Quelle Surprise! Barclays Settlement on Libor/Euribor Fixing Illustrates Bank Crime Pays Well

Published on naked capitalism, by Yves Smith, June 28, 2012.

It’s become oh-so-predictible that banks get at most “cost of doing business” punishments that they almost seem not worth noting. But that’s precisely why it’s important to keep tabs on them, to let the complicit authorities and the perps know that the public is not fooled, even it is not in a position to do anything about it…yet…  

Even though the Libor/Euribor price-fixing scandal hasn’t gotten much attention in the US, this is a really big deal. Admittedly, it did not crash the economy the way toxic RMBS and CDOs did. Instead, it was a massive price manipulation, the sort of victimless-looking crime where stealing a few basis points over a monster volume of transactions has a huge aggregate impact. This scheme went on for a full five years, with 20+ banks fingered, meaning everyone who was anyone was in on the game. As Ben Walsh put it:

-The importance of Libor and, to a lesser extent, Euribor, is hard to overstate. They are used to value of hundreds of trillions of dollars of financial instruments. Or as Matt Levine puts it, they “set the rates on pretty much all the loans and swaps in the world … CFTC order mentions $350 trillion of [over-the-counter] swaps, $10 trillion of loans, and $437 trillion of CME eurodollar contracts indexed to Libor alone”.

Barclays is first to settle, and given the scale and potential profitability of this activity, the fine looks paltry: $450 million among the FSA, the CFTC, and the Department of Justice (£230 million to the US authorities, £60 million to the FSA). The DOJ has granted “conditional leniency” on anti-trust charges. Price fixing is criminal under the Sherman Act. Four top executives, including CEO Bob Diamond are also giving up bonuses this year.

It’s a bit early to reach hard conclusions, since Barclays got reduced penalties for cooperating early. We’ll be able to calibrate the degree of lack of seriousness by the punishments meted out on the other banks. But there is no reason to think we’ll see a sea change, despite the magnitude and duration of this scheme. Masaccio correctly included the settlement in a list of This Week in Financial Not-Crime. Guardian’s editorial inveighs on why much more serious action is needed: … //

… But all we need to do is contrast this case with the municipal bid-rigging prosecution described by Matt Taibbi in the current Rolling Stone. Here you have three individuals at GE Capital going to jail for price fixing, which is crime under the Sherman Act. But they were merely the arms and legs of big banks. Where were the prosecutions of the higher ups, or of the senior officers of banks who were in on this con? We see the same pattern over and over: justice is meted out only on the foot soldiers, those far enough away from the executive ranks so as not to call into question the integrity of the system. The irony of it all is the public is well aware of how crooked the financial services industry is (the poll data alone is proof). But for the elites, it is vital that they not admit that something is rotten in Denmark, for if they did, they’d have to do something about it.  (full text).

Links:

Sherman Antitrust Act;

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