Between The Lines - Robert Scheer: LIBOR Scandal Latest Example of Finance Sector’s Culture of Corruption (Week Ending July 20, 2012)

Award-winning Investigative Journalist Robert Parry (1949-2018)

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International LIBOR Scandal is Latest Example of Financial Sector’s Culture of Corruption

RealAudio MP3

Posted July 11, 2012

Interview with Robert Scheer, author and editor-in-chief of Truthdig.com, conducted by Scott Harris

The latest scandal to erupt in the world of finance involves the little-known London Interbank Offered Rate, or LIBOR. Data submitted by major banking institutions is collected, calculated and used as a benchmark to determine interest rates for interbank loans, as well as $350 trillion worth of consumer products such as credit cards, private student loans, auto loans and adjustable-rate mortgages. Investigations in the United Kingdom and the U.S. have uncovered evidence that LIBOR interest rates have been intentionally manipulated by banks over a period of years.

While some of the LIBOR rate manipulation may have been motivated to falsely project the financial health of banks in the period around the recent global financial meltdown, other manipulation appears to be linked to individual traders' goal of gaining short-term profits. In either case, however, the bottom line of this scandal is that large amounts of money have been systematically and intentionally stolen from average people all around the world, while enriching a small circle of bankers and financial brokers.

Investigators in the United Kingdom initially focused on the involvement of Barclays Bank of Britain whose CEO Bob Diamond was forced to resign as his bank paid $450 million to settle accusations of illegal interest-rate manipulation. Other banks which may soon face prosecution and civil litigation include JPMorgan Chase, Citigroup and UBS. Between The Lines’ Scott Harris spoke with Robert Scheer, the editor-in-chief at Truthdig.com, a former Los Angeles Times national correspondent and author of the book, “The Great American Stickup.” Here, he discusses the LIBOR scandal as the latest example of the finance industry’s culture of corruption.

ROBERT SCHEER: The basic incentive – this all started as the markets were collapsing in 2007, 2008. They wanted to show that aside from government infusions of money, they could go out on the open market and raise money at a reasonable rate. So their obligation was to honestly report what they were having to pay for money to make loans out in the market. And one of their big incentives was to make it seem like they were so solid that they could get money at a reasonable rate. That was one of the big incentives here.

But they were covering their bets on all sorts of things and they make money on those bets and those derivatives that had been sold and what's in those packages. Sometimes that is to the benefit of other people, since so much of the housing mortgage stuff was dependent upon interest rates, and keeping interest rates low. They wanted to keep that rate low. But they also were betting. They bet against themselves. They bet against their products. They bet every different way and they were reaping enormous profit from what is basically insider trading. If they can set the rate, then they can bet that the rate will be a certain place. And that's really what's happened here. There was collusion.

And the reason they got nailed is the same reason Ken Lay got nailed at Enron, was his email trail and the government and both the Justice Department here and in England were able to get these emails and the cynicism of all this was revealed, as it was in Enron. You know, collusion between the banks and "let's hustle and let's swindle the average consumer" and that's what happened here.

And there was testimony by one of the leading figures in the English government confirming that it was the bank's responsibility. This is by no means over. There was a plea bargain. Barclays agreed to pay $450 million in penalty. They accepted the fact which are disastrous. There will be a lot of lawsuits going after the people involved, because the people on the other end – when they made money, other people lost money. That's how it works. So, if you're rigging these rates and your bets come out looking good, other people are going to be hurt by it. And they also have lawyers and can go sue and show damages. Barclays itself got immunity because it's assumed they will now help both of these governments on both sides of the Atlantic figure this stuff out and go after the other banks.

And so, that's the next stage. This is by no means over. We're now going to go through each bank and we're going to have lots lawsuits and this will go on for a decade.

BETWEEN THE LINES: Is there any way to estimate with so many trillions of dollars involved here, the amount of money that was stolen from average consumers, like as you refer to, it affected mortgage rates and entire cities like Baltimore, were affected.

ROBERT SCHEER: Well, the estimates will come from the lawsuits. Trust me, the people who run pension funds who have lost big money, they also have lawyers and accountants and they will assess damages just as they did when they went off after Bernie Madoff, who was really an amateur joke compared to what these people do.

I think the real cost is what it's done to the world economy. You can't trust economic activity. You can't trust what the Spanish do. You can't what the Italians do. You can't what the Americans do. And when you have this lack of confidence in the international economy, you don't know what to price anything. You don't know what investments. You don't know where the markets are going to be in the future. So the costs ultimately are actually disastrous.

BETWEEN THE LINES: Let's talk about accountability. There's a term called moral hazard and if people are not punished for the economic crimes that we have unfolding over these bunch of years, they'll go out and do it again. And we have that right now, don't we? Moral hazard, because the laws as they are written cannot keep these bankers accountable who commit such devastating crimes.

ROBERT SCHEER: You know, it's deeper than that. You sort of have to go back to Confucius, Aristotle, Jesus. Some of the Old Testament wisdom about usury. There always a teaching of accountability. Don't take advantage of the vulnerable. Don't fleece the poor. Don't lie and swindle your fellow tribesman. We lost all that.

What we started teaching in the business schools, the law schools was to be a legal swindler. Ethics came to be defined as what you can you do, right up to the edge of the law that will profit you, and if you can't do it there, let's change the law. So we'll make things that should be obviously illegal, we'll make them legal. That's what happened here. And so it's really very dangerous when the smartest people, the people who test the best, who go to the best schools, then turn that into a craftiness. They become swindlers. That is really the omnipresent danger in this world right now. We have the hustlers in charge. And because of things like Supreme Court decisions on campaign finance, Citizens United, this sort of thing, the role of money in the current presidential election. There is no limit to their greed and as a result they will suffocate on their own greed.

You’re talking about moral hazard – now they don't go to jail; they're not ashamed in any way. They're still admitted to polite company. They're still honored. They probably won't go to jail and they'll have their hundreds of millions of dollars put away. And you're right: Moral hazard is the right word. There's no accountability, there's no shame. And since they control the media and political system, there isn't much likelihood that they're going to be subject to shame.

To learn more about Truthdig, visit Truthdig.com.