Libor manipulation doesn't necessarily mean Libor lies

Reducing the rates at which you loan is the good sort of manipulation

Yesterday afternoon, Ric Holden (the Conservative Party's press officer) tweeted this quote, apparently from the 8 November 2008 edition of the Daily Express:

Chancellor Alistair Darling summoned bank chiefs to an emergency meeting yesterday before reading them the riot act. Just hours later the banking industry reacted by slashing the Libor - the rate at which banks lend to one another.

It certainly sounds like it plays into the narrative that Labour directly encouraged Barclays to lie about the rate at which it thought it could borrow. But there's an important distinction between the communication between Paul Tucker and Bob Diamond (or rather, Jerry del Missier's apparent misinterpretation of their communication) and the meeting of Darling and the bank chiefs, which is that the latter is plural.

Remember that Libor is the rate at which banks believe they can borrow large sums of money, unsecured, from other banks. There are two ways to artificially reduce that number. One is to encourage the banks to lie about the rate they think they could pay for borrowing; this is what del Missier believed Paul Tucker had done.

The other is to encourage the banks to lend to each other at lower rates. That's not manipulating Libor, although it is, of course, manipulating other aspects of the finance system. It's something you can only do if you have the ear of all the banks, though; if Barclays unilaterally decides to loan to other banks for less, all that happens is they lose money. But if all the banks do that, then interbank lending rates drop.

The Telegraph's Andrew Lilico points out today that that may even be what Paul Tucker was talking about in his "no particular reason why Barclays should be borrowing at such a high rate" comment:

Take this as an example. The Bank of England, if it found that one of the banks – let us call it B Bank – were finding it harder to borrow money than the rest, might have a chat with B Bank to see why. It might reassure senior officials in B Bank that it still regarded B Bank as sound. It might even tell those officials that it would have a chat with other banks to reassure them as well. It might also feel that other banks were sufficiently sound that it would be prepared to provide last resort lending to them. The upshot of B Bank being sound and other banks being able to obtain cash from the Bank of England if necessary might be that other banks should feel able to lend money to B Bank at interbank rates not wildly dissimilar to the rates those other banks lend to each other. A perfectly natural way to convey this, perfectly proper, intention by the central bank to reassure other banks about B Bank might be to say that the Bank of England saw no particular reason why B Bank should always be borrowing at the most expensive rate.

Of course, there is a lesser question here, which is whether we should be using Daily Express reports for any type of historical record. Here are the various dollar Libor rates (from overnight to 12 month) for the two months surrounding the reported meeting, with the black line marking when it apparently occurred (click, as ever, for big):

That doesn't seem like a suspicious drop. Or really a suspicious anything.

Alistair Darling: the Brows are Back, Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Inside a shaken city: "I just want to be anywhere that’s not Manchester”

The morning after the bombing of the Manchester Arena has left the city's residents jumpy.

On Tuesday morning, the streets in Manchester city centre were eerily silent.

The commuter hub of Victoria Station - which backs onto the arena - was closed as police combed the area for clues, and despite Mayor Andy Burnham’s line of "business as usual", it looked like people were staying away.

Manchester Arena is the second largest indoor concert venue in Europe. With a capacity crowd of 18,000, on Monday night the venue was packed with young people from around the country - at least 22 of whom will never come home. At around 10.33pm, a suicide bomber detonated his device near the exit. Among the dead was an eight-year-old girl. Many more victims remain in hospital. 

Those Mancunians who were not alerted by the sirens woke to the news of their city's worst terrorist attack. Still, as the day went on, the city’s hubbub soon returned and, by lunchtime, there were shoppers and workers milling around Exchange Square and the town hall.

Tourists snapped images of the Albert Square building in the sunshine, and some even asked police for photographs like any other day.

But throughout the morning there were rumours and speculation about further incidents - the Arndale Centre was closed for a period after 11.40am while swathes of police descended, shutting off the main city centre thoroughfare of Market Street.

Corporation Street - closed off at Exchange Square - was at the centre of the city’s IRA blast. A postbox which survived the 1996 bombing stood in the foreground while officers stood guard, police tape fluttering around cordoned-off spaces.

It’s true that the streets of Manchester have known horror before, but not like this.

I spoke to students Beth and Melissa who were in the bustling centre when they saw people running from two different directions.

They vanished and ducked into River Island, when an alert came over the tannoy, and a staff member herded them through the back door onto the street.

“There were so many police stood outside the Arndale, it was so frightening,” Melissa told me.

“We thought it will be fine, it’ll be safe after last night. There were police everywhere walking in, and we felt like it would be fine.”

Beth said that they had planned a day of shopping, and weren’t put off by the attack.

“We heard about the arena this morning but we decided to come into the city, we were watching it all these morning, but you can’t let this stop you.”

They remembered the 1996 Arndale bombing, but added: “we were too young to really understand”.

And even now they’re older, they still did not really understand what had happened to the city.

“Theres nowhere to go, where’s safe? I just want to go home,” Melissa said. “I just want to be anywhere that’s not Manchester.”

Manchester has seen this sort of thing before - but so long ago that the stunned city dwellers are at a loss. In a city which feels under siege, no one is quite sure how anyone can keep us safe from an unknown threat

“We saw armed police on the streets - there were loads just then," Melissa said. "I trust them to keep us safe.”

But other observers were less comforted by the sign of firearms.

Ben, who I encountered standing outside an office block on Corporation Street watching the police, was not too forthcoming, except to say “They don’t know what they’re looking for, do they?” as I passed.

The spirit of the city is often invoked, and ahead of a vigil tonight in Albert Square, there will be solidarity and strength from the capital of the North.

But the community values which Mancunians hold dear are shaken to the core by what has happened here.

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