(本文翻譯自 陳冲 Libor醜聞才十年 又有妖鎳 2022.04.07.)
A few days ago, I watched a crime film and the film ends with British historian James Anthony Froude words “Wild animals never kill for sport. Man is the only one to whom the torture and death of his fellow creatures is amusing in itself.” Are humans really the only species of beings that take pleasure in torturing or deceiving others?
In early March, LME’s nickel rout shocked the world and Froude's words came to my mind just as ten years ago when the Libor scandal occurred. It is said that man's nature is good at birth. Is it real that to hurt others for desires other than basic survival and take pleasure in it the character that distinguishes man from beasts?
The nickel trading chaos is not yet over but the outline of the story has emerged. Before March (or before the Russia-Ukraine war), the price of nickel had never exceeded $20000/mt. Then, the price starts to rise after the war since Russia supplies 10% of the world's nickel. The price climbed to $29000/mt on Mar. 4th, $48000 on Mar. 7th and hit an all-time high of $101,365/mt on March 8 following a short squeeze. In general, according to market rules, the LME has two choices: Call margin or Force sell. But to market’s surprise, the LME did something bold never done for the past 145 years: canceled all trades conducted on Mar 8thand announced everything went back to the way it was on Mar. 7th. In other words, the transactions conducted on Mar 8th are erased as if never happened. Conspiracy theories arose. People says that the LME had no choice but to cancel transactions because the world’s largest stainless steel producer Tsingshan Holding Group excessively shorted the nickel and might affect a series of brokers and trigger a systematic risk if the estimated US$3 billion paper loss recognized. Another conspiracy theory claims that the LME was acquired by the Hong Kong Exchange in 2012 and thus there were some China-related factors behind its decision. Whatever the real reason behind, overturning the transactions would undoubtedly impact LME's century-old reputation and even the market order. God knows when the market order will return to normalcy? Some hedge funds are considering filing class action suits against the LME and the international public opinion even advocate establishing a new exchange. I still remember the time when Alan Whiting, the former Under Secretary at UK Treasury and later the Executive Director of Regulation and Compliance at the LME, proudly told me in his UK Treasury office how he resolutely dealt with Japan's Sumitomo's copper affair and the leading position of LME in the world then. How could Whiting not shed a tear if he knew LME’s predicament now?
As for Libor, we all know that it’s the benchmark interest rate for global financial transactions and is used for the pricing of around 300 trillion loans or investments throughout the world. It’s quoted by the British Banking Association (BBA) according to the interest rate members are willing to pay every day and develops from overnight to one-year term. In order to make Libor a representative benchmark but not manipulated, extreme values were deducted (the highest and lowest 25%) when calculated. While, things don't always go the way people want. No one could have imagined that it was however still manipulated in the end. And even worse is that it’s a collective fraud, involving many global major banks. After investigation by the multinational supervisory authority, the long-established Libor ceased to be available in 2022. Apart from the 500 million fines (which is really negligible) for the institutions with 13 traders brought to justice in 2017/11, it seems that the big scandal has passed without trace unnoticed. Of course, “Too big to jail” and “Too big to fail” are the main psychological obstacles for the government or the industry to handle this case. The impact was so broad that there seemed no way to deal with it. After the scandal, Financial Times (2012/7/27) once analyzed and speculated that the manipulation had begun since 1991. If the speculation proved true, the compensation for the institutions, time and amount involved would be an astronomical figure that could even destabilize G7.
Financial market is not a cannibalistic market, and the design of the market has its own rules and reasons. Investment and speculation are both normal behaviors. There are investors and speculators in the market. Their different views cause liquidity and facilitate the operation of the market. Longing for value increase or risk avoidance are not bad thing but shouldn’t be too over. If greed dominates people’s heart and makes them cross the line, it’s not that right. The 1987 film Wall Street even found reasons for Greed is good, rationalizing fraud or exploiting others, and thus reduces the overall economic value and increases the risk of volatility. That is not the original purpose of the market any more.
Both Libor and the LME were once the pride of Britain. Regrettably, both Well-intentioned systems went up in flames due to the fire of greed. How can we not be more cautious about it?