To get a better understanding on how criminal and widespread this LIBOR rate-fixing scandal is I suggest you take 15 minutes to read this excellent and understandable piece to the layperson on the scandal www.counterpunch.org/2012/07/03/gaming-the-system from the American economist Mike Whitney. Here are a few excerpts.
Firstly on the scale of the potential losses to customers,
As of today, there are no reliable estimates of how much investors, mortgage holders, swaps traders etc may have lost by the rigging, although this back-of-the-envelope rundown by the Wall Street Journal is helpful:
“If dollar Libor is understated as much as the Journal’s analysis suggests, it would represent a roughly $45 billion break on interest payments for homeowners, companies and investors over the first four months of this year.”
Since the manipulation persisted for many years, it is reasonable to assume that the amount lost probably exceeds many hundreds of billions of dollars.
We are talking about losses amounting to at least multiply tens of billions of pounds, both here and across the pond. The LIBOR rate itself is not some insignificant and obscure system, it is crucial to the smooth and transparent running of lending between banks, i.e. the world economy, as explained here.
“The co-ordinators have dedicated phone lines laid into their homes so they can still work if a terrorist attack or other incident stops them reaching the office. A similarly equipped building, near the office, is kept in constant readiness, and there’s a permanently staffed back-up site in a small town around 150 miles from London. Its employees periodically work in the London office, so that they’re ready to take over if need be.
The precautions are necessary because if Libor suddenly became unavailable, large parts of the global financial system would be paralysed. The 150 numbers constitute the dominant global benchmark for interest rates. The rates on borrowing, amounting to around $10 trillion (corporate loans, adjustable-rate mortgages, private student loans and so on), are pegged to Libor. For instance, the level of Libor determines the monthly payments on around half of the adjustable-rate mortgages in the US: rates are set as Libor plus a fixed margin, and are reset periodically as Libor changes.”
So far only Barclays has admitted guilt leading to the fine they received from both UK and US regulators. There are 16 other banks who sat/sit on the LIBOR boards with investigations into their activity ongoing.
Whitney finishes on a set of questions that many citizens in the UK & US are asking.
So why has it taken 4 years for the first fines to be imposed when anyone with two neurons and a frontal lobe could see that the rates were being tweaked back in 2008? Where are the regulators? Where are the criminal prosecutions? Why isn’t anyone in jail?
The stench of corruption is overpowering.
As argued in the Guardian today www.guardian.co.uk/commentisfree/2012/jul/03/private-banks-failed-barclays-scandal, real competition through public investment banks must be given the chance to challenge the hegemony and failure of the City in such a crucial industry for not only the UK’s but the entire globes economy.
Only if the largest banks are broken up, the part-nationalised outfits turned into genuine public investment banks, and new socially owned and regional banks encouraged can finance be made to work for society, rather than the other way round. Private sector banking has spectacularly failed – and we need a democratic public solution.
From The Little Man