Paul Tucker came down firmly on the side of New Labour today. In his evidence to the Treasury select committee, he denied that Labour ministers were involved in fixing LIBOR. George Osborne thinks otherwise. To which I say "so what". The Osborne versus Balls dingdong is a distraction.
The real story was the rest of Tucker's testimony. It was surreal. No, it was worse than that. It was a financial horror story. He conjured up nightmares and vistas that were unimaginable a month ago.
Tucker told the committee that the FSA is currently working through the implications that LIBOR could "collapse". This would cut the derivatives market adrift from its LIBOR pricing reference point. The notional value of the LIBOR dependent derivatives market is about $360 trillion. For comparision, Global GDP is a trival $70 trillion. Is this a likely event? What would be the consequences? Who knows? But it is the issue currently taxing the UK financial sector regulalator right now.
If that little scenario didn't frighten you, Tucker had another grenade in his pocket. He moved on to the question of LIBOR-related law suits. Again, the FSA is looking into the possibility that British banks would be hit by massive class-action law suits that could potentially ruin the UK financial sector.
Tucker then produced a third cracker. He wasn't confident that LIBOR tampering had stopped. UK banks could still be at it. Despite everything, the Banks may not have cleared things up. The implication must be that other banks could find themselves going through the same upheavals as Barclays.
He then argued that the FSA review into the scandal should be extended to other "self-certifying markets" where banks are fixing and minitoring prices. These markets include the gold and oil markets.
So while the Conservatives and New Labour are thrashing about with a tedious "he said, she said" pantomine, the deputy governor of the Bank of England told us four frightening possiblities about the UK financial system. First, the derivatives market could implode. Second, British banks may be confronted by ruinous legal action that threatens to bankrupt them. Third, Banks could still be meddling with LIBOR. Finally, he hinted that the abuse could extend to other key financial markets.
The juxtaposition of political ineptitude and financial and economic ruin could not be more stark.