Catholic Culture Solidarity
Catholic Culture Solidarity

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.

Jeffrey Mirus holds a Ph.D. in intellectual history from Princeton University. A co-founder of Christendom College, he also pioneered Catholic Internet services. He is the founder of Trinity Communications and See full bio.

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  • Posted by: feedback - Sep. 12, 2018 10:20 AM ET USA

    Quote: "There's an unhappy tendency, in clerical circles, to make a public statement and then, realizing that statement was infelicitous, to insist that the words don’t mean.... what the words obviously mean." The tendency seems growing but it really has to stop! It makes the involved bishops look like Three-card Monte con artists. Just let your 'Yes' be 'Yes,' and your 'No,' 'No.'

  • 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, written by an Orthodox Jew who goes by "spengler". He used to head fixed income research at BOA and knows a bit about markets.