Does the small investor have any trust left in capital markets? Trading market volatility still arises reflective of the ongoing Euro zone crisis, the upcoming US election, the US debt ceiling issues and contemplated changes in US tax rates and the effect of far eastern economy slowdowns. Notable investment advisers and money managers have been exhorting investors in media publications to think about the longer term, that sitting in cash accomplishes little, and that now was possibly the time to reconsider equity investments.The small investor has not been persuaded, perhaps having been through just too many capital market shocks. Recent investment headlines were magnified again with reports that the Libor (London Interbank Offer Rate), an interest rate benchmark used globally for loans, mortgage, and as an index for derivatives and other financial instruments, might just have received conflicted agendas among the major British banks that set this daily rate.I’m sure that we all thought the global sub-prime mortgage market mess was a scary (nor easily understood) troubling time. Many public and private figures, politicians, investment bankers, investors, traders and others righteously blamed the United States investment culture of greed. Now, it appears that British financial institutional organisations, executives, and regulatory authorities’ may have to take a turn to answer questions under the spotlight of global incredulity. As a lowly finance columnist, I never really understood why the United States used the Libor British benchmark for an US investment activity. Isn’t that why the US fought the war of independence — to unleash the country from overseas tax and financial dominance?What is Libor used for?According to Wikipedia: “The Libor is an average interest rate calculated through submissions of interest rates by major banks in London. Libor underpins approximately $350 trillion in derivatives. It is controlled by the British Bankers’ Association (BBA).“The banks are supposed to submit the actual interest rates they are paying, or would expect to pay, for borrowing from other banks. The Libor is supposed to be an overall assessment of the health of the financial system because if the banks being polled feel confident about the state of things, they report a low number and if the member banks feel a low degree of confidence in the financial system, they report a higher interest rate number.“Because mortgages, student loans, financial derivatives, and other financial products often rely on Libor as a reference rate, the manipulation of submissions used to calculate those rates can have significant negative effects on consumers and financial markets worldwide.”Small investors have been through so much in the last five years:— Interest rates at an almost earnings standstill.— Little to no equity in (or loss of) their homes.— Job redundancies.— Increased cost of living with more to come due to the severe drought in the US food belt,— Flat to no pension accumulations (CALPERS, one of the largest public pension funds in the United States reported a one percent return for 2011),— The Facebook fizzle.— Capital market declines.— Housing market bubble, and the sub-prime mortgage market mess.Even though equity values in the S&P index have recovered, the news (and accompanying market confidence) is not yet convincing enough for investors based upon recent funds flow statistics from the Investment Company Institute (through May 2012 — funds continued to flow out of stock mutual funds in to perceived less risky investments such as bond and money market funds). www.ici.orgFurther, do home purchasers, company loan guarantors and others now have to wonder if the interest rate stated on their mortgage or loan (if tied to the Libor rate of the date of execution) benefited them because the rate was artificially too low, or will be a detriment with a rate charged that was artificially too high. This is such a complex area involving millions of transactions that we shall just have to wait and see how it shakes out.There are no easy answers to whether you should consider investing in capital markets. Two small facts to consider, though, are:— Always find out everything that you can about any investment that you are considering. Read finance publications, explore the internet, and keep track of the investments on a current basis.— Insist that your financial representative do the research as well.This may provide some confidence that you have made an informed decision. You can’t every predict what those removed and remotely situated at the top of the capital market structure will do, but at least, you’ll understand a bit more about your personal investments.Further information on Libor rating scandal:Barrons http://online.barrons.com/article/SB50001424053111904346504577533573999202632.html?mod=BOL_hpp_oe#articleTabs_article%3D1USA Today: Libor scandal explained and what rate-rigging means to you http://www.usatoday.com/money/perfi/credit/story/2012-07-18/libor-interest-rate-scandal/56322230/1New York Times http://www.nytimes.com/2012/05/07/business/stock-trading-remains-in-a-slide-after-08-crisis. html? pagewanted=allHuffington Post http://www.huffingtonpost.com/2012/06/28/sec-chair-mary-l-schapiro_n_1634709.htmlThe Libor Scandal http://en.wikipedia.org/wiki/Libor_scandalMartha Harris Myron CPA PFS CFP (USA) TEP is Director of Tax Services at Patterson Partners Ltd providing integrated cross-border tax, estate, investment advisory and related strategic planning services through entities in Bermuda and the United States. She authors a weekly financial column for The Royal Gazette, Bermuda and internationally: AICPA CPA Insider, Tax Talk South Africa, Caribbean News and various news aggregators. For additional information, please contact mmyron@patterson-partners.com or call 296 3528 http://www.patterson-partners.com