The Fix

Chapter 7 No One's Clean-Clean

Meanwhile, in the gray stone streets of the City of London, the guardians of Libor were panicking. The day the first Journal article was published, the British Bankers’ Association was holding its annual meeting. Clouds gathered ominously overhead as senior executives from the world's biggest banks filed one by one into Pinners Hall, the trade association's neoclassical headquarters. They were supposed to be gathering to discuss the enveloping financial crisis. Allegations of Libor manipulation were an unwelcome distraction.

Since their last meeting the world had grown hostile and unrecognizable. Rising defaults on mortgages in the U.S. had spooked markets, drying up the easy flow of credit between financial institutions and exposing the shaky foundations upon which years of easy profits had rested. Banks were forced to write down the value of their assets by billions of dollars and were left perilously close to insolvency. Northern Rock was nationalized in February 2008 after the mortgage lender became the first British firm in 150 years to suffer a bank run. BNP Paribas, France's biggest lender, created panic the previous August when it froze redemptions from its funds, refusing to give investors their money back.

Most of the afternoon was spent discussing the pressing issue of how to access enough capital to stay alive. At one point, Angela Knight, the BBA's chief executive and a former politician, broached the issue of Libor. It's not acceptable ...