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Barclays Libor Scandal: Who’s Really to Blame?

Posted by Larry Doyle on July 10, 2012 8:10 AM |

The London Interbank Overnight Rate, aka Libor, is the referenced benchmark rate for only some multiple hundreds of trillions of dollars worth of securities and contracts. As such, the rate is of enormous importance to the markets and global economy. I personally recall beginning almost every day as a trader on Wall Street by inquiring of an individual on the finance desk, “Where’s Libor?”

With the manipulation of this rate rocking the markets, everybody wants to know who’s to blame.  There is certainly plenty of blame to go around.

If we were to listen to Bob Diamond, former CEO of Barclays, we would be inclined to believe that the blame in that organization rested merely within a very small group of individuals. How convenient. Do you think the CEOs of other banks would also like to ring fence this issue to a small group of expendable individuals on selected trading desks? No doubt. 

Are we to believe that a manipulative scheme of this scale is the work of a relatively small number of mid-level execs? Stop it. Talk about taking naivete to a stratospheric level.

The heads of each desk involved in this mess have/had enormous managerial oversight responsibilities. Included in those responsibilities is the review of e-mails which are flagged to detect questionable activities. Should the blame stop there? Not even close. Those managers would be required to report questionable activities to their superiors and the appropriate people within Compliance. At this point, we are reaching into very senior levels of each and every Wall Street bank. Can we stop digging? Not yet.

It defies logic to think that at some point the heads of Compliance and Trading would not have mentioned the manipulation of a rate such as Libor to the highest levels of the organization. Not to do so would be to risk career suicide — the very career suicide these individuals now face.

So with blame now firmly directed at the heads of every Wall Street bank, we should sit back and watch what happens, correct? Nope.

In my strong opinion, the real blame for the manipulation of this rate goes right through the top levels of each and every bank and beyond. Beyond where? Who is really to blame? How far back do we have to go to affix real blame? Let’s navigate back to the late 1990s and the testimony provided by a group of individuals who collectively derailed any sort of meaningful regulation of the derivatives markets. Who were these individuals?

Larry Summers, Alan Greenspan, Robert Rubin, Arthur Levitt, and Phil Gramm with the support of others in Congress and the Wall Street lobby worked to pass legislation in February 2000 that overran then head of the CFTC Brooksley Born’s attempt to regulate the derivatives market. I believe that legislation provided the green light or, dare I say, the necessary cover for the ensuing manipulation of Libor.

With credit to Capitalism Without Failure, I STRONGLY recommend you review the 23:00-27:00 minute clip from the movie Inside Job:

Let’s bring Summers and crew back out for another round of questioning. Let’s also make sure this Libor chapter is included as part of their lasting legacy.

“Raise your right hand and repeat after me gentlemen . . .”

Larry Doyle

Related Sense on Cents Commentary
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. . .

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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.

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