First Lehman, then all the other intervening events of the last four years and now Libor and Barclays; can there be any shoes left to drop in the financial world?
In late 2007 early 2008 there were two financial stalwarts Chase/J.P. Morgan and Barclays. Last month Chase had the so-called whale problem and now Barclays is accused of fixing LIBOR; the underlying interest rate that much of the world's business community uses to base borrowing and lending. LIBOR rates are set daily by a panel of the world's leading banks in London. It is suppose to represent especially the three month dollar LIBOR rate (the most important one), what a bank would pay to borrow dollars for three months from other banks on the date that rate is set.
The LIBOR problem unlike the problem at Chase has significant global, financial and political ramifications. In some sense there is a historic feeling to it almost a "Let them eat cake moment". A sense that after all the problems of 2007/2008 global financial institutions still do not need to worry about rigging the game to their benefit. In many ways the alleged fixing of LIBOR is more damaging then the mortgage/housing crisis of 2007. Banking is based on credibility and trust, and when that credibility is shaken at one of its core points the system is in danger.
Politically here in the United States, if, and more likely when, the LIBOR scandal touches the major U.S. banking institutions by definition it will becomes a major problem for the Romney campaign. How do you run against government regulation when non-regulation has the possibility of bringing the system down? How do you run as the candidate against Dodd-Frank when it now appears that Dodd- Frank only protects against the tip of the iceberg? And certainly how can you blame government for creating lack of confidence in the business community when as we see, as in 2007, it is the unregulated business community itself that is generating a lack of confidence.
It would be an interesting strategy for Romney to get a head of this problem by issuing a statement that in the Romney Administration, all business that touches the United States must play by the rules. Unfortunately, the current version of Mitt Romney appears to be more trust as in 1900s financial term then trust buster.