With the Westminster summer recess and Olympics around the corner and “silly season” kicking off, I was worried that no news worthy of writing about would surface, but luckily the Barclays LIBOR rigging scandal came to light to save my bacon.
Barclays so far has been the only bank to take the rap and subsequent fines, but this does not show the extent to which the scandal is limited. Anyone familiar with the LIBOR process will know that it is set by averages, with the top and bottom quartiles excluded and the middle 50% of submissions averaged out. To affect the rate by an amount worth taking the risk for (Barclays defence is that their rates were higher than everyone else’s, which cast doubt over their creditworthiness), market participants would have needed to work in some sort of tandem to create a lower average. This would make the frenzy of criticism Barclays has come in for seem a little unfair, given that they probably weren’t the only ones involved. This industry wide practise as I am sure it will be exposed as will place bankers below used car dealers on the public affection scale, and do little to reassure the public the message sunk in when it was abundantly clear that the system needed to change. The emails offering bottles of Bollinger in return for keeping the ruse a secret and being let in on it, smacks of materialism, aloofness and arrogance.
Depending on figures you believe this may have cost the ‘real’ economy up to £10bn, which washed through the system in terms of mortgage rates for homes and business at levels which may not have been their market rate. With businesses struggling and household incomes squeezed, this will make many angry. This anger will be further stoked when those responsible remain in jobs, are sacked and rehired elsewhere, or leave with “golden handshakes” running into millions of pounds. This gross distortion of remuneration to effort and behaviour shows how out of touch those at the top have become.
Fast forward a couple of days and emails appear of correspondence between the Bank of England and Barclays, with dialogue that was allegedly misinterpreted as a cue to lower submissions from the Deputy Governor, Paul Tucker. One will never know the true meaning of these messages if there even was one, but it is at this point that the ugly face of party politics rears its head. Questions need to be answered whether any political pressure was exerted by the Labour Government at the time as “it did not always need to be the case that [Barclays] appeared as high as [Barclays] has recently.”. This has provided an opportune moment for the Conservatives to portray Labour as untrustworthy on the economy and simultaneously shift the heat of scrutiny from the poor economic figures to this debacle. Ed Balls, now Shadow Chancellor would be instantly discredited and probably forced to resign, casting considerable doubt in the minds of voters with pens hovering over Labour, questioning Balls’ ethics and Ed Miliband’s integrity.
This is a scandal unlikely to go away and will be cited by traditionalists as an erosion of ethics, and the inquiry set up to investigate it will produce its findings in due course and no doubt implicate a wider circle of people as it digs ever deeper. More heads will roll before the scandal blows over. A personal view is that the greatest thing that will come from this will be an ever declining trust in professions, institutions and authority. We have had an MP’s scandal that rocked Parliament, a phone hacking scandal which has implicated the media and No.10 and both the LIBOR debacle and huge bailouts in the face of irresponsibility that have rocked the banking sector. To ask more people to participate in the political process and engage in the Big Society seems bare faced cheek when so many at the top are on the “fiddle”. It is issues like these that are remembered, not the good work and good customer service that many at the bottom of institutions provide and take the flack for. This should be realised by the wider public and shift the emphasis onto those who are ultimately culpable rather than those it is easiest to blame.