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Banking: the Diamond standard, a culture of cheating without prosecution

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Interesting piece from US-based economist Michael Roberts on the Barclays fraud:

A Diamond standard

(Taken from his blog, also reproduced by Facts for Working People)

CrimeTalk was discussing these issues in March & May of course, noting the non-prosecution of securities frauds and the weak attempt in the US to rein the banks in and the failure to re-introduce Glass-Steagall., with two articles from Gregg Barak.

Financially Respectable Crimes of Wall Street

Wall Street Crimes II: Dodd-Frank and the limits of regulatory reform

But here is a key passage from Roberts' article yesterday:

"Derivatives traders at Barclays requested the false submissions as they were“motivated by profit and sought to benefit Barclays’ trading positions,” the UK bank regulator, the Financial Services Authority said.  Again, no kidding!  Former City minister Lord Myners and friend to the banks over ‘light touch’ regulation called this “the most corrosive failure of moral behaviour I have seen in a major UK financial institution in my career.  I think fines and public criticism will not stop these behaviours. These behaviours will not stop until the people perpetrating it or responsible for overseeing them face the prospect of criminal charges and the prospect of going to jail.”  Will that do the trick?  Not when during the whole financial crisis of 2008-9 and subsequently, not one senior banker was prosecuted, let alone convicted in the UK, and the only ones in the US that were had been engaged in outright fraud, like Madoff.

And senior bankers were involved.  Barclays admitted that “a member of senior management” instructed its Libor staff to lower their submissions to make them match other banks and dispel concern about the lender’s health.  Senior Barclays managers were telling staff to submit artificially low rates to Libor from August 2007 until early 2009 to boost the bank’s financial condition, according to the CFTC.  And it is not just Barclays.  Citigroup, (tax payer-owned) Royal Bank of Scotland, UBS ICAP, (tax-payer owned) Lloyds Banking and Deutsche Bank are among those being probed by regulators worldwide. Barclays is the just first shoe to drop in a sprawling probe that now spans nearly a dozen regulators and more than 20 banks.

And what about the regulators?  The Bank of England is supposed to monitor the activities of the UK’s banks.  The other UK regulator, the FSA, said the scandal was the result of a “misunderstanding” down the chain of command whereby lower-level Barclays staff believed they were submitting a lower Libor rate at the Bank of England’s request, which was not the case.  What?  What codswallop!  Paul Tucker is deputy governor of the Bank of England and now favourite to succeed the current governor, Mervyn King.  He was in charge of monitoring Barclays on just this issue.  So we had either incompetence, negligence, or collusion by the regulators.  Either way, what does it say about regulation of the banks?

It also shows that nothing has changed.  The giant banks with their grotesquely overpaid senior executives and traders continue to engage in gambling in financial markets.  And given the weakness of the ‘real economy’ at present, gambling is the only way to make money, not providing a service for households and small businesses.  They continue to pay high rates for loans if they can even get one.  UK bank lending is stagnant.

Instead, the banks go on gambling and cheating.  It’s a culture that seeps through the system as emails from the traders involved in this scandal reveal.  “I’m like, dude, you’re killing us,” he said. His manager replied, “just tell him to… put it low”“For you…anything,” said one. “Done… for you big boy,” said another. And: “I owe you big time… I’m opening a bottle of Bollinger.”  In February 2007, one of the Barclays traders wrote in an instant message to a trader at another bank: “If you know how to keep a secret I’ll bring you in on it, we’re going to push the cash downwards, if you breathe a word of this I’m not telling you anything else, I know my treasury’s firepower… which will push the cash downwards, please keep it to yourself otherwise it won’t work.”"

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