Battered Person Syndrome
In clinical practice “battered person syndrome” is a legitimate condition which warrants psychotherapeutic intervention. Martin Seligman’s “learned helplessness theory” underscores the psychological structure of this syndrome which contends that people have a perceived absence of control over the outcome of a situation. Most shareholders and most investors are not empowered. The Shareholder Activist’s core mission is to be the source for investor empowerment.
The London Interbank Offered Rate is the average interest rate calculated by leading London banks that they would be charged by borrowing from other banks, borrowing from within a kind of “closed system.” It is critically important because it’s a benchmark for short term interest rates throughout the world. LIBOR rates are calculated for 10 currencies, and 15 borrowing periods from overnight up to one year. It is a quick, mad kind of market which has direct implications for many millions of “borrowers.” Nearly $10 trillion in loans to consumers and small banks are tied to the Libor rate, including but not limited to credit cards, student loans, and adjustable mortgages.
The Libor Scandal
Apparently Barclays, a major London bank which provided daily rate data, manipulated its submissions from 2005 through 2009. Barclays is not alone; other banks are being investigated for artificial Libor rate calculations. Huge numbers of ARM loans are tied to the Libor. If the rates are manipulated, even in seemingly miniscule ways, the exponential damage is gigantic.
Warren Buffet’s Take
Mr. Buffet’s contention is that the Libor scandal is a global phenomenon. Recently, Buffet told CNBC “Squawk Box” host Becky Quick: “You get Libor, and you’re talking the whole world…everything is tied to it [Libor]…the idea that a bunch of traders can start e-mailing each other or phoning each other and play around with that rate is an important thing, and it is not good for the system.” Shades of systemic corruption. Sixteen banks are now under investigation including “hometown brands” like Bank of America, JPMorgan Chase, and Citibank.
Enter Secretary of the Treasury Timothy F. Geithner
Mr. Geithner, while serving as President of the New York Federal Reserve Bank in 2008, took British regulators to task to reform the Libor benchmark. He wrote to the head of the Bank of England and outlined recommendations. What impact Geithner had is at this juncture unclear. Ideally the whole story will unfold.
Money & Trust
From this writer’s perspective, once again, these are the two most important 5 letter words in the English language. We need money to survive, and we need trust to thrive and feel whole. How the Libor scandal “develops,” and what new data evolves will emerge accordingly, and over time. The time tested dilemma seems to endure in perpetuity: “Is the love of money the root of all evil [Biblical interpretation], or is the lack of money the root of all evil [Geo .Bernard Shaw]?”
Shareholders must empower themselves and seize the day. Passivity will only “enable” the madness on the Street. What this all, ultimately, has to do with is confidence and faith. We must be able to believe in established, trustworthy institutions that are literally true blue period. There are no “shades of grey” here. Shareholders and investors must have a voice, and the courage to exercise it. and to stand up for what they think and feel. And challenge “authority” as it’s presented on “paper.” We live in a financial world that is riddled with deception and subterfuge whether we like it or not. Shareholders and investors must be willing and able to ask the hard questions, and get a warranty of satisfaction so they are not exploited and manipulated by Libor or any other financial mechanism/product, or the corporations they own conjointly with management and employee.
To contact Christopher Bayer directly, please email Christopher.Bayer@TheShareholderActivist.com.