In London, ’tis the bonfire of the bankers. The chairman of Barclays bank, Marcus Agius, has agreed to resign after relentless pressure following the revelation of a massive scheme of interest-rate fixing.
The move is widely seen as a last-ditch measure to protect Barclays’ CEO, brash US-born Bob Diamond, who has made it clear that he will not be going without a struggle.
Diamond has been summoned to appear before a Commons subcommittee on Wednesday, and there is no question that he will get a rough time from all parties.
Diamond has resolutely refused to resign. Indeed, on Thursday afternoon he stormed into the office of Morgan Stanley, to assert that he wouldn’t be going anywhere — after the agency had recommended selling Barclays stock following the scandal.
In 72 hours last week, Barclays lost 15% of its value, after revelation of its Libor scandal first became known. Libor is the London Interbank Offered Rate — which sets the base rate for thousands of financial products.
Investigation of Barclays showed that its traders, and traders from other firms working with it, had simply disregarded any and all “Chinese walls” within and between financial groups as regards the Libor.
Barclays, one of the biggest banks in the UK, was the one most exposed by a high Libor, so it made every effort to keep it low, thus making its balance sheet look healthier (it’s more complicated than that; there’s a useful summary at The Guardian here)
Barclays has subsequently been fined nearly £300 million for its part in the process — which went on between 2005 and 2009 — and the most heat has fallen on Diamond, who was not then CEO of Barclays, but was head of the division responsible for Libor manipulation.
Revelations of the Libor-fixing scandal have created a new wave of moral revulsion towards bankers in the UK, with head of the bank of England Mervyn King coming out and saying that the banking culture had become toxic, and there was no way of knowing, etc — however there have been suggestions that the Bank of England was aware of the practice all along.
Furthermore, it is difficult to identify a huge class of victims of the scandal, since it did not involve a manipulation of the sterling Libor rate — which covers nearly half a million mortgages and loans — but was related to the dollar Libor rate, and the Euribor rate. But UK-owned businesses working in euros, and those paying off overseas holiday homes through UK banks would have been disadvantaged. They are not, however, the epitome of “suffering humanity”.
However, it seems likely that the scandal has only been partially revealed, and that at least nine other banks are involved in a broader version of the scandal. The US Securities and Exchange Condition has now started to work with the UK FSA (Financial Services Authority) on a much broader investigation — and that may well open up in an unknowable fashion, encompassing the whole US-UK banking system.
Nevertheless, the scandal itself is another example of the weird politics of the contemporary period. The wholesale processes by which banks and others wrecked the economy in 2007-08 has escaped substantial outrage.
It is this scandal that appears to have stirred up people to a new level of outrage against bankers — even though direct victims have been few and far between. Again, there is a split in the UK between the elite process of politics — in which everyone makes a performance of outrage, even though both parties encouraged bankers to acts as free agents throughout the first decades of the 2000s.
The mass of the population, for whom banks are a series of massive faceless conglomerates with little to choose between them, remains, as far as one call tell, largely unmoved by these events. The scandal itself is nearly incomprehensible to someone who does not focus on it with some attention, or have some knowledge of the world of finance.
In a class-ridden society such as the UK, many people will simply regard it as the doings of those who run their lives through networks of privilege.
For the UK bankers, the main risk remains the interest by US authorities in the scandal. The UK has all but thrown up its hands to say that the scandal is unprosecutable; the US tends to have a lot more scope to prosecute.
This is hardly an unambiguous good. As with the notorious “Natwest Three” case, the US may be able to prosecute — and to extradite under fast-track arrangements — dozens of banking executives for activities done entirely in the UK. No one would shed a tear, and thus the paradoxical effect of this scandal would be to legitimate a system that can spirit people across borders willy-nilly.
Agius’ head will not be the last to roll, but I suspect that much of this will go on with barely any attention. It remains to be seen what sort of scandal would stir people to the next level — to actually want to control capital as a social resource, and set some conditions and limits.
‘Tis the bonfire of the bankers. And children off somewhere who do not particularly want it to happen …