Across America, one hears a growing demand that Glass-Steagall be reinstituted and that the biggest banks be broken up. Not long ago, the Dallas branch of the Federal Reserve, hardly known as a bastion of radicalism, proposed that the biggest banks had become too big to regulate and should be shrunk.The interventionists are keeping the LIBOR "scandal" brewing as a means to call for more intervention, when most have no idea how the LIBOR rate is constructed.
The pertinent question here is whether the unfolding Libor scandal, which will soon hit these shores, will provide enough ammunition and energy to finally get the job done.
The ending of Glass-Steagall, for example, has nothing to do with LIBOR. Some manipulations may have been done around the edges of the LIBOR rate, but this is attempted by traders in all markets. In the end the market price wins. It is absurd to believe that trillions of dollars in rates could have been distorted for any length of time at all to any significant degree.
I repeat my comment from earlier posts, a global distortion in rates would have pushed the supply and demand for loans totally out of whack. If rates were too high, you would have had huge a shortage of demand for loans relative too supply, if rates were too low, you would have had a huge supply of funds relative too demand. If this occurred for any period of time, banks around the world would have either adjusted the premiums by which they adjusted the benchmark LIBOR rate or they would have abandoned the LIBOR as a rate completely.
The only monsters in the market that can really push rates around are the central banks, since they can increase or decrease the money supply. Commercial banks ultimately have to price according the the market rates after the central banks manipulate the market.