"The weak point in the global banking system may not prove to be Spain
and its banks, but what is going on in London today, the major financial
center, and has been apparently since the 2008-09 collapse. London has
become the ‘Cowboy Finance Capital’ center of the global economy. High
risk taking and continuing speculative excesses have been the rule and
now it’s becoming apparent. " (from "Revisiting ‘Are Central Banks Worldwide Preparing for a Global Banking Crisis?’" by jackrasmus) - SON
Rotting in its own criminality, the capitalist financial system
produces ever more powerful arguments for its expropriation and
reconstitution under public ownership and democratic control.
latest banking scandal, thus far focused on UK-based Barclays bank,
goes to the heart of the global financial system. It provides a glimpse
into the mechanisms by which a handful of giant banks rig the so-called
“free market” to boost their profits and the fortunes of their
executives and big investors. It is a process of economic plunder whose
result is mass unemployment, poverty and ever increasing social
Barclays last week became the first of many big banks
to admit to manipulating the most important benchmark for international
interest rates, the London interbank offered rate (Libor). The daily
Libor rate, which is supposed to measure the average cost of short-term
loans between major banks, determines the interest rates for loans and
investments that affect hundreds of millions of people around the world.
influences an estimated $360 trillion of loans and credit default
swaps. It impacts futures contracts traded on the Chicago Mercantile
Exchange with a notional value of more than $564 trillion.
and its Brussels-based counterpart, Euribor (European interbank offered
rate), also the target of bank manipulation, are used to set the
borrowing rates for $10 trillion in mortgages, student loans and credit
cards. Some 90 percent of US commercial and mortgage loans are linked to
As one Financial Times commentator put it, rigging Libor is “the financial equivalent of contaminating the water supply.”
week, Barclays, the fourth-largest bank by assets in the world,
admitted “misconduct” in a settlement with Britain’s Financial Services
Authority (FSA), the US Commodity Futures Trading Commission (CFTC) and
the US Department of Justice. It agreed to pay a total of $453 million
to the three agencies for seeking to manipulate the Libor rate between
2005 and 2009.
The reports issued by the three entities included
emails, text messages and telephone conversations showing that from 2005
to 2007 the bank knowingly submitted false estimates, mostly high, of
its interbank borrowing costs to the Libor board. It did so in response
to employees at its derivatives trading desks who asked for phony
submissions to benefit their bets on credit default swaps and other
From 2007 to 2009, at the height of the global
financial crisis, the bank deliberately underestimated the cost of loans
from other banks in its submissions to the Libor board in order to
conceal its weakened financial position.
This type of gaming of
the Libor and Euribor rates (as well as the Tokyo-based Tibor) was being
carried out by virtually all of the major international banks. A dozen
regulators around the world are investigating somewhere between 12 and
20 other banks, including HSBC, the largely state-owned Royal Bank of
Scotland, Deutsche Bank, Credit Suisse, UBS, JPMorgan Chase, Citigroup,
Bank of America, Bank of Tokyo-Mitsubishi and Sumitomo Mitsui. More
settlements along the lines of the Barclays deal are expected in the
This bankers’ conspiracy has a very real and vast
impact on the lives of ordinary people. Countless billions were
effectively stolen from new homeowners or those with variable-rate
mortgages, credit card holders, students with college loans, small
business borrowers and other consumers when the banks priced the Libor
rate artificially high. The Wall Street Journal noted Thursday that an extra 0.3 percentage point would add $100 to the monthly payment on a $500,000 adjustable-rate mortgage.
lowballing of the Libor rate, on the other hand, cost bondholders who
were not parties to the plot untold billions in lower returns. This
includes state and local governments that have pared budget deficits by
slashing jobs, wages and public services. It also includes pension funds
and retirees with fixed investments, whose income was significantly
The settlement with Barclays is a whitewash designed to
let the bank’s top executives off the hook and conceal the complicity of
governments and bank regulators in the scam. The $453 million fine is a
fraction of the billions Barclays made illegally over the years by
falsifying its loan rates to Libor and Euribor. It is a small price to
pay for allowing what is, in essence, a criminal operation to continue.
despite emails and other evidence to the contrary, the regulators
concluded they could not determine whether Barclays’ top executives were
involved. The $160 million settlement with the US Justice Department
exempted the bank from criminal prosecution. No official at Barclays or
any of the other banks has to date been criminally or civilly charged.
This includes CEO Robert Diamond, who resigned Tuesday.
Diamond received close to $39 million in total remuneration. Since
joining the Barclays board in 2005, he has taken in $311.7 million in
salary, benefits, bonuses and share awards. Less than a year ago,
Diamond, who appeared Wednesday before the British House of Commons
treasury select committee, told the same group that “the period of
remorse and apology” by banks was over.
One reason the US and
British governments and regulators want to sweep the scandal under the
rug as quickly as possible is because they are directly implicated.
that the banks were rigging Libor were raised at least as early as 2007
and were ignored by US and European governments and regulators. They
were, in fact, encouraging the banks to submit low loan rate estimates
after the financial crisis erupted in 2007 in order to hide the depth of
the crisis and protect the financial elite. Barclays contends that Paul
Tucker, deputy governor of the Bank of England, suggested to Diamond in
October of 2008 that its submissions to the Libor board were too high.
itself is a product of the deregulation of the banks carried out by
capitalist governments of all stripes, nominally “left” as well as
conservative, over the past 30 years. Launched in the mid-1980s, it is a
prime example of “self-regulation,” a euphemism for giving the banks a
free hand to rig markets and plunder the population.
presided over by the British Bankers’ Association (BBA), a private
banking trade and lobby group, presently headed by the chairman of
Barclays, Marcus Agius. Eighteen of the world’s biggest banks submit
loan data to the Libor board every morning to help set the global rate
to which their own trading bets are tied. These same banks control the
This, like so many other market mechanisms, is intrinsically corrupt and riddled with conflicts of interest.
claim that this cesspool of avarice and corruption can be “reformed” is
the product of ignorance, self-delusion or deliberate deceit. The
bankers who have committed fraud must be brought to justice and their
illegally obtained fortunes seized and used to provide relief for the
unemployed, the homeless and all those victimized by the financial
The fate of humanity, the rational and progressive
allocation of resources to benefit the world’s inhabitants and prevent a
further descent into social devastation, requires the expropriation of
the banks by the working class and their transformation into public
utilities democratically controlled and run in the interests of social
need, not private profit.