Banks Cheating? My goodness me. Surely not? Who would have thought that British Banks, established for centuries and servants of the economy their executives honoured and feted and given extreme wealth, would ever resort to rigging markets?
Some thought that the need to bail out banks was one of those unlucky things caused by American problems and had nothing to do with greedy bankers gambling with other people’s money. Some explained that the foolish purchases of ABN Amro and Bank of Scotland were just bad luck, and had nothing to do with self-aggrandisement and reckless behaviour. Some claimed that the mis-selling (or fraudulent selling) of Personal Protection Insurance was simply a mistake by over enthusiastic people who did not really understand that the product they had devised was written in such a way to provide in many cases no value to the people to whom it was sold. Some said that the speculation in derivatives was simply a vortex of unfortunate coincidences into which the banks had accidentally fallen. Some argued that the RBS NatWest computer glitch was one of those unfortunate accidents, and had nothing to do with lack of proper investment in computer systems. These are all unfortunate coincidences.
Of course these are excuses that do not wash. Banks are crooked institutions and are so large that their crimes are overlooked, excused and ignored. The news that Barclays will have to pay penalties of £290 million for rigging the LIBOR interest rate (the rate at which banks lend to each other) goes into territory of a kind of conduct for which no excuse can be thought up, however implausible the excuse might be.
The Financial Service Authority has called this conduct by Barclays “misconduct”. Most people would call it crooked. The LIBOR rate is a rate to which many people and businesses have their borrowings linked, whether they know it or not. It is supposed to be a genuine market average and manipulating that rate by even a tiny fraction can put undeserved profits into grasping hands.
Barclays escaped criminal prosecution for fraud in the USA by the Department of Justice by doing a deal with the Department.
That not very diamond geezer, Bob Diamond was head of the section of Barclays that was making the crooked LIBOR returns between 2005 and 2009 and is today Chief Executive. He said “I am sorry that some people acted in a manner not consistent with our culture and values. To reflect our collective responsibility as leaders, Chris Lucas, Jerry del Missier, Rich Ricci and I have voluntarily agreed with the Board to forgo any consideration for an annual bonus this year,”
I do not understand how he can allege that the actions of Barclays were inconsistent with its culture and values. The actions were entirely consistent with its actions and cultures and entirely consistent with banking values and culture of today. Put simply the banks are crooked but because they are so large and control so much of the economy they cannot control their own dishonesty and neither can regulators.
I am sure that there are other banks who have behaved like Barclays and some of them will be quite close to home. You cannot rig a market without a conspiracy and it takes at least two to make a conspiracy.
It has been clear for the past five years that Banks are just too big. They are too big bto fail, too big to control and too big to prosecute when they do wrong. They have to be broken up into smaller constituents. The plan to separate the banking business from the trading or gambling business was opposed by some, but that separation is now unarguable. However things need to go further. In the United Kingdom there are now just four major banks and a couple of building societies. They banks need to be broken up into businesses about a quarter of their existing sizes. That way we would have some chance of controlling their crooked ways.