely fulfil its proper economic function. And today it is this trust which has ceased to exist, and the loss of trust is a grave loss. (#35)

It turns out that the most important ingredient in all human systems is morality.

An appeal from our founder, Dr. Jeffrey Mirus:

Dear reader: If you found the information on this page helpful in your pursuit of a better Catholic life, please support our work with a donation. Your donation will help us reach seven million Truth-seeking readers worldwide this year. Thank you!

Progress toward our July expenses ($18,961 to go):
$35,000.00 $16,039.29
54% 46%
Sound Off! CatholicCulture.org supporters weigh in.

All comments are moderated. To lighten our editing burden, only current donors are allowed to Sound Off. If you are a donor, log in to see the comment form; otherwise please support our work, and Sound Off!

Show 2 Comments? (Hidden)Hide Comments
  • Posted by: djpeterson - Aug. 29, 2012 6:28 PM ET USA

    Last Fall, a group Vatican economic scholars issued a very relevant document calling for systematic reform. It speaks of the devastating role of “financial speculation” and “unlimited credit” which wrecked havoc on the “productive” economy. The authors say the world economy is so dominated by avarice and corruption that one can speak of an “ethical breakdown”. Unfortunately too many Catholic journals ignored or panned its wise recommendations.

  • Posted by: pja - Aug. 28, 2012 8:44 PM ET USA

    The LIBOR "scandal" is more nuanced than this article would indicate. The bigger lie involved the solvency of the banks themselves. Banks had bought upwards of US$1 trillion of so-called AAA bonds issued against subprime home mortgages, and levered them in off-balance-sheet gimmicks by 70 to 1. See http://www.atimes.com/atimes/Global_Economy/NG17Dj02.html, written by an Orthodox Jew who goes by "spengler". He used to head fixed income research at BOA and knows a bit about markets.

Subscribe for free
Click here to advertise on CatholicCulture.org

Recent Catholic Commentary

May God Bless our Readers! July 18
What's Wrong with the Pope's latest interview? July 15
What was wrong with the Pope's latest interview? A lot. July 15
Fool me once... July 14
Crowdfunding can change lives July 11

Top Catholic News

Most Important Stories of the Last 30 Days
Vatican issues working document for Synod of Bishops on the family CWN - June 26
New management, new changes coming for reformed Vatican bank CWN - July 8
Sweeping reforms to Vatican's media, financial operations CWN - July 9
‘Even Genghis Khan didn’t do this’: Mosul emptied of Christians CWN - 21 hours ago