Joe Nocera at NYTs:
Here in the early stages of the Libor scandal — and, yes, this thing is far from over — there are two big surprises.
The first is that the bankers, traders, executives and others involved
would so openly and, in some cases, gleefully collude to manipulate this
key interest rate for their own benefit. With all the seedy bank
behavior that has been exposed since the financial crisis, it’s stunning
that there’s still dirty laundry left to be aired. We’ve had predatory
subprime lending, fraudulent ratings, excessive risk-taking and even
clients being taken advantage of in order to unload toxic mortgages.
Yet even with these precedents, the Libor scandal still manages to
shock. Libor — that’s the London interbank offered rate — represents a
series of interest rates at which banks make unsecured loans to each
other. More important, it is a benchmark that many financial instruments
are pegged to. The
Commodity Futures Trading Commission, which doggedly pursued the wrongdoing and brought the scandal to light,
estimates that some $350 trillion worth of derivatives and $10 trillion worth of loans are based on Libor.
With so much depending on this one critical interest rate, there
shouldn’t ever be a question about its reliability. Yet beginning in
2005, according to the C.F.T.C. and
the Justice Department,
derivative traders at Barclays, the too-big-to-fail British bank, with
the active involvement of traders at other yet-unnamed banks, persuaded
their fellow bank employees to submit Libor numbers that were shaded in
ways that would help ensure their trades were profitable. Even Robert
Diamond Jr., the former Barclays chief executive who
lost his job over the scandal, said that reading the traders’ e-mails made him “
physically ill.”
In 2007, as the financial crisis was gathering steam, banks also began
submitting false Libor rates for a different reason. Libor, you may
recall, was a measure that gave the outside world a sense of how much
trouble the banks were in; the higher the rate required to borrow, the
worse shape they were assumed to be in. So Barclays — with what appears
to be
the complicity
of British bank regulators — started submitting rates that were lower
than the reality. Its executives said the purpose was to keep Barclays
from “sticking its head above the parapet.”
Even now, Barclays justifies the latter rationale as being a kind of
emergency measure brought on by the financial crisis. But the bank is
wrong about this. Submitting false data, for whatever reason, is a
violation of the law — not to mention a fundamental abuse of trust. Once
again, it leads one to believe that bankers feel neither the
constraints of the law nor of morality.
Which brings me to the second big surprise. Britain and America have
reacted to the Libor scandal in completely different ways. Britain is in
an utter frenzy over it, with wall-to-wall coverage, and the most
respectable, pro-business publications expressing outrage. Yes, Barclays
is a British bank, and the first word in Libor is “London.” But still:
The Economist ran a headline about the scandal that read, in its
entirety, “
Banksters.”
But the Brits have this one right. They may not understand the
intricacies of Libor any better than we do, but they sense, powerfully,
that banks have once again made a mockery of the role that society
entrusts to them...
Barclays, of course, is hardly the only big bank that manipulated Libor
for fun and profit. It is simply the first to admit its wrongdoing and
settle with the government. The word is that just about every big bank
is under investigation for playing games with Libor, including JPMorgan
Chase, Citigroup and other American-based financial giants.
Which means there is going to be a lot more opportunities for Americans
to become outraged over this scandal. And, maybe, to finally summon the
will to change banking once and for all.
No comments:
Post a Comment