text: Are these pleasant surprises always there for the receiving, or are they only presented to us when we allow ourselves to be open to them?
  When we allow ourselves to ride the flow of life, we are given everything we need without any effort on our part. We become one not only with ourselves, the people we are with but with the universe as a whole.
  
  many of the documented cases of LIBOR manipulation...involved only very small rate distortions, with the guilty parties often misstating their borrowing costs by just one or two basis points.
  OK, what to do? Rather obviously, publishing the individual bank quotes and not just the average is not a good idea, and I gather will end.
  Libor is used as an index for banks who issue adjustable rate mortgages. For that use, an index of bank borrowing costs is appropriate. But bank borrowing from each other has dried up considerably. Interbank borrowing is really no longer a marginal source of funds. And the market is so small these days that a transactions-based index would be unreliable -- and also open to manipulation.
  They suggest an index based on a larger set of securities more representative of actual borrowing costs,
  LIBOR ... fixing must be broadened so as to be based on unsecured bank borrowings from all wholesale sources—not just other banks, but non-bank investors in bank commercial paper and large-denomination CDs.
  There is an important (very stylized, and likely inaccurate) story here. Why do we have indices anyway? In the old days, you went to the bank to borrow money. It was like going to a car dealer in the 1950s. Each bank might quote you a price, but you don't really have a good idea if you're getting a good deal without a lot of shopping. In this environment, you can't really have variable rate loans where the bank just announces a new rate.
  A better system: The bank quotes you "prime" rate plus some percentage points. But what's "prime?" Well, at least you know it's the basis for the bank's lending to all its other customers. If they say "prime went up you have to pay a higher rate on the loan" you know they're doing the same to all their customers, not just you. That makes variable rate loans more possible and reduces haggling and shopping.
  Better yet: The dealer shows you his invoice (the real one, not the phoney one at car dealers!) That's the Libor idea. It's an index of the rates banks pay for funding at the margin. So if Libor goes up, it's much more transparent that the bank is just passing costs on to you.
  Don't banks like the obscure system to charge higher profits? Well, not necessarily, which is another important lesson. Haggling over each item and dealing with customers who feel like they're in the 1950s Chevy showroom from "Tin Men" turns out to be less profitable than running a large volume transparent Car-Max operation.
  So far so good, but now a second lesson comes to the fore. Libor, as constructed, was a lot better than "prime" announced by each bank. But once markets and contracts settle on Libor, it's awfully hard to move to something better yet.
  This gives a role for policy, as Jeremy and Darrell point out, in setting standards, or moving markets to another focal point. We can all use feet or meters, miles or kilometers, dollars or euros.
  Being a popular interest rate index, Libor was the natural choice for interest rate derivatives. For example, a swap is a contract in which I promise to pay you $x dollars per year, and you pay me a floating rate. What's a good floating rate... Well, the banks are all using Libor, let's use that!
  So now we are in this puzzling point that a huge amount of money changes hands based on a tiny market.
  ...Unfortunately, there are surprisingly few actual loan transactions between banks that could be used to fix most of the IBORs...
  At the commonly-used three-month tenor, transactions in the underlying market for unsecured bank funding are roughly on the order of a billion dollars on a typical day, while the volume of gross notional outstanding in the swap market that references LIBOR at this tenor is on the order of $100 trillion, or 100,000 times larger. [See Table 1 and Table 2.]