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The New York Times and its outstanding financial reporter, Gretchen Morgenson, have published an important article about the LIBOR banking crisis, challenging American regulators to take this mess as seriously as the British appear to be.
We found out just over a week ago that Barclays CEO Bob Diamond, as well as several other senior Barclays officials, were pushed out of their jobs after Bank of England chief Mervyn King trained a mysterious Vaderesque power on them, impelling them to leave with an “inflection of the eyebrows.”
Morgenson’s piece from Saturday, “The British, at Least, Are Getting Tough,” wonders aloud why American regulators – Ben Bernanke, cough, cough – don’t take a similarly stern approach with our own corrupt bank officials. First, she summarizes what seems to be the mindset of American officials:
“Dirty clean” versus “clean clean” pretty much sums up Wall Street’s view of cheating. If everybody does it, nobody should be held accountable if caught. Alas, many United States regulators and prosecutors seem to have bought into this argument.
This viewpoint has been particularly in evidence since 2008. Time and again, American regulators have appeared to be paralyzed by corruption in cases when most or all of the banks have been caught raiding the same cookie jar. From fraudulent sales of mortgage-backed securities, to Enronesque accounting, to Jefferson-County-style predatory swap deals, to municipal bond bid-rigging, the strategy of American regulators has been to accept “Well, everybody was doing it” as a mitigating factor when negotiating settlements, where that should have made them want to crack the whip even harder.
Why? Because “everybody is doing it” corruption is way more dangerous than corruption involving one or two rogue firms going off-reservation. Regulators who spot that kind of industry-wide problem, to say nothing of cartel-style anticompetitive corruption, should be in a panic: They should always impose serious, across-the-board punishments, and it goes without saying that senior executives responsible have to be removed.
This is exactly what has begun to happen in England, now that the British have gotten wind of this LIBOR scandal, which involves the worst and most serious form of corruption – huge companies acting in concert to fix prices/rates. As the Times explains:
Last week’s defenestrations of Marcus Agius, the Barclays chairman; Robert E. Diamond Jr., its hard-charging chief executive; and Jerry del Missier, its chief operating officer, apparently occurred at the behest of the Bank of England and the Financial Services Authority, the nation’s top securities regulator. (Mr. del Missier also seems to have lost his post as chairman of the Securities Industry and Financial Markets Association, the big Wall Street lobbying group. His name vanished last week from the list of board members on the group’s Web site.)
Morgenson notes that the Barclays CEO, Diamond, seemed shocked that there were actual consequences for his misbehavior:
MR. DIAMOND seemed shocked to be pushed out. An American by birth, he probably thought he’d be subject to American rules of engagement when confronted with evidence of wrongdoing at his bank. You know how it works on this side of the Atlantic: faced with a scandal, most chief executives jettison low-level employees, maybe give up a bonus or two — and then ride out the storm. Regulators, if they act, just extract fines from the shareholders.
The article goes on to point out the frightening fact that del Missier, the outgoing Barclays COO, was at the time the scandal broke the sitting head of SIFMA, the trade group representing securities dealers. We know from the emails Barclays released last week that del Missier was privy to the discussions about rigging LIBOR rates; he was one of the people Diamond was writing to when he penned a memo claiming that Paul Tucker, the Bank of England deputy chief, had urged the bank to fake its LIBOR rates.
At the very least, del Missier should have said something, should have opposed the idea. Instead, he went right on being a front for Wall Street’s largest professional association:
With each new financial imbroglio, the gulf widens between Main Street’s opinion of Wall Street and the industry’s view of itself. When Mr. del Missier, the former Barclays chief operating officer, took over as chairman of the Securities Industry and Financial Markets Association last November, he said: “We will continue to work on maintaining and burnishing the level of confidence investors have in our markets, in our own financial institutions, and in the general economic outlook for the future.”
Given the Libor scandal, let’s just say good luck with that.
When the rest of this scandal comes out, and it turns out that up to 15 more of the world’s biggest banks (including Chase, Bank of America, and Citi) were doing the same thing as Barclays, our regulators better start “inflecting their eyebrows” pretty damn vigorously. Because if it comes out that these other banks were all involved with this scandal (and it will come out that way, almost for sure), and their CEOs and COOs get to keep their jobs, that’ll be a sure sign that the fix is in. Let’s hope Ben Bernanke, Eric Holder, and Tim Geithner are listening.