[fanzhang]

When I first heard about LIBOR in 2002, I was surprised that the number is just based on a survey of bankers. Surely there would be accuracy issues with that?

But at that time I was young and had no finance experience, so though that the adults in the room knew best. Turns out not!

I don't think the base problem is that people shaded their numbers one way or another, it's that the system is designed wrong.

[SkyMarshal]

The more I've learned of the banking system, the more examples of this I see. It seems that much of the banking system was designed by bottom-line-oriented, non-systems-thinkers, who just wanted an immediate, good-enough solution to a problem. Accuracy, reproducibility, scalability, systemic integrity, and similar concerns often weren't a factor.

[tlb]

It evolved from a small system where the people all knew each other and went to the same few public schools where everything also ran on the honor system. It wasn't a bad design for its original scale & context.

Those dumb bankers. We computer scientists would never design something that failed to scale through 5 decades.

[rr808]

> good-enough solution to a problem

That's pretty much everyone everywhere in every industry. LIBOR really was good enough which is why it lasted.

[derefr]

> Accuracy, reproducibility, scalability, systemic integrity, and similar concerns often weren't a factor.

Kind of funny, then, that banking was also the origin of the CQRS/ES paradigm.

The systems thinking is there — just not evenly distributed.

[refurb]

That’s pretty much the entire economy.

[jrochkind1]

bottom-line-oriented bankers?!? Well, I never!

[rr808]

> When I first heard about LIBOR in 2002, I was surprised that the number is just based on a survey of bankers. Surely there would be accuracy issues with that?

Traditionally the banking community of London was super close and built on reputation. People do huge deals based on people's word and people were expected to be honorable. That might sound naieve in the 21st century when global trade is much bigger but it worked for hundreds of years.

Secondly LIBOR really was pretty accurate, people talk a lot about how it could have been manipulated but the evidence is isn't so solid. Yes in aggregate a few bps adds up to a lot of money but for individual parties it doesn't really make a difference.

[cromulent]

The Corruption Index is similar - it’s based on how corrupt people think a nation is. Nothing to do with how much actual corruption exists.

[sokoloff]

It seems overwhelmingly likely that "how corrupt people think a nation is" does have "[something] to do with how much actual corruption exists".

[aksss]

The big secret you learn about central banking pretty early in adulthood is that “we” (society) is still figuring it out, tweaking it, and making it up as we go, and it’s not so old as to have this huge body of proven method that we’re all led to think it does. The systems are brittle, prone to manipulation, and every once in a while we manage to avert a crisis and keep from going completely off the rails. It’s not a bad endeavor, but it’s nowhere near the level of perfection and stability that like to imagine.

[jhbadger]

Apparently a lot of the "university rankings" that you see are based a similar method -- faculty/staff at various universities are asked to rank (other) universities and their results summarized. So, for example Harvard is the #1 US university because many people at other universities think it is! There are other attempts at rankings that try to be more objective (such as number of papers published, number of Nobel Laureates on faculty, etc.) but those of course focus more on the research output of the university rather than teaching.

[CraigJPerry]

>> I was surprised that the number is just based on a survey of bankers

The numbers that LIBOR is measuring ultimately represent a human’s opinion. Well, it’s the opinions of several humans then the highest and lowest opinions get discarded and the rest averaged.

It’s not measuring a value derived deterministically from some inputs, so how else could you capture it?

[DwnVoteHoneyPot]

It's being replaced by historical market transaction data. Like stocks prices are based on last price.

[kaesar14]

This was also my impression learning about it as I was starting to learn about global finance in high school. Even them it seemed ridiculous. I wonder how many more systems currently in place are based on such foolish promises and easily exploited foundations of trust.

[NoboruWataya]

Trust is central to the financial system, for better or worse. The whole thing is based on trust - whether it's trust in the person on the other end of the phone, trust in the big-name bank that person works for, or trust in that bank's regulator.

This seems stupid to some tech people, who try to disrupt it by creating trustless systems such as distributed ledgers. But trust keeps on creeping back into the system. There are crypto custodians, crypto brokers, crypto exchanges, all of whom you have to trust to some extent. There is crypto lending. I wouldn't be surprised if we eventually have the Bitcoin Interexchange Offered Rate decided by a handful of the biggest exchanges.

[boringg]

Fiat currency is based on trust - so was the gold standard to a degree. Trust is an important part of society. We rip trust away in our societal institutions and we are left in a terrible existence.

If you boil everything down - trust a critical function. Your day is filled with trust of functioning. Without it you would live in pure chaos. I find these arguments facile.

[cardiffspaceman]

Pre-SoundScan record sales numbers?