The Libor scandal ripped off just about every person who held any kind of debt. And yet it's STILL barely known. When I got my mortgage I asked my banker agent what she thought about it. She had no clue what Libor was, let alone the scandal.
The more I've learned of the banking system, the more examples of this I see. It seems that much of the banking system was designed by bottom-line-oriented, non-systems-thinkers, who just wanted an immediate, good-enough solution to a problem. Accuracy, reproducibility, scalability, systemic integrity, and similar concerns often weren't a factor.
It evolved from a small system where the people all knew each other and went to the same few public schools where everything also ran on the honor system. It wasn't a bad design for its original scale & context. Those dumb bankers. We computer scientists would never design something that failed to scale through 5 decades.
I'd suggest that most of society still runs on the honor system (especially finance and law), it's just more abstracted away from interpersonal relationships than it used to be. The existence of things like encryption often deceives us hackers about what the real foundation is.
This was also my impression learning about it as I was starting to learn about global finance in high school. Even them it seemed ridiculous. I wonder how many more systems currently in place are based on such foolish promises and easily exploited foundations of trust.
Trust is central to the financial system, for better or worse. The whole thing is based on trust - whether it's trust in the person on the other end of the phone, trust in the big-name bank that person works for, or trust in that bank's regulator. This seems stupid to some tech people, who try to disrupt it by creating trustless systems such as distributed ledgers. But trust keeps on creeping back into the system. Th…
Why not Trust, but Verify? Why wasn't there a central set of individuals requiring documentation for self-reported rates and sanity-checking them? I agree that the chain eventually comes down to trust somewhere but it seems like central banking has really lacked the transparency and checks and balances a system needs to stay consistent and trustworthy externally.
When I first heard about LIBOR in 2002, I was surprised that the number is just based on a survey of bankers. Surely there would be accuracy issues with that? But at that time I was young and had no finance experience, so though that the adults in the room knew best. Turns out not! I don't think the base problem is that people shaded their numbers one way or another, it's that the system is designed wrong.
The more I've learned of the banking system, the more examples of this I see. It seems that much of the banking system was designed by bottom-line-oriented, non-systems-thinkers, who just wanted an immediate, good-enough solution to a problem. Accuracy, reproducibility, scalability, systemic integrity, and similar concerns often weren't a factor.
> Accuracy, reproducibility, scalability, systemic integrity, and similar concerns often weren't a factor.
Kind of funny, then, that banking was also the origin of the CQRS/ES paradigm.
The systems thinking is there — just not evenly distributed.
It evolved from a small system where the people all knew each other and went to the same few public schools where everything also ran on the honor system. It wasn't a bad design for its original scale & context. Those dumb bankers. We computer scientists would never design something that failed to scale through 5 decades.
I'd suggest that most of society still runs on the honor system (especially finance and law), it's just more abstracted away from interpersonal relationships than it used to be. The existence of things like encryption often deceives us hackers about what the real foundation is.
Every day when I pass through the lobby of my apartment building, I think about the fact that our lettermail gets locked up tight in individually-keyed mailboxes, but — due to our building not being "large enough to qualify" for a parcel dropbox — large high-value parcels instead just get left lying on the lobby floor beside the mailboxes, with the matter of not stealing other people's parcels left entirely up to the honor system. (And yes, this is the same lobby that arbitrary guests will walk through to the elevator if buzzed in by any tenant who hears the word "Amazon" muttered vaguely through their phone.)
Of course, the locks of those individually-keyed mailboxes are also probably rakeable or bumpable or some other two-second attack. But at least that deters people who never bothered to look into how locks work.
When I first heard about LIBOR in 2002, I was surprised that the number is just based on a survey of bankers. Surely there would be accuracy issues with that? But at that time I was young and had no finance experience, so though that the adults in the room knew best. Turns out not! I don't think the base problem is that people shaded their numbers one way or another, it's that the system is designed wrong.
The big secret you learn about central banking pretty early in adulthood is that “we” (society) is still figuring it out, tweaking it, and making it up as we go, and it’s not so old as to have this huge body of proven method that we’re all led to think it does. The systems are brittle, prone to manipulation, and every once in a while we manage to avert a crisis and keep from going completely off the rails. It’s not a bad endeavor, but it’s nowhere near the level of perfection and stability that like to imagine.
I'd suggest that most of society still runs on the honor system (especially finance and law), it's just more abstracted away from interpersonal relationships than it used to be. The existence of things like encryption often deceives us hackers about what the real foundation is.
Every day when I pass through the lobby of my apartment building, I think about the fact that our lettermail gets locked up tight in individually-keyed mailboxes, but — due to our building not being "large enough to qualify" for a parcel dropbox — large high-value parcels instead just get left lying on the lobby floor beside the mailboxes, with the matter of not stealing other people's parcels left entirely up to the…
A parcel is almost certainly replaceable stuff. A personal letter could be something like a passport or birth certificate or bearer bond.
The Libor scandal ripped off just about every person who held any kind of debt. And yet it's STILL barely known. When I got my mortgage I asked my banker agent what she thought about it. She had no clue what Libor was, let alone the scandal.
The scandal mostly meant that mortgage rates were lower than they should have been, so it's hard to get regular people angry about it.
When I worked in investment banking, all our debt models were pegged to LIBOR. Rest In Peace! God bless the IB analysts scrambling to plug their models with replacement rates and weird hardcodes!
So - considering that LIBOR was not an observed number, but a made-up number that was nonetheless useful, what did the LIBOR actually measure?
It measured the consensus for what LIBOR should be, a rate that the banks as a whole were happy to use. Your question is a bit like asking what dollars are actually worth how that we've left the gold standard.