The Financial System's Rotten Heart
By Carl Bloice - BC Editorial Board
July 12, 2012
The Conservative Party head of the British
government, Prime Minister David Cameron,
condemned the "spivvy and probably illegal" activity
of Barclays and other banks involved in fixing
interest rates. The Chancellor of the Exchequer,
(treasury secretary) George Osborne, called the
Barclays affair "symptomatic of a financial system
that elevated greed above all" and "brought economy
to its knees." Andrew Rawnsley, the Observer
newspaper's chief political commentator, wrote
about "the moral cesspit of the City" (what we call
Wall Street), which he said should make the
Contemporary capitalism seems to just get worse
and worse.case "for radical reform of how we do
capitalism," adding that the country's bankers are
"greedy, reckless and incompetent" and "shameless"
and that "they fleece their customers" and as a
result "our whole society has been warped."
Financial Times associate editor, John Gapper,
wrote that the UK is plagued by "a set of too-big-to-
fail investment banks in which amoral behavior is
deeply embedded." The paper derided what it called
"the rotten heart of the financial system" engaged in
"nothing less than a long-running confidence trick
played on the public for personal and institutional
advantage," adding, "This was market-rigging on a
grand scale. It is hard to think of anything more
damning - or more corrosive of the reputation of
capitalism." The editors of the Guardian thundered
"our own society - and economy - have been warped
and corrupted" by the banks' behavior.
Against this backdrop, Rolling Stone's sharp
economics writer, Matt Taibbi, asked out loud last
week: "Why is Nobody Freaking Out About the
LIBOR Banking Scandal?" "This story is so
outrageous that it shocks even the most cynical
Wall Street observers," he wrote July 3.
The major U.S. media have pretty much ignored or
downplayed the story that unfolds nightly on the
BBC - the story of what the British government's
Business Secretary, Vince Cable, said unmasked "a
moral quagmire of almost biblical proportions."
There have been a few exceptions to the general
media avoidance of the subject in the U.S. The
reaction on this side of the pond has been "mainly a
shrug" wrote columnist, Joe Nocera, in the New York
Times last Saturday. "Perhaps we're suffering from
bank-scandal fatigue, having lived through Bank of
America's various travails, and the Goldman Sachs
revelations, and, most recently, the big JPMorgan
Chase trading loss. Or maybe LIBOR is just hard to
gets one's head around."
"But the Brits have this one right," wrote Nocera.
"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."
".yes, just when you thought the Street had hit
bottom, an even deeper level of public-be-damned
greed and corruption is revealed," wrote economist,
Robert Reich, Sunday.
And, in a commentary titled, "Crime of the Century,"
Robert Scheer, editor of truthdig.com concluded that
"behind the world's financial edifice lies a reeking
cesspool of unprecedented corruption."
The banksters can be prosecuted in the U.S under
the federal statue against wire fraud.
Reich throws cold water on the idea that this is a
solely British scandal. "So far, the scandal has been
limited to Barclay's, a big London-based bank that
just paid $453 million to U.S. and British bank
regulators, whose top executives have been forced to
resign, and whose traders' emails give a chilling
picture of how easily they got their colleagues to rig
interest rates in order to make big bucks," he wrote.
"But Wall Street has almost surely been involved in
the same practice, including the usual suspects -
JPMorgan Chase, Citigroup, and Bank of America -
because every major bank participates in setting the
LIBOR rate, and Barclay's couldn't have rigged it
without their witting involvement," Reich continued.
The Economist said, "looks less like rogue trading,
more like a cartel."
In a nutshell, the now transatlantic scandal
involves bank executive giving false reports to the
agency that sets the London Interbank Exchange
Rate (LIBOR). Based on the information provided,
the interest rate is set for the banks' borrowing from
each other on a day-to-day basis. As Taibbi
described the process, "When LIBOR rates are high,
it suggests that the banks' confidence in each other
is low, and high LIBOR rates are generally an
indicator of shaky financial health among the
banks. If the banks manipulated LIBOR, they did it
to make themselves look healthier, but this had the
consequence of affecting hundreds of trillions of
dollars' worth of financial products worldwide." One
estimate is that this affects as much as $500
trillion, ranging from home mortgages with variable
rates to student loans to what's in your wallet.
Possibly as many as 20 banks, including several big
ones, are under investigation for their part in the
fraud. "This could only happen in a City in which
cheating and deception have become
institutionalized," wrote Rawnsley.
"These `big boys' have to be taught that they are not
too big to jail".
A number of the other British banks are said to be
in secret negotiations with authorities, aiming to
avoid criminal charges through fines the way
Barclays has. U.S. authorities are said to be looking
into the dealings of a number of major banks. On
Sunday The Independent reported that "The LIBOR
fixing scandal is set to explode across the continent
in the coming weeks as it emerged that German
regulators have launched an intensive probe into
Deutsche Bank - one of the City's biggest employers
- over the affair."
Clearly, some of the biggest figures in the legions of
the 1 percent have moved in a big way beyond
making money the old fashioned way and have
instead turned to looting.
"Austerity has redrawn the boundaries," wrote Philip
Stephens, associate editor and chief political
commentator at the Financial Times. "The cost of
the financial crash was borne by the hard-working
classes. Now it turns out that the banks who were
gambling with taxpayers' money were also selling
them fraudulent insurance policies. Tax cheating by
the wealthy is now recognized as imposing an added
burden on everyone else."
"One by one, institutions that people once depended
on - banks, parliament, police, press - have been
exposed as, if not legally corrupt, then rotten with
greed," wrote Guardian columnist, Jonathan
Freedland, last Saturday. "Football fans are learning
that even their beloved teams are not immune:
Manchester United supporters despaired this week
as they saw their club move towards a flotation on
the New York Stock Exchange, in an effort to pay
back a chunk of the £423m debt that the Glazer
family loaded on to United when they bought it
seven years ago."
"Dip into any radio phone-in or online comment
thread and you can hear the fury all this is
creating," continued Freedland. "It's easy to dismiss
the current mood as hysteria, and the public's anger
is certainly inchoate. The clear alternative ideologies
around which collective rage cohered in, say, the
1930s are absent now. No one believes the masses
are about to storm the palace. But the crisis of
institutions is real."
Clearly, some of the biggest figures in the legions of
the 1 percent have turned to looting.
"The restoration of integrity in banking will not
happen without changes in the law to introduce
serious criminal sanctions against venal traders and
grossly negligent bosses," wrote Rawnsley. One of
those involved in the latest scandal wrote to
another: "Done. for you big boy." The endemic
corruption of financial institutions will go on until
they know they are being watched, they know the
chances of being caught are high, and they know
that the penalties for transgression are severe.
These `big boys' have to be taught that they are not
too big to jail."
Labor Party leader, Ed Miliband, made a salient
point the other day when he noted that "Not one
person has gone to jail for what happened during
the financial crisis." "Why is it that when you
shoplift £50-worth of goods you go straight to jail
but when you fiddle, lie and cheat your way through
the system, gaining millions of pounds, you get
away with a slap on the wrist - if that," he said.
"After last summer's urban disorders, the police
were imaginative in the use of the law to apprehend
those involved," Rawnsley commented. "The courts
handed down sentences to looters which were
designed to be exemplary. A college student, with no
previous convictions, was imprisoned for six
months for nicking a £3.50 pack of bottled water.
Yet there is serious doubt whether it will be possible
to prosecute banksters who perpetrated a massive
con involving sums which would buy many millions
of bottles of water."
Washington Post real estate blogger, James Downie,
suggests that the banksters can be prosecuted in
the U.S under the federal statue against wire fraud.
Commenting on "The banking scandal Wall Street
fears," he called for prosecuting the banks involved
"as thoroughly as possible." "The traders and
submitters directly involved in rigging-for-profit
should go to jail."
Last week, a New York Times editorial held out the
possibility that the U.S. Justice Department might
decide to prosecute somebody at Barclays.
I wouldn't hold my breath.
The major U.S. media have pretty much ignored or
downplayed the story of Britain's "moral quagmire of
almost biblical proportions".
Last week, right after Bob Diamond, chief executive
of Barclays - who last year hauled in $27.7 million
in total remuneration - resigned from his post. He
also bowed out as a host for an upcoming fund
raising dinner in London for U.S. Presidential
candidate Mitt Romney. (Price of admission:
between $25,000- $75,000.)
Romney reportedly took in $50,000 in a speaking
fee from Barclays last year.
"Not since Clement Attlee has there been a first-time
government with such reforming zeal," Financial
Times Executive Comment Editor, John McDermott,
commented last week about the Cameron regime.
"Yet there appears to be little sense of what the
priority is for the next three years.
"This should be to prove that capitalism can work
for the many and not just the few."
Good luck with that one.
These are not good days for the "free market
economy." Its ability to deliver economic justice and
security is in question and its reputation is under
"While Barclays has been dominating the news, we
hardly noticed that, at the same time, the British
pharmaceutical giant, GlaxoSmithKline (GSK), was
fined £1.9bn for bad practices in the US," wrote
Andreas Whittam Smith last week in the
Independent. "This is six times more than Barclays
has been fined for dishonestly manipulating interest
"These crimes are at least as reprehensible as
Barclays', or perhaps worse, as GSK was putting
people's physical wellbeing at risk. From which we
can conclude that we are not confronting something
arising out of the special nature of banking or out of
the particular characteristics of the drugs industry.
Rather it is the culture of contemporary business
that is the problem. Corrupt practices have spread
far and wide. They are occurring on a scale that is
Such is the state of contemporary capitalism. It
seems to just get worse and worse.
"The problem facing western democracies is doubt
about the ability of government to deliver rising
living standards," wrote McDermott. He went on to
quote a remark made by Osborne in January: "My
argument is that the way to address this doubt is
not to run away from capitalism but to run towards
it." "The future of this government will depend on
whether he and Mr. Cameron can do this without
falling flat on their faces," offered McDermott.
"At one time the Labour Party was committed to
public accountability and control of the
commanding heights of the economy. It supported
public ownership of major services and industries,"
wrote Jeremy Corbyn, who is Labour MP for
Islington North, in the leftwing Morning Star the
other day. "Over the years, particularly under new
Labour, the party retreated from this and under
Blair privatization was promoted."
"Now is the time, more than ever, to call for public
ownership and control of the banking system and
financial service industries," wrote Corbyn. "Only in
this way can there be stability in people's lives and
investment in productive industries and vital
We aren't there yet; but we should be.
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