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Three for Thought: Libor, Tigers, and Bosons (Oh my!)

It’s been a tediously packed month on the world’s political and economic front. The top issues are far too complex to summarize in a single paragraph, so for words sake this week I’m introducing Three for Thought. Enjoy!

LONDON, U.K. – In early 2012 the U.S. Department of Justice, along with some British regulators and the Commodity Futures Trading Commission (CFTC), began an inquiry into allegedly manipulated Libor (London interbank offered rate) rates dating back to 2007. These rates, produced more arbitrarily than common sense would maybe suggest, back approximately $350 billion in derivatives alone, as well as hundreds of billions in American mortgages and student loans. In late June, Barclay’s became the first bank to admit to such economically devastating activity by agreeing with British and American authorities to pay a $450 million settlement. The result has blossomed into an investigation scrutinizing ten of the world’s largest banks, as well as the regulators who may have knowingly let such activity flourish.

Libor, in theory, is supposed to be the international rate at which banks can borrow from each other. But the banks really don’t borrow from each other often, so the significance of the Libor rate is very superficial; it’s an indicator of the overall health of the financial system. If banks are confident they report a low number and if they are concerned they report a high number. Production of the Libor rate is not transparent and is conducted at monthly luncheons by representatives from each of London’s twelve biggest banks, including representatives from Barclay’s, HSBC, JPMorgan Chase, and Citigroup. The ethical misconduct comes into play when traders (on many occasions employed by these same financial institutions) would contact those in charge of setting Libor rates and request that they be adjusted. The Economist revealed one trader’s e-mails from Barclay’s that indicated for each basis point (0.01%) Libor was lowered, those involved could net “about a couple of million dollars.”

The Department of Justice’s investigation recently unveiled some new dimensions of the scandal. First and foremost, for HSBC, who not only participated in the Libor manipulation, but is starting to overshadow Barclay’s role through its money laundering services. One report compiled for US lawmakers this past Tuesday detailed how HSBC affiliates cleared suspicious traveller’s checks worth billions, and allowed Mexcian drug lords to buy planes with money through Cayman Islands accounts. Other reports reference USBC affiliates moving money for countries on US sanctions lists such as Iran and Syria, and one case involving a Saudi bank with al-Qaida connections moving money to the US.

Second, for those wondering where British and American regulators had been for all these years. According to the New York Times, Barclay’s informed the New York Fed, specifically Tim Geithner, that it was submitting “artificially low interest rates,” in 2008 amidst the financial crisis. Geithner, whose financial background unveils a plethora of ethically questionable incentives for his looking the other way, then sent an e-mail to Mervyn King, Governor of the Bank of England, that outlined a series of reforms needed for the Libor system, but no indication of manipulated rates or illegal activity in general. The issue went relatively ignored until further probing resulted from independent bodies of regulation this past year.

And as if this all isn’t enough to make you lose hair (or at least squint really hard), this news comes at a time when the GOP continues to insist a current state of “over-regulation” is what stands in the way of a prosperous American economy. It’s all enough to cause one’s brain to lapse. Or at least wish it would.

TRIPOLI, LIBYA – The Libyan people voted in their first post-Qaddafi election July 7th. Contrary to what speculators predicted, the party with the most votes was won by Mahmoud Jabril, a seemingly moderate reformer who claims to be “something between a secular liberal and a mild Islamist”. Whether he chooses to form a coalition with the party closest to the Muslim Brotherhood remains to be seen. But for the first time in a long time there are positive signs amidst Libya’s democratic hopeful.

The Libyan election took place amidst a direly pessimistic backdrop. After more than four decades of Qaddafi, the Libyan state has been hollowed out in just about every way imaginable. Qaddafi wanted it that way, and knew that the more isolated and neglected Libya became outside of Tripoli the weaker it would be once revolution came about. He had no interest in preserving a stable nation once he passed from any standpoint – socially, militarily, economically, and especially politically. As a result the regime’s collapse left a void that vengeful men, many of which bare connections to al-Qaeda, are the most likely to fill. It’s a country awash with no real history of self-defense (outside of Qaddafi’s personal brigade), but more than three times as many guns as people. Around 60 militias sprang up in the revolution’s aftermath, none of which will be keen to the idea of yielding to central authority. Cities like Misrata, the country’s third biggest, will likely be determined to decide their own fate regardless of what democracy has to say. All the while the most remote areas of the country, on the eastern fringes and far west towards Mali, seem to be spiraling towards a state of complete anarchy, becoming a likely haven for bandits, religious extremists, and Qaddafi exiles. All of which, you can bet, are armed to the teeth.

Yet the election still needs to be seen in a positive light. All of this aftermath was predicted. This is what happens when a kleptocrat rules for a half century and neglects the state’s most basic economic and social needs. All one can hope for at this point, is for the central government to at least get the wheels moving, and they have done just that. A moderate won the election, with little resistance from the losers. Even in Benghazi, where the rebellion resentment for government is centered, Jabril came out on top. Extreme Islamists, perceived by most to be the future winners of any election when it was a dream, failed to hold onto any significant portion of the vote.

The important thing to remember in Libya is to not let pessimism overshadow the chance democracy has; even if that chance is minuscule. It will likely stumble in the future and suffer from all of the country’s institutional shortcomings, but it must at least be given a chance. For now, Libya is moving in the right direction.

GENEVA, SWITZERLAND – Scientists at CERN, the European Organization for Nuclear Research, and the world’s biggest particle physics laboratory, announced July 4th that they had found the Higgs Boson. It’s a feat that, unlike the discovery of DNA in 1953 by Francis Crick and James Watson (which it gets compared to), has been many years in the works. It was originally predicted and named after Peter Higgs, a British physicist who looked to fix a probing flaw in the Standard Model. It’s a discovery significant in that, if it did not exist (or at least a similar particle) a lot of what physicists think they know about the universe would be wrong.

For those who aren’t familiar with particle physics, the language involved in explaining the Higgs Boson is just a blur of nonsense. I am one of those people. So, ultimately, common observers leave themselves asking three main questions: How much can I try to understand without being a physicist? Why did it take so long to develop? What is the real significance of the discovery?

First, it should be understood modern physics has two working models of reality. One is Einstein’s theory of general relativity, which deals with space, time and gravity. It’s a sound combination of perfectly interlocking equations that poured out of one great mind. The other, known as the Standard Model, deals with just about everything else. It lacks such a sound organization.

The Standard Model, a product of many minds, deals with three fundamental non-gravity forces (electromagnetism and strong/weak nuclear forces) and also a series of supposedly indivisible particles. Without the discovery of the Higgs, the robust math that holds the Standard Model together would disintegrate.

The discovery of the Higgs came about using CERN’s Large Hadron Collider. It’s a machine that sends bunches of protons around a ring 27 km in circumference, in opposite directions, at close to the speed of light, so that they collide head on. The faster the protons are moving, the more energy they have. Once they collide this energy is converted into other particles (E=MC^2) which decay into more particles. The decay particles are where they knew the Higgs would be found, but it’s not as if there was a formula that led them directly there. They had no idea how much it would weigh or how fast the protons would need to travel in order to make it, so instead of looking for the Higgs directly, they constantly looked for evidence that it didn’t exist. In a sense, perhaps the most remarkable physics discovery of the past half century was a process of fifty years worth of trial and error!

The underlying significance of the Higgs Boson, aside from its confirmation of the Standard Model, revolves around “dark matter”. No, it’s not a “god particle” as you might have heard. It fails to explain creation itself. However, theory and general observation suggest the atom-making particles described by the Standard Model, known as “normal matter” are only about four percent of the universe. Almost three-quarters is something completely foreign, known as “dark energy” or “dark matter”. It forms a giant framework that extends throughout space and controls the positions of galaxies composed of visible matter. It also stops them from spiraling out of control and into one another. Now with the Higgs Boson, as well as Standard Model theories developed in the past fifty years, particle physicists hope to probe further into the depths of the scientific unknown.

Questions? Comments? Angry at everything I said?  Leave a comment or send me an e-mail at or

Dave Sweet
Pierce Arrow Editorials Editor

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