“In order to punish Barclays further, they should have to start life again as a third division Scottish football club.”
Mark Littlewood, boss of the Institute of Economic Affairs, in a private communication via Facebook. It is so good that I don’t think he’ll mind me quoting him here.
He is talking about the resignation, announced today, of Bob Diamond as CEO of Barclays. That bank has been fined a total of £290 million by US and UK authorities for manipulating the inter-bank interest rates known as LIBOR. Criminal prosecutions are high possible and the net could widen very far indeed.
Barclays is one of those UK banks – HSBC being the other big high street one – that did not receive, nor ask for, bailouts by the UK taxpayer. However, that bank, like all the rest, did benefit from the privilege of being able to get access to cheap Bank of England funding; and it also benefited from state-backed guarantees. The point cannot be made too often: we don’t have a proper capitalist banking system but at best a hybrid. But it also needs to be recognised that even in a world of total laissez faire and no funny fiat money, there might still be market conventions for setting a benchmark reference rate for interest rates between banks, just as there is a daily “fix” for the gold price in the London spot gold market. Such market benchmarks arise, like a sort of Hayekian spontaneous order, because they are useful for other economic actors in pricing products of their own.
However, when a bank or other institution fiddles the prices submitted for these benchmarks, it erodes confidence in the system and the reputation of the miscreant will be badly damaged. In a crude sort of way, what has happened is a good sign that organisations which screw up suffer.
Update: Guido Fawkes weighs in, and points out that the manipulation of interest rates has also been government policy for years.
Discussed at length on this site:
http://hat4uk.wordpress.com/
Including the popup joke of the moment that Bob Diamond should find his retirement a LIBOR rating experience.
Don’t laugh, it only encourages the buggers.
“even in a world of total laissez faire, there might still be market conventions for setting a benchmark reference rate for interest rates between banks, just as there is a daily “fix” for the gold price in the London spot gold market.”
OK, so, given that Libor was fixed, what are the odds the gold fix, was or is fixed as well ?
Just a thought
I’ve long held the view that contrary to what the “bash the bankers” crowd seem to think, completely deregulating banking is the only way to make it more honest.
If banks could do whatever they wanted, set whatever interest rates that wanted, have as huge a deposit-lending ratio as they wanted, but they had to live with the consequences of those decisions – what do you think would attract customers more? A bank with a 1000-1 lending ratio, interest rates of 25% and a reputation for losing people’s money, or a bank with a 5-1 lending ratio and a 3% interest rate and a reputation for shrewdness?
I know which one I’d go for.
Interest rates have been used for years to game the system. Rumour has it that G.Brown pressured the ostensibly independent Bank of England (under the table) to keep interest rates artificially low in order to cause a lending bubble which the plebs would mistake for a healthy economy. I suppose he never thought he’d be around long enough for the blame to go his way – guess he was too successful.
Interest rates (both public and inter-bank) should be set at what the market can support, not what the government says they should be. Centrally set interest rates are at least part of the reason many of the banks keep carping on about the end to “free banking”. Banking is not and was never free. Customers are doing the bank a favour by depositing their money with them, a favour which banks repay through interest which is a share of the profits generated by investing your money. The idea of charging you a fee for graciously allowing the bank to make money from your savings is obscene.
And of course such behaviour is another thing a healthy dose of competition wouldn’t hurt. Although given Barclay’s behaviour there is always a risk that deregulation might bring about more aggressive cartelisation. Hard to see how it could make the situation worse than it is though.
It is quite clear that there is already a banking cartel at work in the UK.
I think Guido’s story is far bigger, and significantly more important, than Barkleys shaving a few basis points here and there.
It will be interesting to hear what Diamond says at the Treasury Select Committee hearing tomorrow.
He obviously knows a lot about the Treasury/FSA/BoE end of the LIBOR fixing racket as well as the minor Barclays scam. So, is he doing deals now to set up his future K, or – having resigned his highly remunerated and greatly esteemed job – is he preparing to bring down the Temple around him?
Why all the hysteria about bankers and their bonuses, or bending the LIBOR a fraction, when vast billions are being counterfeited by the state?
It seems strange that there is no suspicion about what is really going on.
Deliberately turning away from such useful but loaded words as elites, socialism or left and right, I wonder if it is possible to evade pre-structered thought and lay hold of reality in simple terms? This is an attempt and is a comment from elsewhere. Sorry:
Banks and other financial institutions are run by people, as are universities, industries, businesses. People who tend to wield ever greater power and influence as their control on the affairs of others increases.
To greater or lesser extents they become the effective power in the land, the continent and/or globe.
At various times “the people” have demanded greater power over their own lives and the general outcome has been a system of appointing (electing) representatives who are supposed to hold the ultimate decision-making power.
However, those with the effective power control most events and resources so it tends that those appointed by the people become effectively controlled by those with effective power, rather than the other way around. (Power coming, as it does, out of the barrel of a gun, or, somewhat more acurately, out of the ability to fund and provision.)
Should “the people” begin to see their representatives have been, or are, hijacked by the very people whose inluence they are supposed to restrain, that they have become front men for them, it may arise that the bankers, the professors, the captains of wealth, business and industry give their front men a stick, in the form of ‘banker’s bonusses’ or other similar unseemly and unjustifiable advantage, and cause their front men, the people’s appointees, to pretend to beat them, to pretend that they have the actual power. It can even happen that given the extended timescales, some of the front men even delude themselves that they do have that power. Well, almost.
Operating as or through the people’s representatives also enables the power positioned individuals to infuse their activities with the people’s (tax payer’s) wealth. As in “rescuing the banks” with “bank bailouts”.
This also requires them, or can decently seem to require them, to regulate their banks through their state (people’s representatives) mechanism.
Thus acquiring ever greater control over what remains of independent transactions of wealth and tending ever more towards a command economy (so much simpler and effective for the assimilation of other’s wealth!)
A good article(Link) on this over at Zerohedge (hardly surprising). implicating the Fed in all this. They quote a report in MarketWatch: “Barclays also cited subsequent research by the New York Federal Reserve staff members that, according to the lender, concluded that banks’ Libor quotes were systematically below their borrowing rates by 39 basis points after the Lehman bankruptcy.” In other words, the Fed knew about Barclays’ underreporting but did nothing. No doubt because it helped the US government keep rates artificially low.
This really is a Big Deal. Unfortunately, it’s so esoteric a topic that I seriously doubt it will gain any public attention at all.
Smited! On a post about LIBOR and the Fed. How is that even possible?
Do not meddle in the affairs of wizards, for they are subtle and quick to anger.
Governments have made it impossible to live without a bank account, thus the banks do not operate in anything remotely resembling a free-market.
The banks have everyone’s money because the state has coerced everyone into the hands of the banks.
What is truly remarkable is that despite the communist-like enforcement of bank accounts upon the populace, these banks still manage to fail.
It is no coincidence that banks have become contemptuous of their customers since governments started forcing people into being their customers.
What seems missing is:
Who got hurt?
Who benefited; how and why?
And isn’t the interst rate the cost for the use of credit (credit as money); and that is arbitrary?
Go back to Lombard Street (Bagot) or even the greater detail in Quigley’s Tragedy and Hope, and this is simply a continuum.
I listerned to Mr D. yesterday – for hours.
It was a total waste of time.
Why are bankers not honest?
Why do the fail to even speak in human language?
Because they are destroyed if they do.
Werner’s (the oldest private bank in Switzerland) refused to play ball with governments.
And the head of Werner’s spoke in understandable language – he did not speak for hours and say NOTHING.
So the governments (led by the American government) did everything possible to destroy this bank.
That is why bankers are scumbags.
Because if they choose NOT to be scumbags – governments destroy their banks.
Did you mean ‘Wegelin’, Paul?
Yes, governments destroy the banks by forcing everyone to have a bank account, and the Inland Revenue hounds employers and employees who don’t use BACs.
Its not a free-market if people open bank accounts not because they want to, but because if they don’t, they will likely end up jobless and homeless.
Zerohedge is calling this “The Biggest Financial Scam in World History.” I don’t think that’s intended as hyperbole.
Given that the Bank of England has just created £50 billion out of thin air, which will depress gilt yields and thus impoverish savers and pensioners, I cannot get worked up over the LIBOR scandal. As ever, governments are the real mobsters, and they have the advantage that their scams are legal because they say so. John Gotti’s big mistake was that he never ran for Congress.
Alisa – yes I do.
Even at my age I still have not learnt that I can not spell.