Revelations that banks manipulated the benchmark Libor rate sent shockwaves across the financial world this summer. (Libor, despite sounding like a Tolkien villian — "People of Middle Earth! We must unite in defense of the realm against the forces of Mordor and Libor!" — stands for "London interbank offered rate" and forms the basis for trillions of dollars worth of lending transactions around the world.)
This week, an interesting juxtaposition: We learn from Bloomberg that banking giant UBS will pay a settlement of up to $1.6 billion to various government entities on both sides of the Atlantic for participating in the manipulation of Libor. We also read in Washington Post how, despite its vulnerability to such manipulation, Libor is such an ingrained part of the system that no one seems to be able to stop using it. It appears that financial constructs, like banks, can be too big to fail.