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| Matt Taibbi at Skylight Studio in New York, 10/27/10. (photo: Neilson Barnard/Getty Images) |
Why Is Nobody Freaking Out About the LIBOR Banking Scandal?
05 July 2012
he LIBOR manipulation story has exploded into a major scandal overseas. The CEO of Barclays, Bob Diamond, has resigned in disgrace;
his was the first of what will undoubtedly be many major banks to walk
the regulatory plank for fixing the interbank exchange rate. The Labor
party is demanding a sweeping criminal investigation. Mervyn King, Governor of the Bank of England, responded the way a real public official should (i.e. not like Ben Bernanke), blasting the banks:It is time to do something about the banking system…Many people in the banking industry are hardworking and feel badly let down by some of their colleagues and leaders. It goes to the culture and the structure of banks: the excessive compensation, the shoddy treatment of customers, the deceitful manipulation of a key interest rate, and today, news of yet another mis-selling scandal.
The furor is over revelations that Barclays, the Royal
Bank of Scotland, and other banks were monkeying with at least $10
trillion in loans (The Wall Street Journal is calculating that that LIBOR affects $800 trillion worth of contracts).
The banks gamed LIBOR for two semi-overlapping reasons. As noted here last week,
there were instances of Barclays traders badgering the LIBOR submitters
to "push down" rates in order to fatten their immediate bottom lines,
depending on what they were trading or holding that day. They also
apparently rigged LIBOR downward in order to produce a general
appearance of better health, essentially tweaking their credit scores a
few ticks upward.
Most intriguingly, or perhaps disturbingly, there were revelations last week that Bank of England deputy Governor Paul Tucker had a conversation
with Diamond at the peak of the crisis in 2008. The conversation
reportedly left Diamond, and subsequently his traders, with the
impression that the bank had carte blanche to rig LIBOR downward in
order to help allay spiraling public fears about the banks’ poor
financial health.
British officials, and Tucker individually, deny that
Tucker gave Diamond permission to rig rates. But a report by British
regulators did conclude that the two were talking about Barclays LIBOR
submissions on October 29, 2008, and that as a result of that
conversation, Diamond came away with a “misunderstanding.” The Daily Mail quotes the Financial Services Authority report:
However, as the substance of the telephone conversation was relayed down the chain of command at Barclays, a misunderstanding or miscommunication occurred.This meant that Barclays’ submitters believed mistakenly that they were operating under an instruction from the Bank of England (as conveyed by senior management) to reduce Barclays’ Libor submissions.
That is explosive stuff. Members of Parliament will be
grilling Tucker tomorrow about those events in what is sure to be a far
more combative and entertaining legislative inquiry than the Jamie
Dimon dog-and-pony show we just went through here in the states in recent weeks.
The implications of that part of the story should be
particularly chilling to Americans, who in recent years have been party
to a number of revelations about strange and seemingly inappropriate
contacts between senior regulatory officials and big bankers during the
heat of the crisis.
We know that American officials in 2008-2009 were
extremely concerned about the appearance of weakness in the financial
markets, so much so that they may have resisted pursuing criminal prosecutions
against big banks, and we also know that they spent a lot of time
commiserating with Wall Street figures before and during the crisis.
If Bob Diamond and Paul Tucker were having these talks
about LIBOR, is it fair to wonder what else Hank Paulson and Lloyd
Blankfein were talking about in the 24 discussions they had in the six days following the AIG disaster? When Paulson had a secret meeting with the entire board of Goldman Sachs
in, of all places, his hotel suite in Moscow, in June of 2008? Or what
other material nonpublic information was exchanged when Paulson met with a gang of hedge fund chiefs
at the offices of Eton Park management in July 2008, and laid out for
them a possible scenario for putting Fannie and Freddie into
receivership?
Anyway, the LIBOR story is leading the front pages of
most of Britain’s dailies, it’s on TV, and it’s producing blistering
editorials and howls of outrage amongst politicians and activists. But
as compadre Yves Smith at Naked Capitalism put it, where’s the outrage here in America?
The big story on our shores in the last few weeks has
been the health care ruling, which makes sense, but then after that…
what? The heat? Tom and Katie? (There’s actually a story about how Katie can wear heels again, now that she’s not married to a short person). Joe Sandusky? Nightline’s big story tonight, which is already being hyped on the net, is about how fat Chris Christie is and why the hell he hasn’t done the bypass surgery yet:
New Jersey Gov. Chris Christie opened up about his weight problem in an interview with ABC News and stressed he is "trying" to lose weight, a battle he's waged for 30 years, but said he's never considered gastric bypass surgery because it's "too risky.""I mean, see, listen, I think there's a fundamental misunderstanding among people regarding weight and regarding all those things that go into, to people being overweight," Christie said in an interview that will air Tuesday on "Nightline."
Glad to be informed! The New York Times, meanwhile, did chime in with a house editorial yesterday, and it was appropriately somber. And there has been some coverage in the financial press.
But to me what’s missing from all of this is the “Holy
Fucking Shit!” factor. This story is so outrageous that it shocks even
the most cynical Wall Street observers. I have a friend who works on
Wall Street who for years has been trolling through the stream of
financial corruption stories with bemusement, darkly enjoying the
spectacle as though the whole post-crisis news arc has been like one
long, beautifully-acted, intensely believable sequel to Goodfellas. But
even he is just stunned to the point of near-speechlessness by the
LIBOR thing. “It’s like finding out that the whole world is on
quicksand,” he says.
So as far as the stateside press goes, I’ve got to assume the cavalry is coming soon. But when?
