"Off with their heads!” screamed the Queen of Hearts in Alice in Wonderland. The mass of people agree, especially when it comes to bankers. And this is no joke. Across much of the world, bankers have acquired pariah status, responsible for triggering the crisis and then being bailed out with taxpayers’ money. Their standing is about on a par with paedophiles or rapists.
In recent days, the mood in Britain has become extremely angry as a result of their antics. These privileged parasites have smugly made billions of pounds from the suffering of millions while seemingly keen to flaunt their wealth on mansions and yachts. Recent stories have come to light of traders swapping bottles of Bollinger champagne and boasting about their bonuses on every successful and corrupt act they make. “Dude, I owe you big time!”
'Dude, I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger.' This is the message sent by a Barclays banker to a trading pal, who had asked him to fix a key lending rate artificially low.
On a BBC Radio 4 programme on Monday morning about capitalism and the law, the inevitable discussion turned to reckless banking and why no banker had been imprisoned. The defence from one banker was that the “rule of law” should not be determined by the “rule of the mob”, a clear reference to the “rabble`’ from the lower social order, who must not interfere in matters that do not concern them. This sums up their real attitude.
Jail the BankersBut last week was a turning point. First we had the so-called computer failures at the state-owned Royal Bank of Scotland, where 16.9m of its account holders were prevented from withdrawing cash for more than a week, prompting anger from its frustrated customers. Bank bosses denied the failings were linked to 36,000 redundancies carried out since the start of the financial crisis in order to cut costs and boost its profits, but this will not wash.
Then Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking Group – the latter two still propped up by taxpayers’ money – were found to have been involved in mis-selling interest-rate swaps to small and medium businesses.
Fined
Now, the recent fine of £290m on Barclays, a fine that is tax deductible making it equivalent to 13 days’ profit for the bank (Guardian, July 3rd) - together with the reluctant resignation of Bob Diamond, the Chief Executive of Barclays Bank, over the manipulation of the Libor (London Interbank Offered Rate) interest rate - have costs of bank borrowing. created a massive backlash and public fury against this cynical manipulation to make fat profits. The Libor rate is the reference point for $360 trillion of financial products worldwide. It is set by bankers on the basis of what they say are the average costs of bank borrowing.
While the Libor manipulation and the interest-rate swaps mis-selling are separate scandals, they are clearly interrelated. The swaps rates are linked to the Libor rate, which the banks themselves were manipulating.
Such is the scale and effect of this rigging of Libor, it must surely amount to the biggest financial swindle in history. “There is a degree of cynicism and greed which is really quite shocking”, states Lord Turner, chair of the FSA.
There has been a steady build up of this anger ever since the crash of 2007-8. It has been built on the previous decades of skulduggery by the bankers and their friends, on the back of which fortunes were made. The bankers had been speculating with the billions at their disposal by creating all kinds of “financial instruments”, such as synthetic Collateralised Debt Obligations, Monoline Financial Guarantors, Credit Derivative Product Companies, Structured Investment Vehicles, Commercial Paper Conduits, Leverage Buyout Funds, etc, which all fitted together like the layers of a Russian doll, to build their financial empires. They diced up debt from risky deals, repackaged them, got the rating agencies to bless them with triple A rated titles, and the sold them on for billions. Lehman Brothers, Citigroup, Bear Sterns, Credit Suisse, UBS, Royal Bank of Scotland, and the rest, fiercely ratcheted up their derivatives operations. Sub-prime borrowers were targeted, in the full knowledge that the loans could never be paid back. Credit was offered on such as scale as to create the biggest credit bubble in history – until the credit crunch in 2007, which triggered the biggest crisis of capitalism since the 1930s.
They were all at it, with the full blessing of the Central bankers. “Although speculative activity has increased in some areas (sic!), at a national level these [house] price increases largely reflect strong economic fundamentals”, said Ben Bernanke in 2005. In other words, everything was fine and dandy. They were all part of the “miracle” of creating fool’s gold at the expense of society. Speculation was rife and on a scale unprecedented in history.
Scandal
This is the background to the Libor scandal, which people knew was going on, but which has only now reached the public domain. It comes on top of the scandal of MPs expenses, the hacking scandal of the press empire of Murdoch, its relation with the tops of government, as well as the tops of the police. It reveals what Marx said that, “the executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.” The whole conspiracy stinks to high heaven, as this privileged elite stuff their pockets with untold amounts of cash, while millions of ordinary people in Britain are experiencing unemployment, the fear of losing their job, wage cuts, falling living standards, as well as being forced to working longer and retire on less. 13 million households are today living below the poverty line.
That is why there is growing revulsion against this growing class divide, where the rich are becoming super-rich at the expense of the rest.
The Establishment are attempting to cut across this anger by themselves criticising the “excesses” the bankers. The multi-millionaire George Osborne said there was a culture of “systematic greed” in the City. Even Cameron has also had to criticise his banking friends due to the pressures of public revolt. He is to set up a parliamentary enquiry [composed of those involved in MPs corruption] to investigate the wrong doing of banks. It is like a brothel keeper investigating prostitution. No amount of hand wringing or the acts of contrition from the bosses of Barclays will remove this stench.
“The Barclays affair may lack the spice of some recent banking scandals, involving as it does the dry ‘crime’ of misreporting interest rates”, explains the editorial in the ‘Financial Times’. “But few have shone such an unsparing light on the rotten heart of the financial system.”
It continues: “This was market-rigging on a grand scale. It is hard to think of anything more damning – or more corrosive of the reputation of capitalism.” (FT, 29/6/12)
Danger
This is the real danger for them. The firestorm will continue to rage, producing a massive backlash against the bankers – dubbed “banksters” by the ‘Economist’ on its front page – and, by implication, the capitalist system. Despite the attempt to distance themselves, scandals are inherent within capitalism. The greed and power struggle (“competition”) of the capitalist elites inevitably lead to cheating, corruption, law-breaking and robbery on a grand scale. This is the nature of capitalism and the market economy, despite the protests from their apologists. The driving force of capitalism is the maximisation of profit by whatever means available. Bob Diamond said that “some people acted in a manner not consistent with our culture and values.” But their whole ethos (“culture” and “values”) is money making! That is why some financiers turned the likes of "Diamond Bob" into a super star as he made so much money.
There are many twists and unanswered questions in this scandal. Diamond originally suggested the Bank of England encouraged or at least turned a blind eye towards the manipulation of the Libor rate. The scandal has still some time to run, and will be followed by more. “The Libor scandal is still spreading and could yet become the banking version of the Milly Dowler and Stephen Lawrence scandals for Fleet Street and the Metropolitan Police”, stated the FT (5/7/12).
Scandals are not confined to Britain – far from it – and have emerged in Europe, Japan and America. In fact they are a character of the entire capitalist world. Barclays will not be the last bank to be collared. Investigations involving regulators on three continents, looking into the behaviour of 20 banks involved in rate-setting, are taking place at this moment. HSBC, the Royal Bank of Scotland and the Royal Bank of Canada have already been mentioned in court.
This rigging is not new. There was the Treasury bond scandal at Salomon Brothers in 1991 that imperilled Salomon, now a part of Citigroup. Its chief executive had to resign after a bond trader submitted false bids in the T-bill market. “The place was governed by the simple understanding that the unbridled pursuit of self-interest was healthy”, states Michael Lewis in Liar’s Poker. In 2002, the US gas market was rigged and a number of companies were fined. One of them was found to have kept a spreadsheet of prices labelled “bogus”, as well as the real one. More recently, questions have been raised about the market for dollar swaps – derivatives linked to government bond yields – with prices fixed every day by a handful of bankers in New York.
Similarly, price-fixing in the oil market has been under the spot light. Iosco, an international regulatory group, has warned of the risk of the benchmark being “manipulated by the submission of false prices”.
Once again, here in the UK earlier this year, the government was forced to block Barclays from implementing two “highly abusive” tax schemes that could have cost the Treasury £500m, adding questions about its tax structuring. Then there is swash-buckling Diamond Bob himself, who, it emerged, received close to £25m, including a controversial “tax equalisation” payment of nearly £6m.
“I am determined that Barclays plays its role as a full corporate citizen, acting properly and fairly always,” explained Diamond Bob, “and contributing positively to society in everything that we do.”
Unfortunately, Bob was forced to fall on his sword, and will now join (ex-Sir) Fred Goodwin. Now we wait to see how many millions he is going to pick up in remuneration for his leaving after acting “properly and fairly”. His advice, remember, was that “the period of remorse and apology” by banks was over.
Labour
And what do the Labour leaders propose in regard to the British banking scandal? Nationalise the banks? Well, not quite. The shadow business secretary, Chuka Umunna, said “the sector urgently needs to act to rebuild trust.” Ed Miliband went further saying we need a “revolution in banking”. But this “revolution” he is proposing is that the 5 biggest banks be forced to sell some of its branches and that two extra banks be created to increase competition. Hardly a revolution and more like a squeak. In any case, who is going to own these two “extra” banks? Miliband is a disciple of reforming capitalism, of “responsible capitalism” and doing away with its unsavoury character. But this is a dream world. Capitalism is driven not by good intentions but the maximisation of profit. Any new banks created will follow the logic of capitalism. Those who fall behind will be gobbled up by the bigger banks. That is the reason for the bank mergers over the past few decades and the monopolisation of banking as with the rest of the economy.
The only answer is to nationalise the banks along with the rest of the commanding heights of the economy. This will allow us to plan our resources effectively, without the distortions and ills of the market, including the corruption that goes with it. Capitalism means corruption. Only with the overthrow of capitalism and the elimination of the drive for profit can we create a rational society based on peoples’ needs.
As for the likes of "Diamond Bob", after a stint in jail they can be retired to some desert island, like the specimens in the British museum, the product of a bygone era.