“Banksters,” the cover of the Economist magazine charges, depicting a
gaggle of bankers dressed as extras off the “Goodfellas” lot. The editors were reacting to Libor-gate,
the collusion among traders of major banks to fix the London interbank
offered lending rate, the most recent, most obscure and the most
explosive revelation from what seems a bottomless pit of corruption in
global banks.
Once more the big banks are exposed in systematic fraudulent activity. When Barclays agreed to a $450 million fine for trying to rig the Libor,
its CEO offered the classic excuse: Everyone does it. Once more the
question remains: Will CEOs and CFOs, as well as traders, be prosecuted?
Or will they depart with their multimillion dollar rewards intact,
leaving shareholders to pay the tab for the hundreds of millions in
fines?
The Barclays settlement exposed that traders colluded to
try to fix the Libor rate. This is the rate used as the basis for exotic
derivatives as well as mortgages, credit card and personal loan rates.
Almost everyone is affected. Fixing the rate even a few hundreds of a
percentage point could make Barclays millions on any single day — money
taken out of the pockets of consumers and investors. Once more the banks
were rigging the rules; once more their customers were their mark.
The
stakes are staggering. The Libor should be as good as gold. It pegs the
value of up to $800 trillion in financial instruments. The collusion
was systematic and routine. Investigations are underway not only in the
United Kingdom but also in the United States, Canada and the European
Union. Those named in the probes are all the usual suspects: JPMorgan
Chase, Citibank, UBS, Deutsche Bank, HSBC, UBS and others. This wasn’t
rogue trading, as the Economist concludes; it was more like a cartel.
The Economist writes
that what has been revealed here is “the rotten heart of finance,” a
“culture of casual dishonesty.” Once more the big banks are revealed to
have allowed greed to trample any concern about trust, respect or
legality.
As investment analyst David Kotok suggests,
consider the implications of the Barclays settlement: The general
counsel tells the bank’s directors that the bank is offered a settlement
for a half-billion dollars in fines, with the resignation of the chair
of the board, the chief executive and the chief operating officer, with
others to follow. The board, knowing the evidence, agrees to take that
deal. Other banks are in line for the same level of culpability.
We
are five years since Wall Street’s excesses blew up the global economy,
and the scandals just keep coming. Each scandal reinforces the need for
tough regulation and tough enforcement. Each scandal proves over again
the importance of breaking up the big banks. Each scandal raises the
question of personal responsibility. How come borrowers are prosecuted
for defrauding their banks, but bankers seem never to be prosecuted for
defrauding their customers? George Osborne, the conservative British
chancellor of the Exchequer, put it succinctly:
“Fraud is a crime in ordinary business — why shouldn’t it be so in
banking?” He is demanding action: “Punish wrongdoing. Right the wrong of
the age of irresponsibility.”
We haven’t heard anything like
that out of Washington. Libor-gate once more exposes how lax this
administration has been on the banks — and how irresponsible and,
frankly, craven Republicans and Mitt Romney have been on this question.
Romney echoes the know-nothing Republican right’s call for repealing
what little bank regulation has been passed since the financial collapse
— primarily the Dodd-Frank legislation. He touts deregulation in the
wake of a global economic calamity caused in large part by the misguided
belief that banks can police themselves.
Not surprisingly, Romney
and Republicans are raking in donations from Wall Street. But they are
catering to banksters that know no shame. For example, one of the most
powerful Wall Street lobbying groups is the Securities Industry and Financial Markets Association,
which has been leading the drive to weaken Dodd-Frank and exempt
derivatives from transparency. Its chair was Jerry del Missier, the COO
of Barclays, who lost his job and apparently his chairmanship in
Libor-gate. Why are we not surprised?
Last January, Barclays’ hard-edged CEO Robert E. Diamond Jr. announced that it was time for bankers to get their brass back. “There was a period of remorse and apology for banks,” he declared.
“I think that period is over.” More and more of the customers defrauded
by bankers might agree. They are tired of fake remorse and ritual
apology. That period is over. It is time for prosecutions to begin.
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