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July 3, 2012

It's not a Libor Scandal; It's the Culture of Lie-More

The importance of the exploding global interest rate rigging scandal goes far beyond the UK-based Barclays $453 million fine and the resignation of its CEO, Bob Diamond. 

There are 20 global banks currently under investigation for what Barclays has settled.  And remember, while sounding very technical, the Libor rate that was rigged is used to set rates for some $800 trillion in global financial transactions from derivatives to consumer lending.  It sets the rates for an untold number of loans and other financial transactions.  This is not some victimless crime.  It’s almost certain that millions if not tens of millions of individuals and companies worldwide have been ripped off because of this conspiracy. 

The Libor interest rate is based on a survey of banks like Barclays.  Those banks know what that the information they provide in that survey sets the Libor rate, which is then used to set the rate for those $800 trillion-plus transactions. 

What Barclays settled — and what the other banks are being investigated and sued for — is knowingly and intentionally providing false information that they knew would result in a false Libor rate being set.  This is not some isolated sales practice or trading strategy.  The allegations are of a massive conspiracy involving 20 or so of the biggest banks in the world manipulating one of the most important rates in the world

So this isn’t about Libor – this is about Lie-More

That seems to be the business model for the big global finance houses.  They like to call themselves “banks,” but they aren’t banks in any traditional sense.  They are global behemoths that are not just too-big-to-fail, but also too-big-to-regulate and too-big-to-manage.  Take JP Morgan Chase for example.  It has a $2.35 trillion balance sheet, more than 270,000 employees worldwide, thousands of legal entities, 554 subsidiaries and, as proved by the recent trading losses in London, a CEO, CFO and management team that has no idea what is going on in their own bank. 

Let’s hope for the sake of the global financial system, the global economy and taxpayers worldwide that Mr. Diamond’s resignation is the first of many.  What is needed is a clean sweep of the executive offices of these too-big-to-fail banks, which are still being governed by the same business model as before the crisis:  do whatever they can get away with to get the biggest paychecks as possible.  (Remember, CEO Diamond paid himself 20 million pounds last year and was the UK banking leader insisting that everyone stop picking on the banks.)

Lie-more is just the latest example of why that all has to change and the sooner the better.



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