By Ben Cohen: The banking crisis in 2008 should have resulted in prison sentences for hundreds of Wall St executive and regulators responsible for decimating the global economy. Thus far, no major executive or government official has been carted of to jail - a horrifying indicator of just how corrupt the US government is. Both political parties in America refused to punish banks for their extraordinary behavior, and Wall St wields as much power today as it did in 2007. While there was enormous public outrage over the crisis, elected officials essentially pretended to get angry, then did nothing. The crisis exposed the truth about who runs the world - and it isn't national governments working for the public interest.
In Britain, another serious banking scandal has been uncovered, and given the public's reaction to it, the consequences could actually mean something this time around. Matt Taibbi provides the background:
The furor is over revelations that Barclays, the Royal Bank of Scotland, and other banks were monkeying with at least $10 trillion in loans (The Wall Street Journal is calculating that that LIBOR affects $800 trillion worth of contracts).
The banks gamed LIBOR for two semi-overlapping reasons. As noted here last week, there were instances of Barclays traders badgering the LIBOR submitters to "push down" rates in order to fatten their immediate bottom lines, depending on what they were trading or holding that day. They also apparently rigged LIBOR downward in order to produce a general appearance of better health, essentially tweaking their credit scores a few ticks upward.
Most intriguingly, or perhaps disturbingly, there were revelations last week that Bank of England deputy Governor Paul Tucker had a conversation with Diamond at the peak of the crisis in 2008. The conversation reportedly left Diamond, and subsequently his traders, with the impression that the bank had carte blanche to rig LIBOR downward in order to help allay spiraling public fears about the banks’ poor financial health.
The British public is taking the Barclay's/Libor banking scandal extremely seriously. The press is all over it, and with a criminal investigation underway, it could lead to some very high profile heads rolling. Here was Mervyn King, Governor of the Bank of England's take:
It is time to do something about the banking system…Many people in the banking industry are hardworking and feel badly let down by some of their colleagues and leaders. It goes to the culture and the structure of banks: the excessive compensation, the shoddy treatment of customers, the deceitful manipulation of a key interest rate, and today, news of yet another mis-selling scandal.
As Taibbi writes, King "Responded the way a real public official should (i.e. not like Ben Bernanke), blasting the banks."
What's interesting about the scandal is that the story has barely made the headlines in the US, despite it having extremely serious ramifications. Writes Robert Reich in the Guardian:
It's becoming apparent that Barclays' reach extends far into the US financial sector, as evidenced by its $453m settlement with American as well as British bank regulators, and the US justice department's active engagement in the case. Even by American standards, the Barclays traders' emails are eyepopping, offering a particularly a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks. (Bob Diamond, the former Barclays CEO, says the emails made him "physically ill" – perhaps because they so patently reveal the corruption.)Most importantly, Wall Street will almost surely be implicated in the scandal. The biggest Wall Street banks – including the giants JP Morgan Chase, Citigroup and Bank of America – are likely to have been involved in similar manoeuvres. Barclay's couldn't have rigged the Libor without their witting involvement.
The difference in the reaction to the scandal between Britain and America - two countries where the financial sector wields more power than anywhere else in the world - is quite revealing. As Yves Smith notes, both major political parties in Britain are not beholden to banks, meaning politicians actually ask serious questions and can force government to act:
The Labor party in England really does represent different interests than the Tories, and is willing to go after the Tories and their allies in a much more persistent manner than our Dems, who ultimately depend on the same funding sources as Republicans. In England, as the News International scandal showed, there is the possibility of real amplification: of media discoveries being fed into political investigations, which in turn lead to more media ferreting. The fact that someone who seemed to have such a lock on power as Rupert Murdoch could be cut down is no doubt a bracing message to the British press, that they have infuence that for the most part they have failed to exercise effectively. So, ironically, a country where banking is a much larger percentage of GDP than the US may be the one where banking misconduct is finally unearthed and at least some of the perps suffer. And that would show our own officials’ failure to act to be the disgrace that it is.
In Britain, there is still a belief that government should, and can act on the behalf of the public, and that is reflected in the political dialogue that seems completely alien to Americans. Here was Ed Miliband, leader of the Labour Party on the scandal today:
"Last September I said to the Labour party conference that Britain needed a different kind of economy. An economy based not on the short-term, fast buck, take-what-you-can culture we see too much of in our banks today. But on long-termism, patient investment, and responsibility shared by all.
"Today I am going to tell you what a better banking system would look like. I will describe the first steps towards moving from the casino banking we have to the stewardship banking we need.
"It will mean root-and-branch change for our banks if we are to deliver real change for Britain"
While Obama has scolded banks on occasion, there has never been a promise to fundamentally change how they operate. Americans have long given up on the idea that the government works in their interest and simply moves on when astonishing corruption is unearthed. The media knows that attacking major power centers like the financial sector can have serious ramifications, so they rarely move unless the scandal is so blatant it has no choice. The British press go out of their way to uncover corruption whereas the US press simply reacts as events unfold (anyone remember a major scandal Fox News or MSNBC uncovered in recent times?). This culture pervades public, political and media circles and it leads to dangerous apathy that severely harms public policy. With an apathetic media comes an apathetic public, and with an apathetic public, there is no pressure on government to behave responsibly. It's a vicious cycle that feeds itself, and only a real sense of public anger will change the status quo. While the Brits could learn a thing or two about fixing their economy from the US, Americans could learn a thing or two about getting angry from their Trans-Atlantic cousins.
It's time to get mad America, British style.