Friday, July 13, 2012

Criminal banks

The latest scandal to engulf the banks centres on something called LIBOR - basically, an average interest rate UK banks pay other banks, which is used as a reference rate on all sorts of derivatives. Barclay's Bank in the UK has been fined £290 million for attempting to rig this rate. As a result, the bank's chairman has resigned in disgrace (though of course he's collecting a £2 million payout on the way to the exit).

But as London Banker points out, the scandal probably goes much wider than this. LIBOR is just one of hundreds or thousands of such reference rates, all of which are open to this sort of manipulation:

What I suspect is that this is not a flaw but a feature of modern financial markets. And if it was happening in LIBOR for between 5 and 15 years, then the business model has been profitably replicated to many other quotation-based reference prices.


How has it been possible for banks to grow from less than 4 per cent of the global economy to more than 12 per cent of the global economy without impoverishing others? How has it been possible for profits in the financial sector to be consistently higher than profits from other human endeavors with more tangible products or impacts on our daily lives - such as agriculture, transport, health care or utilities? How has it been possible that banks derive their profits not from the protected and regulated activities of deposit-taking and lending, but from the unsupervised and often unknowable escalation of off-balance sheet assets and liabilities? How has it been possible that pension savings have increased while pension returns have declined to the point where only bankers can expect a comfortable old age? Global banks have built the casinos and tilted the odds in the house's favour by rigging the data that determines the outcomes of most of the bets on the table. Every one of us that sits at the table long enough - whether saver, investor, borrower, taxpayer or pensioner - will be a loser. It is not a flaw; it is a feature.

Casino capitalism is simply rotten, based on fraud at the highest levels. Its time for a cleanout. And the first stage of that has to be putting the bankers who have stolen from us where they belong: in jail with the other thieves.