How could a bank be so brazen as to try to manipulate the Libor benchmark and then write congratulatory in-house e-mails about their attempts to do so?
Barclays, regulators said, "pervasively" attempted to manipulate the Libor for four years, sending in falsified numbers that a panel of bankers used to calculate the benchmark rate.
The Libor, the London inter-bank offered rate, is just that, the average interest rates that banks offer when lending money to each other. It makes sense that a variety of consumer and business loans should use that as a benchmark, after all lenders should charge a pinch more for loans than the average of what that money costs a bank.
The question is how can a bank manipulate such a cornerstone (or benchmark) to so many loans -- to $350 trillion worth of loans currently, reports say -- and then have bank personnel send an e-mail that says, "Did it for you, big guy," and other chummy messages with seemingly no attempt to hide what they were doing?
Barclays, to get the facts down first, is to pay regulators in Britain and the United States $450 million for the scheming. Its top four executives have "volunteered" to give up their bonus pay for 2011. Chairman Marcus Agius said Monday he would resign. Chief Executive Officer Robert Diamond, under pressure from the prime minister and others, also said Tuesday he would resign. In addition, Chief Operating Officer Jerry del Missier said he would step aside.
In this column it was offered that maybe 600 bank employees should be summarily fired. This was a very rough, but very sincere idea. Maybe it should only be 60. But the point is clear: These are bankers who crossed the line.
Investigators are attempting to figure out if other big banks also tried to fix the Libor and, far more haunting, if the banks colluded in their efforts to do so.
There have been many missteps by banks in the past five years for several reasons. The first is that the industry has a normal level of malfeasance out there, crisis nor not. The second is that the industry has been in crisis. That's pretty simple mathematics.
The Libor scandal is curious for several reasons. Again, how could bankers be so brazen as to cross this very clear line and then write congratulatory notes back and forth about it?
As the Libor is an average of borrowing costs for a handful of global banks, why bother breaking the law for something in which one bank has a fairly minimal impact on the outcome? The Libor panel at the British Banking Association tosses out the highest and lowest rates before calculating the average. So what was the point of all this?
Clearly, the $450 million fine was significant in two ways: First, it was a fine that far exceeded what might have been the actual benefit of the crime. Second, it was the first fine in memory that actually came close to matching the potential intention behind the crime.
By analogy, Barclays put a pinch of salt in the soup when no one was looking. They got slammed.
Here's the rub: There can be no other interpretation of a bank trying to manipulate the Libor except for this: Even though the target victim of this scheme was fairly diffuse, the only reason a bank could possibly do this is to secretly rob them.
You've heard of bank robberies. This is one of them. This is why the outrage and the reaction should be, in a word, conclusive. This is a bank that was out to rob people using one of the most broadly affective tools in their war chests.
Why so brazen? First of all, bankers and regulators, in a sense, go to the same parties. Regulators are not only in place to punish banks, they are in place to guide them. If the relationship begins to get a bit cozy, then that is really business as usual: It's very normal, very much expected.
This went well beyond that. This was about bankers who feel so completely removed from the day-to-day norms that customers have become victims, clients have become targets. Thieves, it turns out, are a fairly brazen lot in their own dens, where a little back-slapping helps forget the moral confusion and enables their partners in crime to keep up their end of the bargain.
Throughout the fiscal crisis of 2008 and 2009, one of the more frequent expressions, especially in Britain, that defined the bankers' multimillion-dollar pay packages compared to the horrors of the economic backlash on the unsuspecting populace was that bankers were "out of touch," and, essentially, clueless about the devastation they had unwittingly caused.
The Libor scandal is that clueless behavior revealed for what it was: Not clueless at all. Very deliberate.
In international markets Tuesday, the Nikkei 225 index in Japan rose 0.7 percent while the Shanghai composite index in China gained 0.14 percent. The Hang Seng index in Hong Kong gained 1.51 percent while the Sensex in India rose 0.15 percent.
In Australia, the S&P/ASX 200 fell 0.14 percent.
In midday trading in Europe, the FTSE 100 index in Britain rose 0.83 percent while the CAC 40 in France gained 0.96 percent. The DAX 30 in Germany rose 1.26 percent while the pan-Europe Stoxx 600 index added 1.01 percent.