[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.

[pgwhalen]

I'd suggest that most of society still runs on the honor system (especially finance and law), it's just more abstracted away from interpersonal relationships than it used to be. The existence of things like encryption often deceives us hackers about what the real foundation is.

[derefr]

Every day when I pass through the lobby of my apartment building, I think about the fact that our lettermail gets locked up tight in individually-keyed mailboxes, but — due to our building not being "large enough to qualify" for a parcel dropbox — large high-value parcels instead just get left lying on the lobby floor beside the mailboxes, with the matter of not stealing other people's parcels left entirely up to the honor system. (And yes, this is the same lobby that arbitrary guests will walk through to the elevator if buzzed in by any tenant who hears the word "Amazon" muttered vaguely through their phone.)

Of course, the locks of those individually-keyed mailboxes are also probably rakeable or bumpable or some other two-second attack. But at least that deters people who never bothered to look into how locks work.

[lmm]

A parcel is almost certainly replaceable stuff. A personal letter could be something like a passport or birth certificate or bearer bond.

[derefr]

Here (Canada), "passports, birth certificates, bearer bonds", etc. all get sent as registered mail with receiver identification required for release — which means they get held at the nearest post office for you to go pick up, rather than coming to your mailbox. (Instead, a notice card gets delivered to your mailbox, telling you to go get the thing.) Surprised that's not a thing in the US(?). Is that why long-term identity fraud is so common there? Birth certificates and other legitimate primary identity documents just being stuffed into insecure outdoor mailboxes where anyone could grab them?

Also, while many parcels are just purchases from companies, a parcel could very well be a priceless heirloom sent by a relative. Or, say, a live reptile.

The postal system bakes old assumptions into it, where ordering goods for delivery didn't used to be nearly so common, so a much larger fraction of parcels used to be of this personal variety. Which makes it even more curious that they're generally handled in such a blasé manner.

My only guess is that shipping parcels is expensive by itself, so almost nobody bothers to pay double to have their parcel handled securely as registered mail.

[iudqnolq]

I can tell you from experience that a California birth certificate isn't mailed folded and is much too large to fit in one of those postboxes.

[watwut]

> I'd suggest that most of society still runs on the honor system (especially finance and law)

Aren't those the most corrupt part of society?

[csense]

32 bits is more than enough network address space for a small-scale university experiment.

[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".

[refurb]

Not in the least.

Look at crime statistics versus how safe people feel. People say “crime is worse than 20 years ago” when the murder rate is 1/5th.

Perception =\= reality.

[lvmz]

Just how much corruption is known. Even if you make the assumption that people in aggregate can generally assess whether corruption exists somewhere, it'd be harder to measure the 'severity' that way. I actually think you're probably correct that people's perceptions of corruption have some connection to reality, but I think the more fundamental problem with such a scale is boiling a complicated reality like corruption into a single corruption number, which seems pretty silly on its face.

[Shorel]

Technically yes, but on the short term, there is a lot of lag to this signal. Even in the not so short term.

That is: people's perception can be anything from a few months to a few decades outdated to the current state.

Usually, every four years, a new party in power can change the trend.

So, it is overwhelmingly likely that something better can be found to reflect this reality.

[tacostakohashi]

Kind of... but certain countries have done a great job of gaming the system, particularly one of the countries that is currently ranked #3.

[Shorel]

Switzerland?

[riffraff]

Up to a point. A lot of these indexes are PR and the people who answer them have motives to rate one way or the other (e.g. you are an opinionated journalist and you want the current government to look bad).

There's usually something weird going on with some of these indexes if you compare statistics with opinion-survey-based stats.

[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.

[CraigJPerry]

We’re not producing cola anymore, everyone should use water instead.

SONIA is just one rate - last nights GBP overnight rate. LIBOR benchmark currencies have tenors, the future borrowing rates at different maturities.

They’re different things - so different that a “synthetic LIBOR” rate is now produced in order to help transition instruments that can’t rely only on the historical overnight rate like SONIA.

It’s true that LIBOR is being replaced (although a level 1 submission to ICE LIBOR was already based on value weighted averages from eligible transactions - it’s just that a level 3 expert judgement could override it) - but it’s not being replaced by something comparable. It’s being Replaced by an entirely different benchmark, it’s impossible to change some contracts to use the new benchmark because the new benchmark measures something different and lacks sufficient information to do everything that libor did.

Source: i inherited ownership of the system used to submit libor at one of the libor panel banks when i previously worked there.

[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.

[FredPret]

Or we can call it the Hash-based Ordinary Daily Lending Rate

[robertlagrant]

Yes. You win HN today.

[kaesar14]

Why not Trust, but Verify? Why wasn't there a central set of individuals requiring documentation for self-reported rates and sanity-checking them? I agree that the chain eventually comes down to trust somewhere but it seems like central banking has really lacked the transparency and checks and balances a system needs to stay consistent and trustworthy externally.

[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?