It is almost quaint that only five banks are mentioned in this Reuters story about the Libor rate-rigging scandal. Barclays leads the way being the first bank to be hit with nearly a half billion dollar fine. Soon, it seems, they will have company.
The 360º survey of damage from rigging Libor rates has begun to percolate. Layers of political and social damage can be assessed from the permissive attitude between government regulators toward mega-banks. One can argue, as British Business Secretary Vince Cable has done, that banks have capitalized on crippling economic growth.
Other financial institutions have been swept into the maelstrom: Deutsche Bank, UBS, RBS and the Bank of England. It is virtually guaranteed that damage will come in many forms now that investigators and litigants have obtained private communications between people at each bank who had a hand in falsifying Libor rates.
These executives paraded their criminality as though they had nothing to fear from either regulators or law enforcement.
The scandal - complete with emails showing bankers boasting of fiddling figures and congratulating each other with offers of champagne - has sparked fierce criticism about the financial industry in general and Barclays in particular.
About the Bank of England being now mired in scandal: Paul Tucker will testify today on the role the Bank of England is accused of having in "green lighting" the manipulation of interest rates.
North American banks, until now silent partners in fraud, have been implicated in the global scheme.
At the center of the Barclays mess (other banks including JPMorgan Chase, Citi, UBS and Bank of America are also being investigated) is an October 2008 conversation that took place between Diamond and Paul Tucker. According to notes Diamond has submitted as evidence Tucker suggested during the conversation that Barclays need not submit such high Libor rates as it was doing during that time. The notes suggests Tucker was encouraging Barclays to falsely lowball its Libor rate.
The question most commonly asked in reaction to the Libor scandal is, "How does this affect me?" Simple answer: Libor is the benchmark by which interest rates are established on credit cards, home and auto loans, small business financing and many other credit products. Banks that colluded in this scheme have probably manipulated your rates higher than they should be. In effect they have committed fraud and stolen money from you.
The second impact that Libor has on everyday life is that banks have used Libor to gamble on derivative products. This practice, as we learned in 2008, placed the entire global credit markets in danger. Businesses folded because short term financing was unavailable. Unemployment spiked. Wages during any recovery phase have failed to recover to the pre-Lesser Depression levels.
The larger picture focuses on the proper role of banks in our society. Banks traditionally function as engines of economic stimulus. Accumulated deposits are then loaned to businesses to spur growth and hiring. Mega-banks of today have become wealth accumulators. They exist for themselves with little regard for the traditional core mission.
Traditional banking matters so little that the world's largest banks have nearly abandoned the business model altogether. "Banks" (using the term very loosely) have been elevated to the status of some kind of royalty. These institutions truly are corporate "welfare queens."
To estimate the dollar value of the subsidy in the U.S., we multiplied it by the debt and deposits of 18 of the country’s largest banks, including JPMorgan, Bank of America Corp. and Citigroup Inc. The result: about $76 billion a year. The number is roughly equivalent to the banks’ total profits over the past 12 months, or more than the federal government spends every year on education.
JPMorgan’s share of the subsidy is $14 billion a year, or about 77 percent of its net income for the past four quarters. In other words, U.S. taxpayers helped foot the bill for the multibillion-dollar trading loss that is the focus of today’s hearing. They’ve also provided more direct support: Dimon noted in a recent conference call that the Home Affordable Refinancing Program, which allows banks to generate income by modifying government-guaranteed mortgages, made a significant contribution to JPMorgan’s earnings in the first three months of 2012.
The emphasis is mine.
Sycophantic solons laud CEOs like Jamie Dimon as being "so huge" when they should demand investigations into the banking cartel's operations that abuse the essential framework of capitalism to enrich itself. If the video linked above is any indication of the seriousness with which some elected officials will approach domestic mega-bank involvement in falsifying Libor rates then it stands to reason that we will need to wait for action to emerge from Europe.
After all, with austerity measures snuffing out every spark of economic recovery, the EU has appreciably high stakes in sorting out this criminality.
Cross posted at MacroIndex