How Big Banks Are Still Lying, Cheating and Ripping Us Off
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JH: Thomas Ferguson wrote recently about these interest rate swaps and how devastating they are on local and state budgets.
So, anyway, at times they lied in order to move the rate up and at other times they lied to move the rate down. Am I right in the belief that in doing so they managed to screw over both their own investors and consumers whose interest rates were tied to the benchmark?
DD: Absolutely. It’s a little hard to pinpoint because there are so many banks who deal with creating the LIBOR by handing in their rates to the British Bankers Association. There’s no question if you have banks that are manipulating this rate for the purpose of making more and bigger profits, or in protecting their bank and giving a false impression that the bank is doing better than it is, that money has to come from somewhere. In most cases it’s coming from the pockets of ordinary people.
JH: So they ripped off everybody in sight and they were fined. Do you know how big those fines are?
DD: The Justice Department fines are in the range of $450 million, which is really trivial comparatively. This scandal from the perspective of Barclays has already metastasized in Britain. The CEO Bob Diamond has had to resign. The chairman of Barclays Bank has had to resign. Parliament just launched an official inquiry into the scandal. The Serious Fraud office in Britain has opened a criminal investigation. So I think the odds are pretty high that we’re actually going to see prosecutions out of this.
Unlike in the United States, the British press has been going crazy about this scandal, particularly tying it to a larger question about the culture of banking in the City of London, which is the financial center of England. Much like we see here, it has favored greed and profit taking over ethics. I think the Barclays scandal is really coming to a head in Britain. Because it’s just the beginning, there’s no reason that might not happen over here.
JH: Just to put those fines in context Barclays profits last year were around $9 billion. While Barclays CEO Bob Diamond (who is a Yank by the way) apologized and stepped down, nonetheless, according to NPR, he is keeping a $48 million golden parachute.
DD: He was asked about that in a Parliamentary session last week. I think his answer was he’s worked 16 years for this company.
JH: Forty-eight million for having screwed things totally. Diamond said in that same inquiry that he knew nothing about this, and it was all the work of a few bad apples. He called them rogue traders.
You talked about the US Commodity Future’s Trading Commission. They found, and I want to quote from their report, that Barclays manipulated these rates, “on numerous occasions, and sometimes on a daily basis over a four-year period.” And they also said that “this conduct occurred regularly and was pervasive.”
DD: And yet he didn’t know about it.
JH: Right, how could he have possibly known?
DD: What’s really funny about Diamond is he simultaneously said he didn’t know about it and also that the Bank of England instructed him that it would be okay if they lowered their rate to help the bank. I don’t know how it squares -- that he could have known nothing about it but also was told directly by the Bank of England that it would be okay to manipulate the rate.
JH: Now let me ask you for a prediction. Is this story going to get a lot of play in the American media? I had Jeff Thigen, who is Register of Deeds in Guilford County, North Carolina, on the show talking about massive foreclosure fraud perpetuated by the big banks right here at home in the robo-signing scandal. He told me how it affected his office. He basically doesn’t have any paperwork he can trust in his Register of Deeds. He’s suing a number of banks to try and get them to clean up the mess they made.