In spring 2008, by using some other measures, a Wall Street Journal investigation found it likely that several banks, Citibank in the lead, reported too low rates to LIBOR to hide their credit problems.The day after the WSJ first published on the issue, LIBOR rates corrected upwards. (I wrote about possible LIBOR manipulation on October 13 2008. The very next day LIBOR started their decline. But I admit that those were likely independent events - the WSJ circulation is still a bit higher then ours.)

From the WSJ investigation we know that LIBOR can be manipulated by the banks and was manipulated in spring 2008. It is hard to prove manipulation without the actual records. The British Banker's Association is supervising the LIBOR reporting and calculation. But what interest would it have to really find problems with it?

One thing is sure. In October 2008 banks had a huge incentive to report too high rates as it furthered the pressure to hand them over hundreds of billions. Simply ask yourself: What would you do to get a 100 billion dollar gift?