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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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide