It’s become oh-so-predictible that banks get at most “cost of doing business” punishments that they almost seem not worth noting. But that’s precisely why it’s important to keep tabs on them, to let the complicit authorities and the perps know that the public is not fooled, even it is not in a position to do anything about it…yet…
Even though the Libor/Euribor price-fixing scandal hasn’t gotten much attention in the US, this is a really big deal. Admittedly, it did not crash the economy the way toxic RMBS and CDOs did. Instead, it was a massive price manipulation, the sort of victimless-looking crime where stealing a few basis points over a monster volume of transactions has a huge aggregate impact. This scheme went on for a full five years, with 20+ banks fingered, meaning everyone who was anyone was in on the game. As Ben Walsh put it:
The importance of Libor and, to a lesser extent, Euribor, is hard to overstate. They are used to value of hundreds of trillions of dollars of financial instruments. Or as Matt Levine puts it, they “set the rates on pretty much all the loans and swaps in the world … CFTC order mentions $350 trillion of [over-the-counter] swaps, $10 trillion of loans, and $437 trillion of CME eurodollar contracts indexed to Libor alone”.
Barclays is first to settle, and given the scale and potential profitability of this activity, the fine looks paltry: $450 million among the FSA, the CFTC, and the Department of Justice (£230 million to the US authorities, £60 million to the FSA). The DOJ has granted “conditional leniency” on anti-trust charges. Price fixing is criminal under the Sherman Act. Four top executives, including CEO Bob Diamond are also giving up bonuses this year.
It’s a bit early to reach hard conclusions, since Barclays got reduced penalties for cooperating early. We’ll be able to calibrate the degree of lack of seriousness by the punishments meted out on the other banks. But there is no reason to think we’ll see a sea change, despite the magnitude and duration of this scheme. Masaccio correctly included the settlement in a list of “This Week in Financial Not-Crime.” Guardian’s editorial inveighs on why much more serious action is needed:
The £60m it [Barclays] will hand over to the Financial Services Authority alone is the biggest penalty ever levied by the City watchdog – yet the nature of the alleged transgression is so fundamental, so serious and, according to officials, so “widespread” that it appears utterly inadequate. Nor will the decision of Mr Diamond and his team to apologise and forfeit this year’s bonuses take the sting out of the matter…
What regulators appears to have uncovered is a scam at the heart of a £350tn market; one that ultimately affects how much families pay on their tracker mortgages, as well as the costs of transactions for big City institutions. It should not be settled with a fine, no matter how large, but must be followed up with a further investigation into Barclays – making public just how many employees took part (rather than yesterday’s mentions of Trader C and Manager E), and how they will be punished, up to and including criminal proceedings…
Strip away the acronyms and the charges against Barclays are straightforward. Its traders and senior management are accused of tampering with two key interest rates to bolster their own profits. And they apparently did this not once, but repeatedly over four years. Indeed, the practice seems to have become so widespread that staff joke about it in emails: “Always happy to help, leave it with me, Sir.”; “Done … for you big boy”; “I love you”. This from the bank that earlier this year held citizenship days for its staff – and which, through state guarantees and emergency provisions of liquidity, has been supported by the British taxpayer.
There has been much talk about banks being too big to fail, or too big to bail. The picture presented by Wednesday’s charge sheets is altogether simpler: throughout boom and bust, Barclays staff saw themselves as being too big to play by the rules.
The e-mails get at what is most disturbing about this, the banality of it all. At least with Bankers Trust, the public was roused by recordings of traders who discussed ripping clients’ faces off and luring them into the dark to fuck them. The anodyne nature of these crimes, the routinized ripping off of the public on a scale hard to imagine, took place via small nicks over all the deals in huge swathes of the capital markets.
The Financial Times holds out some hope, pointing out that the European Commission was not part of the settlement and is continuing its own probe. The authorities can still target individuals at the bank. And it is vulnerable to private suits:
While the settlements focus on “attempted manipulation”, the DoJ statement of facts said, “on some occasions, however, the manipulation of Barclays’ submissions affected the fixed rates,” a statement that could leave the bank open to class action lawsuits from Libor users.
But all we need to do is contrast this case with the municipal bid-rigging prosecution described by Matt Taibbi in the current Rolling Stone. Here you have three individuals at GE Capital going to jail for price fixing, which is crime under the Sherman Act. But they were merely the arms and legs of big banks. Where were the prosecutions of the higher ups, or of the senior officers of banks who were in on this con? We see the same pattern over and over: justice is meted out only on the foot soldiers, those far enough away from the executive ranks so as not to call into question the integrity of the system. The irony of it all is the public is well aware of how crooked the financial services industry is (the poll data alone is proof). But for the elites, it is vital that they not admit that something is rotten in Denmark, for if they did, they’d have to do something about it.