Another Week, Another Reminder That the Banks Are Still Busted
The West’s financial industry remains broken, and Western politicians continue to flail about in their halfhearted attempts to pretend that they’re confronting the problem. This week’s titan-turned-villain is Bob Diamond, until Tuesday the head of Britain’s Barclays Bank. The American-born Diamond ran the investment arm of the bank half a decade ago, when it consistently manipulated the London Interbank Offered Rate, better known as Libor—the interest rate that big banks report having to pay to borrow funds from global markets. If Libor is low, things are good; if Libor is high, things are bad. Libor helps determine the rate for $350 trillion in global bonds and loans, from floating-rate American mortgages to power-plant financing in Brazil.
Nobody ever checked if global banks were telling the truth about Libor. Barclay’s wasn’t. Now, American and British investigators have levied a $450 million fine against the bank for lying about the rate, starting in 2005, to increase its own trading profits and then, during the 2008 financial crisis, to avoid the scrutiny of a panicked financial system (when reporting a high rate indicated trouble). Diamond stepped down earlier this week. Investigators are assessing the extent to which other banks, alone or in collusion, manipulated Libor.
Does Diamond deserve to be glum and out of a job? Sure, and now he’s both—and, horror of horrors for one of the global elite, he also has to move back to America. But if fixing finance depended solely on purging or shaming bad people, finance would be in good shape by now. Just think back to January, when Sir Fred Goodwin, former head of the Royal Bank of Scotland, lost his honorific. The Queen, acting on government orders, snatched away Goodwin’s knighthood as belated punishment for having sent RBS into a massive tailspin that required a government bailout beginning in 2008 (taxpayers still own the bank).