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NationofChange / Op-Ed
Published: Sunday 8 July 2012
“Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them – bets that will pay off big for them because they have inside information on what the market is really predicting, which they’re not sharing with you.”
The Wall Street Scandal of all Scandals
Just when you thought Wall Street couldn’t sink any lower – when its myriad abuses of public trust have already spread a miasma of cynicism over the entire economic system, giving birth to Tea Partiers and Occupiers and all manner of conspiracy theories; when its excesses have already wrought havoc with the lives of millions of Americans, causing taxpayers to shell out billions (of which only a portion has been repaid) even as its top executives are back to making more money than ever; when its vast political power (via campaign contributions) has already eviscerated much of the Dodd-Frank law that was supposed to rein it in, including the so-called “Volker” Rule that was sold as a milder version of the old Glass-Steagall Act that used to separate investment from commercial banking – yes, just when you thought the Street had hit bottom, an even deeper level of public-be-damned greed and corruption is revealed.
Sit down and hold on to your chair.
What’s the most basic service banks provide? Borrow money and lend it out. You put your savings in a bank to hold in trust, and the bank agrees to pay you interest on it. Or you borrow money from the bank and you agree to pay the bank interest.
How is this interest rate determined? We trust that the banking system is setting today’s rate based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of countless lenders and borrowers all over the world about the future supply and demand for the dough.
But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them – bets that will pay off big for them because they have inside information on what the market is really predicting, which they’re not sharing with you.
That would be a mammoth violation of public trust. And it would amount to a rip-off of almost cosmic proportion – trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we’ve witnessed look like child’s play by comparison.
Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor” (short for “London interbank offered rate”) is all about.
Libor is the benchmark for trillions of dollars of loans worldwide – mortgage loans, small-business loans, personal loans. It’s compiled by averaging the rates at which the major banks say they borrow.
So far, the scandal has been limited to Barclay’s, a big London-based bank that just paid $453 million to U.S. and British bank regulators, whose top executives have been forced to resign, and whose traders’ emails give a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks. (Robert Diamond, Jr., the former Barclay CEO who was forced to resign, said the emails made him “physically ill” – perhaps because they so patently reveal the corruption.)
But Wall Street has almost surely been involved in the same practice, including the usual suspects — JPMorgan Chase, Citigroup, and Bank of America – because every major bank participates in setting the Libor rate, and Barclay’s couldn’t have rigged it without their witting involvement.
In fact, Barclay’s defense has been that every major bank was fixing Libor in the same way, and for the same reason. And Barclays is “cooperating” (i.e., giving damning evidence about other big banks) with the Justice Department and other regulators in order to avoid steeper penalties or criminal prosecutions, so the fireworks have just begun.
There are really two different Libor scandals. One has to do with a period just before the financial crisis, around 2007, when Barclays and other banks submitted fake Libor rates lower than the banks’ actual borrowing costs in order to disguise how much trouble they were in. This was bad enough. Had the world known then, action might have been taken earlier to diminish the impact of the near financial meltdown of 2008.
But the other scandal is even worse. It involves a more general practice, starting around 2005 and continuing until – who knows? it might still be going on — to rig the Libor in whatever way necessary to assure the banks’ bets on derivatives would be profitable.
This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us – whose money they’ve used for to make their bets – losers and chumps.
What to do about it, other than hope the Justice Department and other regulators impose stiff fines and even criminal penalties, and hold executives responsible?
When it comes to Wall Street and the financial sector in general, most of us suffer outrage fatigue combined with an overwhelming cynicism that nothing will ever be done to stop these abuses because the Street is too powerful. But that fatigue and cynicism are self-fulfilling; nothing will be done if we succumb to them.
The alternative is to be unflagging and unflinching in our demand that Glass-Steagall be reinstituted and the biggest banks be broken up. The question is whether the unfolding Libor scandal will provide enough ammunition and energy to finally get the job done.
This article was originally posted on Robert Reich's blog.
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ABOUT Robert Reich
ROBERT B. REICH, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, “Aftershock: The Next Economy and America’s Future;” “The Work of Nations,” which has been translated into 22 languages; and his newest, an e-book, “Beyond Outrage.” His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.
34 comments on "The Wall Street Scandal of all Scandals"
July 13, 2012 6:30pm
Reich is always provocative but on this he's just plain right. The banks need to be broken up. If they're too big to fail, there too big period. And I am still waiting to hear a candidate say that we need to reinstitute Glass-Steagall. I think as a citizen. that I have a right to have regulators patrolling Wall St. at every intersection.... and not just a bunch of nancyboy ass kissers who are ginning up their next job instead of watch dogging on behalf of THE PEOPLE. If the 1% are somehow made to suffer in this, too bad. It will take a awful lot of regulation for these types to make any claim to victimhood.
July 09, 2012 2:53pm
The Bank of England should be pressed to shut down LIBOR as a market fix immediately. It should be limited to internal BofE purposes only until at least 3 months after the rating date, and let the banks switch their loans over other rates (all loan docs should provide Banks the right to do this). Most loans used to be set to the US Fed's Prime Rate. Apparently, that wasn't as "profitable" (i.e. they couldn't get away with cheating), so they all started to switch to the LIBOR in the last decade. I suspect that, if there were no puts or weakness to cover, they routinely cheated the rate up in order to overcharge all of us suckers.
Tippecanoe, Ohio
July 09, 2012 8:51am
Wall is corrupt as are the banks. The screw the common people middle class and poor to get filthy rich. Let me say that I am not sure about Congress either because they are at the beck and call of "lobbyists" which I call bribers. Corruption is rampant in this country and nobody is watching not the regulators because I believe they are on the make also.
July 09, 2012 8:41am
It would be so simple to fix all this and much more besides.. Only one thing is necessary: that every dollar have identity, and know its own history. The technology to do this is not hard. What is lacking is the public will to make it happen.
The reason for the lack of public will has to do with widespread ignorance about the banking system and the precise significance of a dollar, but it also has to do with an increasingly adversarial attitude by the public towards its own elected government.
Those who spread fear of government are the enemies of the public interest. But if the public couldn't keep secrets, then nobody else could, either. One of the purposes of the drug war is to make many individuals in the public feel that they have to keep secrets. There are many other examples, including our incomprehensible and irrational tax code, our immigration control system (such as it is), and most spectacularly Congress's passage of a law giving the President the right to kill anyone on his own personal authority.
Any law that puts everybody in jeopardy of jail or worse is a law that makes government the adversary of the people. We need a radical cleanup of public law.
If we all knew where every dollar that comes into our hands has been, we'd be living in a different society, with a lot more freedom, a lot less government interference in our personal affairs, and tremendously less corruption. It is the anonymity of dollars that creates the possibility of using them for illegal purposes. What if their identities could not be laundered away? Think about it.
July 09, 2012 3:21am
Obama and Holder will refuse to look back and criminally indict Obama's "Savvy Businessmen" billionaire banker buddies "doing GOD's work" rigging the Libor.
Maybe South Carolina Republican Senator Jim Demint and other rethugs and teabaggers will conduct "hearing" to apologize and inquire into how they can make sure that Wall Street isn't ever embarassed again by government public exposure of their criminal activities, like getting rid of even more banking regulations.
July 09, 2012 1:49am
As always the core issue we are facing is the power struggle between the public and the banks. Right now the banks have the upper hand but as long as there is a democratic system the opportunity exists for electing politicians who actually will act in the publics interest....we need to get these people in place now.
July 08, 2012 9:34pm
My only exception to Dr. Reich's commentary is in his statement, "So far, the scandal has been limited to Barclay’s,..." In fact, Barclay's was just the first one to accept a deal with the government in order to minimize their criminal and civil punishments and avoid outright prosecution. In early articles I read on the LIBOR fixing, many analysts appeared to expect that another bank, UBS as I remember, would be the first to accept the deal. So, there are at least 2 banks that have admitted to the fraud, with a 3rd, Deutsche Bank, squarely in the sights of the regulators and investigators. Additionally, it appears that information provided by Barclay's as part of its deal implicates all of the other banks in the Group of 16 that are the benchmarks in setting LIBOR. So this is a situation that seems to be well on the way to being proven as universal to all 16 banks. These are the same banks that were instrumental in the sub-prime mortgage/CDO frauds, mortgage foreclosure frauds, state and local government securities fee frauds, and numerous other frauds, none of which have resulted in prosecution of any bank executive of any consequence. This has all the earmarks of leading to another pat (not even slap) on the wrist, NANDy settlement that has the banks paying fines that are only fractions of their fraudulent gains, while the banks' executives spend their time counting their bonus money instead of counting the bars on their cell doors. Similar to the US government's settlement with a consortium of banks over their mortgage foreclosure frauds.
July 08, 2012 6:16pm
Since 2008 I've been saying we should break up the banks deemed "too big to fail" and install new boards of directors in the smaller pieces. Four years later I believe I've been right.
July 08, 2012 5:04pm
Holder, arrest these God damned filthy fraudster thieves or be considered no better than they are and complicit in their crimes. Take them into custody.
July 08, 2012 4:50pm
Yup and Homeland security never heard a whisper of anything wrong. Guess banking fraud isn't on their watch list.
Real Name: Doug Pederson AKA SpectateSwamp
July 08, 2012 4:48pm
It could not be more clear. Yet, no one is doing anything. What is wrong with Americans? Have we all lost any semblance of self worth? Will we continue to cower like spineless rats until there is nothing left for us? Everything stolen from under us? What a sad day in America.
July 08, 2012 2:31pm
From Chris Hedges, The World As It Is:
"Those who profess to favor freedom, yet deprecate agitation, are men who want crops without plowing up the ground," Frederick Douglass wrote:
They want rain without thunder and lightning. They want the ocean without the awful roar of its many waters. This struggle may be a moral one; or it may be a physical one; or it may be both moral and physical; but it must be a struggle. Power concedes nothing without a demand. It never did and it never will.1
July 08, 2012 2:17pm
if We, The People, as a united citizenry do not immediately shut down Wall Street how can we possibly expect the SEC and federal attorneys to take a page from the DEA on this. Asset forfeiture. Nationalize this before it really really cost us more than just money, as if it hasn't already. Each broker and their company should experience jail time just like drug peddlers - asset forfeiture laws. These toxic assets caused more harm than any drugs, also controlled substances. these brokers all had licenses by the SEC and each time they (passing the prudent person test) illegally proscribed these toxic things should be a federal racketeering charge. for each and every percentage of stack should come a federal charge. Asset forfeiture, loss of freedom to work for or around stocks and bonds. All their yachts and homes and cars and even their freedom should be taken. If we as a nation, global community, do not relieve ourselves of these treasonous criminals then there can be no law protecting them from us. You can't steal from a thief, was it Jesse James or Billy the Kid?
Surely there can be no terrorist like these "bankers" and trust fund managers and such. Waterboarding them might not be completely out of the question. Black site them. Do whatever to these white collar thugs...or would i say our owners. How can they hide from all of us so long I can't understand? Move your money to non-profits and absolutely demand an end to the Federal Reserve. This is no longer something we can control..we have to submit these "people" to justice otherwise what are the prison for - simply poor slaves like ourselves. It is so obvious we can't control these elite corporatists what other choice do we have other than frontier justice at this point if government can't do it's job?
Each city, state and county have a fiduciary duty each and EVERYONE one of them have criminal laws. Where is the jsutice for our owners living in those suburban gated communities, golfing away their days while professing austerity to you and I? Where do you and I go for justice if we get caught driving under the influence of alcohol, jail These folks are under the influence of influence. I am sick. I am tired of this cruel and follish joke we are playing with each other, anyone else?
If Guatanemo is for terrorist then why isn't geitner and the rothchilds there?
War crimes and $800 trillion ponzi schemse are the real acts against humanity and weapons of MASS DESTRUCTION, believe that or nothing else...
Nationalize or socialize this situation because we, you and me and our children will be paying for this relentless denmented system for the entirity of our lives so why shouldn't we as the working men and women absord the profits instead of just the losses. Take these junk traders and toss in the jails, let the poor black men who sold dope out, they were just trying to feed themselves and not the machine which we all slave to.
Put hese junky peddlers in with the violent criminals and let them find their humaness it will ahppen one way or another. trust that.
July 08, 2012 1:47pm
The other reason for voting for Jill Stein is to get her into the televised debates with Obummer and Romney. She could change the nature of the debate hugely and wake a lot of people up. Hearing her versus Obummer the Betrayer - she might just win. She also could win because she offers a comprehensive platform of reforms that would bring great benefits to the middle class and poor. So she might end up energizing the masses to come out and vote - for her!
July 08, 2012 1:44pm
Agreed: The Fed is the biggest scandal. And this new revelation just demonstrates that it's a free-for-all for the fat cats and dirty dogs of the elite and multinationals to do everything possible to bankrupt people and small companies and buy the assets for pennies on the dollar, and enslave us with debt.
Both sides of the isle are over the top with corruption. If we engage in Dem Vs Repub then we are failing to look behind the curtain to the reality and the drama will only continue.
When enough people wake up, turning points happen. The Occupy Movement and Arab Spring are just the beginning. The tipping point can come at any time, so we each must draw the line and take a stand. Then more will join and the straw that breaks the camel's back might be you or the next person.
I hope people will give serious consideration to voting for Jill Stein for president. She is with the Green Party and has an excellent platform of reforms.
July 08, 2012 5:39pm
Yes, the first female American president! Long overdue, imho!
But we must also get rid of the monstrous corporations that had laws made to suit them, even giving them personhood, complete with constitutional rights!
The whole system is now based on corruption, it is embedded in it, all designed to syphon off power and money to a few already obscenely rich people, who seldom or never show themselves, for obvious reasons! Instead they use figureheads, like politicians and military to do their bidding.
I pray for any good willing president, male or female, to withstand the enemy within, the traitors and criminals who call themselves businessmen!
July 08, 2012 1:32pm
There's nothing about this problem that can't be solved with the throaty roar of 5o caliber machine gun fire, the burning of banksters' mansions to the ground and the nationalization of what's left!
July 08, 2012 1:31pm
Again, WE MUST INSIST our president use the evidence presented him and criminally charge the mega bank CEOs with extortion, fraud, and any other charges that can be brought against them. THEN BREAK UP THE MEGA BANKS!!!
WE must also demand that Glass-Stegall be reinstated. Even though its sorta like locking the barn door after the horse has been stolen, it will prevent this from happening again.
I, personally, do not believe the president has the balls to bring these charges against those that ABSOLUTELY DESTROYED OUR ECONOMY!! WE bailed them out, and they have done nothing but thumb their noses at us, and continue, even increase, their dirty deeds against WE, the PEOPLE.
All of us should contact the Presidential Website and insist the banksters be prosecuted - he may not be re elected, so he needs to start now. At least DO ONE DECENT THING for ALL of WE, the PEOPLE against those that destroyed our economy, our savings, our jobs, indeed, OUR LIVES.
July 08, 2012 2:27pm
no. each and every fraction of bond/stock traded should be accompanied by a federal charge of racketeering for each and every trader who has a LICENSE.
The time has passed for regulation, nationalize the entire financial system. If one thing can guarantee payment it is our working class, which is admittedly anemic but this is WWIII if there will ever be such and as such it require either our federal government to act boldy and declare war or we aboslutely need to...it will not require violence it does require action by each and everyone of US, however. Take to the street and picket the banks and in general strike.
Follow Gandhi and MLK, they are alive and well this very day. Non-violent resistance. Take you money and do what our fathers/grandfathers did stash in your mattress until you can find a non-profit local community based institution. Refuse to vote, refuse to pay taxes refuse any kind of cooperation until we get the leadership to act on the crimes of our former and current leaders.
resist. resist. resist.
From another time and another former slave-
Those who profess to favor freedom, yet deprecate agitation, are men who want crops without plowing up the ground,? Frederick Douglass wrote:
They want rain without thunder and lightning. They want the ocean without the awful roar of its many waters. This struggle may be a moral one; or it may be a physical one; or it may be both moral and physical; but it must be a struggle. Power concedes nothing without a demand. It never did and it never will.
July 08, 2012 1:38pm
Lets suppose for a minute that the international central banks, the IMF and especially the BIS allowed the national central banks, like the Fed, to turn a blind eye to the scheming and manipulations of the big commercial investment banks knowing that as usual that the big com-vestment banks always find a way to self destruct through their own greed, taking the world's economy down with themselves. All of this coming of course as a shock to those further up the chain. There are much much bigger players than Jamie Dimon, a mere lieutenant in the larger picture. In the resulting disaster the Bis (bank of international settlments) could be waiting with open arms with the "solution" to a devastsating world wide depression. That solution would be an international currency, issued and controlled by the BIS (for the profit of it's shareholders- the "inner" circle comprises about 12 individuals) as the fix for all the instability in the financial markets. This would be an exact copy of the sequence of events that ushered in the Federal Reserve. Cause a depression and offer the fix, which in reality is an exponential gain in the strangle hold exerted over the people's governing body; in this case that of the U.S.ofA.
It is getting very late in the game. Does the public even have a clue what is going on behind the scene? What is master plan of the elites for the rest of us once they form their one world corporation? I say one world corporation becuase they really have no interest in governing, and would have absolute control over all in an iron fisted feudal or fascist manner. Starvation might be the tool of choice to rid the corporation of superfluous population that has to be fed at unnecessary cost....
July 08, 2012 5:48pm
I would hope you are wrong. But I know you're not.
It's time to stand together and fight. God help us all!
July 08, 2012 12:46pm
So the question is: When will the public demand change in the financial industry? So far record unemployment, record executive pay, record taxpayer donations (bailouts) and record foreclosures have not produced a groundswell of demand. I am at a loss because, as Robert states it, it is all so obvious.
July 08, 2012 3:58pm
To all who wonder why many more people have not taken to the streets against Wall Street and the banks, I refer you to the new book by Thomas Frank "Pity the Billionaire". He does a first rate job of documenting how the anger against Wall Street and the Banks by so many was turned on its head by Fox News and their commentators, into anger at the government. All of a sudden, do to the typical tactics of false information (lying) and misconstruing events, many people were herded like cattle by the Republicans into FORGETTING it was the Republicans who did the vast majority of de-regulation that allowed the mess to happen. Please, go to your library or buy this book.....it is the best insight into how Republicans directed by Rove and Norquist, turn events that are their parties fault into the fault of the government........
July 08, 2012 12:14pm
There has seemingly a long time collusion between political insiders (those who make big "defense" contract decisions and big government purchases), stock analysts/banksters/brokerage houses recommending stocks and those involved have made a killing in the up or down markets. No one will ever know who, how, when, where, and what of it but those who seem to make money all the time and have accumulated billions of dollars through trades (instead of the actual goods/services) are the usual suspects. Perhaps if the political system ever imposed the will of the people, they would look closely into the likes of Goldman SUCKS, JP Morgan, the multinational banksters who buy and sell governments, et. al. Wonder what surprises they will find and how the decision makers in these Herculean institution will fair against PEOPLE'S JUSTICE!
July 08, 2012 12:00pm
I am profoundly concerned why you and other members of the main stream media do not examine the following issue:
Public vs Private Banking: The USA and the world's income gap and social ills will never be solved without total sovereign banking being established. Privately owned central banks must be replaced by government owned national banks. It can be done--watch:
http://www.youtube.com/watch?v=swkq2E8mswI&feature=youtube_gdata_player
Signed,
Gerald Nelson
Winterhaven, CA
July 08, 2012 12:00pm
I am profoundly concerned why you and other members of the main stream media do not examine the following issue:
Public vs Private Banking: The USA and the world's income gap and social ills will never be solved without total sovereign banking being established. Privately owned central banks must be replaced by government owned national banks. It can be done--watch:
http://www.youtube.com/watch?v=swkq2E8mswI&feature=youtube_gdata_player
Signed,
Gerald Nelson
Winterhaven, CA
July 08, 2012 11:55am
Until the stockholders of these banks demand greater transparency and ethical behavior, we won't see much change. Waiting for the day when those stockholders act is even more unlikely even though it's their share of the profits (dividends) and stock prices that might take a hit (though not much recently.)
The idea of breaking the big banks up seems even more frightening to them and until stockholders can be convinced that it's in their interests to break those banks up and reinstate Glass-Steagall, we're apt to see more and more, as we already are. Matt Taibbi's article in Rolling Stone covers another side of this interest rate scandal and he comes away with "...to me what’s missing from all of this is the 'Holy Fucking Shit!' factor." (Read more at: http://www.rollingstone.com/politics/blogs/taibblog/why-is-nobody-freaki...)
So just how many more banking debacles and scams can we take? Perhaps Mr. Reich's point of "outrage fatigue" is dead on and we're just too weary to act.
July 08, 2012 11:53am
I think Reich correct both as to the scope of the corruption and our fatigue.
I further agree we dare not succumb to that fatigue.
However I would go further as to what we must try to do about it.
I do not trust the Repub-Dem establishment to implement what we demand.
At best we'd get a cosmetic appeasement.
We need to break the corrupt Repub-Dem stranglehold.
Progressives need to become the spoilers of corporate Dems and the allies of independents. Yes, we will suffer worse for a time. But out of that will emerge a proactive and reactive course-correcting combination powerful enough to reverse the pandemic of corruption and the great ongoing transfer of wealth from the many to the few. I see no other way.
July 08, 2012 11:27am
Fuel the the fire! I keep getting requests for donations from my fellow Democrats. Here’s my response: "I will donate when the Justice Dept. indicts the bond agencies and bankers for security fraud for misrepresenting, issuing, & selling bogus products. Do it! Who paid off whom? I'm sick of my Democratic party appearing as corrupt as the Republicans!"
So Dr. Reich, can you please post why you think the above indictments have not happened? Thanks.
July 08, 2012 10:40am
Good piece. I propose Prof. Reich as the next Secretary of Libor!!
Shenzhen, China and West Palm Beach, Florida, Florida and Guangdong
July 08, 2012 9:47am
I sincerely hope that Robert Reich is being accurate and honest in this essay. If this is occurring, and it would not surprise me, then the Justice Department should be not only looking into it and also voter suppression laws that are being passed in many states accross the country, but moving against those who are engaging in those violations of law. A friend told me yesterday with regard to another matter that he didn't think that Eric Holder was competantly performiing his duties. If this is true then Obama ought to remove Holder.
July 08, 2012 10:13am
Your friend is misinformed.
GOTP is lying and attempted to villify Holder for upholding the law, trying to fight against their attempts at voter suppression.
A PA gov was caught on tape bragging about voter suppression to steal the election for Romney, the GOTP are not the party of Reagan or Bush anymore, they've become craven, sinister and radical.
Reih is very worried about the economy & if all this is true which it appears it is sofar, wecertainly need more regulations not deregulation.
If these scandals play out, Romney's plan to deregulate will not be a good plan.
July 08, 2012 3:59pm
Good reply, Judie. of course, there are many who will never believe a fact even if it bits them in the ass.
July 08, 2012 9:32am
Horrendous corruption to be sure. But clearly not on a par with the Federal Reserve Bank, which the 1984 Grace Commission report stated had collected ALL the money paid into the income tax at that point.
Reagan began saying things the Fed didn't like. He promptly got shot by a lone deranged gunman, of course. Reagan stopped saying unfavorable things after that.