Q: If LIBOR fiasco is a world class scandal, then where were the regulators? A: They knew all along.

We are now supposed to think that cooking the LIBOR index is the crime of the century. Yet U.S. and U.K. regulators knew of it in 2007 and 2008. If this is now considered a horrid crime, then why didn’t the regulators do something about it at the time?

The nonchalant reaction of the New York Fed is described in The Wall Street Journal’s editorial New York Fed to Barclays: “Mm hmm”.

Here’s what the Fed says they did:

In June 2008, Timothy Geithner, then head of the New York Fed, sent Bank of England Governor Mervyn King two pages of recommendations for “Enhancing the Credibility of LIBOR” and wrote that he would be “grateful if you would give us some sense of what changes are possible.”

This is not exactly the language of a regulator who has just uncovered what we’re now told is the financial crime of the century.

We learned today in the Washington Post’s article, Geithner did not show evidence of rigged Libor, British bank official says, that dropping a letter in the mail is the only thing the Fed did.

But Bank of England Governor Mervyn King, addressing Parliament earlier in the day, said he received none of the evidence of misreporting that the Fed had gathered.

The Washington Post article later expands this comment:

“The New York Fed did not raise any evidence of wrongdoing with regards to Libor,” replied King, who said that he received only a memo of suggestions from then-New York Fed President Timothy F. Geithner, now the U.S. Treasury secretary, on reforming the rate.

The New York Fed did not send along the information they had which provided evidence that LIBOR was being manipulated. Instead, the Fed gave some ideas on how to improve the rate calculation process.

As the Wall Street Journal editorial points out, if this is the crime of the century, do you suppose some evidence should have been forwarded in addition to some friendly advice on how to make improvements?

So what are some of the pieces of evidence the Fed gathered?

From the WSJ’s summary of the Fed’s information:  In August 2007, a trader at Barclays told a New York Fed official in writing that Barclays was misreporting LIBOR and others were doing the same. A subsequent phone conversation in about May 2008 by the same official with someone at the Barclays trading desk explains that the bank is intentionally misreporting LIBOR, others are doing the same, and the motivation is to make the bank look better. By doing so the stock price would not get hit again and the bank could continue to borrow money on the market at a better rate. That conversation took place several months before the fall 2008 meltdown.

As the Wall Street Journal editorial points out, neither of those discussions are the kind of conversation you have with regulators when you’re engaged in a massive conspiracy to commit fraud. In addition, if this was a crime of the century then wouldn’t be New York Fed official do something with that information, like try to start a criminal investigation?