(James Saft is a Reuters columnist. The opinions expressed are his own)

By James Saft

(Reuters) – Maybe it is time to accept that there is no such thing, really, as a free and independent inter-bank lending market.

That’s because a genuine bank loan market, at least one which would be allowed by regulators and participants to exist, must be founded on some combination of good collateral, which is vanishingly scarce, and faith, which has gone away on a long trip.

Understanding why puts us a bit closer to reckoning with exactly how false and officially supported financing markets are, a realization which manages to be both terrifying and strangely reassuring.

Interbank lending, the lifeblood of financing, is, where it is functioning, increasingly based on doubtful or illiquid collateral swapped among banks which are often acceptable only because they have government backing and access to central bank funding. This is particularly true in the euro area, where the European Central Bank seems to go ever further to support bank liquidity.

Against this background, the proposed reforms of the London Interbank Offered Rate (Libor) take on a kind of bitter irony, even necessary and well-intentioned as they are.