No, the title of this post is not a Zen meditation question. News comes that the BOE has hired outside counsel to investigate whether its own staff condoned practices at the heart of the FX manipulation controversy. This disclosure shows an uncomfortable repeat of the accusations in the press that the Federal Reserve knew about the alleged LIBOR manipulation before it was disclosed to the public. Of course this also brings to mind criticisms from Democratic legislators, most notably Senator Warren, about the close relationships between regulators and banks. Assuming that the conversations between the banks and the BOE regarding FX trading did occur as reported by the media, there's a reasonable argument to be made that banks should be able to rely on whatever approvals the BOE officers gave them. In which case, why did the BOE officers not recognize problematic behavior in the first place? Or, more troubling, did they acknowledge the questionable behavior but provided cover to the banks anyway? So many questions and so few answers in all of these market manipulation matters.
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