Thursday, January 3, 2013
The Libor scandal and antitrust
Why is antitrust barely a blip on the radar of the Libor interest rate scandal? If the government has the facts, then the defendants engaged in a per se unlawful conspiracy to rig the interest rates. While there is some private treble damage litigation, apparently the Antitrust Division had nothing to do with the investigation or the settlement. What am I missing?
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Okay, so I probably shouldn't weigh in here. It has been a long time since I've taught antitrust, but here goes . . .
ReplyDeleteLIBOR was kept artificially low. This is still price fixing, but on the borrowing side there's no harm. Indeed prices were kept artificially low. The banks were lying about their cost of capital and risk levels. This led to mispricing of their securities which is more in the bailiwick of the bank and securities regulators. I'm not saying Antitrust could not have had a role, but one can imagine reasons why they might have preferred to let other regulators take the lead.
I dearly wish I had been following this more closely. I'm embarrassed I could not have said this was maximum rather than minimum price fixing. Ted's response is very pragmatic. Ted also correctly recognizes that doctrinally it doesn't make a difference, though practically it is an important difference.
ReplyDeleteAntitrust has not done enough with conduct best called market manipulation, which has all of the economic consequences of price fixing or monopoly exploitation but is less well understood. I like Ted's explanation of the practical reasons why that is so, but I believe the more flexible antitrust toolkit offers a better institutional fit than does proscriptive regulation under securities laws.
Appreciate the comments. I understand the problems with the private damages case particularly where rates were artificially lower (although borrowers would have lost profits as a result), but this is all the more reason for a Government case which doesn't require proof of loss, just the anticompetitive agreement itself.
ReplyDeleteIs there some implied immunity ala Credit Suisse that we have to worry about?
This provides unfortunate and unnecessary fodder for those who think antitrust is a toothless tiger. Just like the Google "settlement" this morning.