Though Bernie Madoff’s Ponzi scheme shocked the nation and grabbed headlines in the months following the subprime crisis, in his latest post on OUPblog, Professor of Economics Richard Grossman draws readers’ attention to two far more economically significant scandals: Libor and forex (foreign exchange). He writes:
The Libor and forex scandals have several especially troubling aspects in common. First, unlike Madoff, they did not require asset booms in order to succeed: profits could be made on days when a particular currency rose or fell. That is, no prolonged asset bubble was required for forex manipulation to succeed—nor would the scheme collapse if an asset bubble collapsed. In theory, forex manipulation could have continued indefinitely.
Second, unlike Madoff, who only required his own wits and the gullibility of investors to succeed, the forex scandal was a conspiracy—or rather a series of conspiracies. […]
Finally, the forex scandal is especially troubling because it persisted for more than two years after the Libor scandal was exposed.