Another bank scandal: This time, Barclays is charged with manipulation
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The London Interbank Offered Rate sounds obscure, but it sits at the core of international finance. The report that bankers have been fiddling with it across the years is truly disgusting.
LIBOR is in principle the rate at which banks in more than 60 countries loan each other money short-term to meet their needs. In fact, it has served for 26 years as the basis for virtually all big loans. Their terms are normally quoted as "LIBOR-plus-X-percent."
LIBOR is, in effect, the home plate of high finance. To find out that bankers have been fiddling with it to their own profit is the equivalent of learning that those in charge of the Dow Jones or Nasdaq averages have been wheeling their daily gains and losses up and down over the years, without reference to anything other than their own profits. Such a situation would mean that the figures neither were nor are worthy of confidence.
That is, unfortunately, what a British parliamentary inquiry is bringing to the attention of watchful investors and government officials worldwide. Barclays Bank agreed last week to pay at least $450 million to settle charges that it attempted to manipulate key interest rates, including LIBOR.
In the process, the central position that London and its Wall Street, "The City," holds in international finance is being shot full of holes. The destruction of confidence in LIBOR and The City is personified by the testimony and resignation Tuesday of Barclays' U.S.-born CEO, Robert E. Diamond, Jr. He is not to be confused with the same category of oily banker as JPMorgan Chase's CEO Jamie Dimon, whom the U.S. Congress has been grilling, at lower temperature than Parliament's handling of Mr. Diamond, over a bad trade that cost Chase $2 billion to $9 billion.
What the two have in common is considerable. Both had previously, to a degree, buffaloed attempts to bridle their organizations' economy-damaging actions. They were getting away with this in the name of their self-styled responsible management of their crucial part of the economy. JPMorgan Chase's assets are estimated at $2.32 trillion in spite of its recent mega-loss on a credit derivative trade. Barclays' assets stand at $2.6 trillion in spite of the LIBOR affair. Once the respective rocks were turned over at the two banks, what was found lurking underneath severely damaged confidence not only in both institutions but also in the international finance industry in general. The activities of 16 more banks are reportedly under examination.
The other element that both Mr. Dimon and Mr. Diamond have in common is their level of compensation. Mr. Dimon's in 2011 was $23 million, while Mr. Diamond's was $10.3 million. Each is a super-large multiple of the median wage of workers in his country, average workers in the United States and United Kingdom who are reeling from the harsh effects of the Great Recession.
Despite his resignation, Mr. Diamond may face prosecution. The future of Mr. Dimon is still in question.
First Published July 6, 2012 12:00 am