Barclays Libor Scandal: Holding Regulators to Account
Posted by Larry Doyle on July 14, 2012 11:15 AM |
Oh what a tangled web they weave.
With the Libor scandal rocking Barclays Bank and ricocheting throughout the British banking system, we now begin to see the defenses go up on this side of the pond.
Recently released reports indicate that then New York Fed President and current U.S. Treasury Secretary Timothy Geithner made recommendations to British authorities for reforming the process used to set Libor. Is that right?
My ‘sense on cents’ would categorize those reports and that recommendation under the heading of ‘the best defense is a good offense.’
How is it that a Barclays employee could have reported in early 2008 to the New York Fed that Libor was being manipulated, yet the rigging continued into 2009?
Are we to believe that the New York Fed could not have stopped the manipulation of Libor in the course of one strongly worded e-mail and a series of very sternly delivered phone calls? Let’s make no mistake, the New York Fed is for all intents and purposes the single most dominant banking institution in the world. To think that Tim Geithner could not have stopped a scheme to manipulate Libor in one fell swoop defies credulity.
Yet, what was Geithner’s primary goal in 2008? The saving of the financial system itself. Again, it defies logic to think that he and others were not willing to allow for the violation of selected contracts and basic rules of fair and ethical play in an attempt to accomplish their goal. There is ample evidence of these realities across many situations (100 cents on the dollar payout to banks holding contracts on AIG CDS is just a start). This current, scandalous Libor scenario strikes me as nothing more than another classic case of “the ends justifying the means.”
Is it right and fair for the ends to justify the means, in this case the manipulation of the most widely benchmarked overnight interest rate? Of course not.
We remain in the very early stages of this entire Libor scandal. I firmly believe that our economy and nation will continue to suffer very serious consequences from this situation unless and until a full and thorough exposition of this entire scandal is undertaken. What consequences? A very real reluctance on behalf of investors to commit capital to our markets.
Remember, investors will ultimately direct their capital to those markets and sectors in which they believe their capital is protected. To that end, I repeat my call for an independent investigator replete with the power to subpoena to investigate this scandal. Why do we need an independent investigator? How many people in the country have real confidence that our Department of Justice and current financial regulators will properly and thoroughly pursue the truth behind this scandal?
Not many? Me neither.
Regardless of what people may think of The New York Times, the editors of that periodical nail this situation today in writing What They Knew:
The documents, requested by a House subcommittee, indicate that, in April 2008, a Barclays employee told the New York Fed that Barclays was not reporting honest rates. In response, the Fed made inquiries into Barclays’s reporting and passed its findings on to other authorities. In May 2008, Timothy Geithner, then the chief of the New York Fed, made recommendations to British authorities for reforming the Libor process. But those actions did not thwart Barclays’s illegal activity, which continued through 2009.
Cleaning up and reining in the financial system will require exposing and reforming regulatory failures that let banks run amok. As several Democratic senators wrote to the Justice Department this week: “Just like the banks and executives they oversee, regulators who were involved should be held to account for any failures to stop wrongdoing that they knew, or should have known about.”
Truer words were never spoken or written. For far too long our financial regulators have not been properly held to account. Who in Washington will lead the charge on this front? To add fuel to the fire, I welcome throwing these Wall Street and Washington Incest logs into the Libor inferno.
As I wrote yesterday, our ongoing crisis is less economic and much more one of leadership.
Our children are counting on us to be leaders. Will we lead?
Get on board the Sense on Cents train.
“Next stop, Union Station . . . Washington D.C.!! Aaaaall aboard.”
Playing to win here.
Comments and questions encouraged and appreciated.
Related Sense on Cents Commentary
Barclays Libor Scandal: “Diamond Lied”
Barclays Libor Scandal: Who’s Really to Blame?
Barclays Libor Scandal: When Did Manipulation Start?
Barclays Libor Scandal: How Big Will This Get?
Barclays Libor Scandal: Reports Regulators Knew; Time for Independent Investigation and Eliot Spitzer
Barclays Libor “Price Fixing”: Collusion Is Illegal. . .
I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.