The scandal surrounding the manipulation of LIBOR rates has erupted once again, with all the major banks embroiled in this mess. Rob Sewell, editor of Socialist Appeal, looks at this latest demonstration of the endemic corruption within the capitalist system.
“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Adam Smith, The Wealth of Nations, 1776.
Tom Hayes, a former trader at UBS bank in Tokyo is currently on trial for manipulating Libor, and facing eight counts of conspiracy to defraud.
Mr Hayes may be considered the fall guy in an international conspiracy. He is a minnow in a shark-infested sea of top bankers. However, his trial has served to expose what went on behind the scenes. He has lifted the lid on the stink of corruption. He claimed that senior directors at UBS wanted staff to rig Libor in order to portray a “position of strength” at the bank and to play down the trouble it was in during the financial crisis and the credit crunch. This would “earn” the bank huge amounts of cash, free of charge.
“The awareness of Libor manipulation at UBS went pretty high up,” he told the SFO in 2013, when he had agreed to co-operate with the fraud office. “The solvency manipulation came from right on high, with messages coming down from group treasury and from the board.”
“It was too widespread and open that people could be unaware,” Mr Hayes had told the SFO. “It was so blatant.”
It was “blatant”, not only at UBS, but after several years since the crash, not a single top banker has been jailed. On the contrary, they have walked away scot-free with fortunes.
Libor – an interest rate benchmark based on estimates of borrowing costs from 16 banks, designed to reflect borrowing costs – shot up in 2008 when the financial crisis struck, as it became difficult for banks to find credit.
Since the rates submitted are estimates, not actual transactions, banks could submit false figures. It has come to light that traders at several banks conspired to influence the official Libor rate, by agreeing amongst themselves to submit rates that were either higher or lower than their actual estimates. This advice came from the very top,
The sums involved do not involve peanuts. Libor is considered to be one of the most important interest rates in the world of finance, upon which trillions of financial contracts rest. It is a global benchmark interest rate used to set a range of financial deals worth an estimated $450,000,000,000,000 according to figures in the Wheatley report of 2012.
This opaque method of fixing rates, seemingly based upon a gentlemen’s agreement, was open to widespread abuse. How could top bankers be accused of dishonest practices? The thing is unheard of! Or so we were led to believe.
This is not the first time that banks have been accused of corruption, tax evasion, money-laundering, and other unsavoury practices. They have been up to their necks in crony capitalism. Even Lord Adair Turner, former head of the CBI, and now head of the Financial Services Authority, accused the bankers as being “socially useless”. “Foreign exchange carry trades are, as far as I can see, of zero value and potentially destabilising”, states Lord Turner. This is some criticism from such worthy sources.
During the past three years, Barclays Bank, JP Morgan, Swiss bank UBS, Royal Bank of Scotland and Deutsche Bank have all been fined by financial regulators for such practices, which is seen as market manipulation and corrosive to trust in the financial markets. However, after eight years since the financial crisis hit, not a single top banker has ever ended up behind bars. Many have taken honourable retirement or left with millions of pounds in golden handshakes. They have been forced reluctantly into the shadows, taking a low profile, still clutching their ill-gotten gains, but not into jail. As people know, there is one law for the rich and another for the rest of us.
No one will forget bankers like Fred Goodwin, stripped of his knighthood and a few million in pension rights, but who still slunk away with a fortune after tipping the Royal Bank of Scotland into the abyss, where thousands lost their jobs. Others have taken their millions and are doing the same thing somewhere else.
Either these banks get tiny fines, equivalent to a slap on the wrist, or they get away with it scot-free. Europe’s biggest bank by assets, which had colluded in tax-dodging by clients of its Swiss operation, is a case in point. Recently, Geneva’s chief prosecutor dropped his lawsuit against HSBC’s Swiss private bank for money-laundering, after his office’s high-profile investigation ended with the bank instead paying SFr40m ($43m) in compensation for historic “organisational deficiencies”. The bank do not have to make any admission of wrongdoing.
The investigation into “aggravated money laundering”, included claims that the bank helped clients launder the proceeds of drugs and arms trafficking, and terrorism. HSBC said in a statement that it had “fully co-operated with the investigation throughout and will not face criminal charges.” In other words, despite the clear case against them, they had gotten away with it.
While tax evasion is not a crime in Swiss law, HSBC is still being investigated over the tax evasion allegations in other countries, including the US, France, Belgium and Argentina. We will see how they wriggle free.
While the poorest sods in society are fined and jailed for bending some social security rule to make ends meet, the richest banking families with their noses in the trough and engaging in fraud and corruption on an industrial scale get away with murder.
Scandalously, tens of thousands of people, with small incomes, have woken up to find their bank accounts closed, as new rules are introduced to tighten up the bank’s profit-making. Such people are treated like garbage, while the top bankers are raking in their bonuses.
We should not be surprised by these scandals, and most people are not. They know that present day capitalism is rotten from the head down. Keynes once described the system as a casino, a glorified gambling den, where the throw of the dice decides the fate of millions. This is certainly the case with banking, and its even sleazier arm, “shadow banking”. Currency speculation has become a craze, where money is made seemingly from nothing. In fact, financial gains are simply a slice of the surplus value created by the working class as a whole.
Corruption is endemic under capitalism. Al Capone has nothing on today’s bankers. They have become the “untouchables”. No wonder Goldman Sachs Chairman and CEO, Lloyd Blankfein said, “we are doing God’s work”!
However, these speculators and money-lenders were not driven out from the Temple, but have been running the whole show.
All attempts to cap bankers’ bonuses have failed miserably. The figures based on the annual financial statements of Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered reveal that bonus payments totalled around £6.5bn in 2013 and roughly £5.5bn in 2014.
While such obscene amounts are made by “socially useless” people at the top, the poorest in society face vicious austerity. The rich inhabit a different world.
Morgan Stanley chief executive James Gorman has received a 25 per cent pay rise after the US investment bank handed him $22.5m for last year.
The Wall Street bank said Gorman’s pay package, which included a $4.7m cash bonus, was based on an “assessment of Morgan Stanley’s performance and shareholder returns as strong, with room for continued progress, and Mr Gorman’s individual performance as exceeding expectation.”
His counterpart at rival Goldman Sachs, God-fearing chairman and chief executive, Lloyd Blankfein, received about $24m in salary and bonus for 2014, though the value of any long-term stock awards he received will not be fully disclosed until Goldman lodges its annual statement. James Dimon, JPMorgan Chase chairman and chief executive, is set to receive a flat $20m for 2014, with a portion in cash larger than the previous year.
The latest Morgan Stanley filing also disclosed the packages for other executives, including its recently departed chief financial officer Ruth Porat, who has resigned to take the same role at Google on a package that will deliver her $70m by 2016, after including various share awards. Ms Porat received $13m in her last year at Morgan Stanley, including salary, bonus and long-term incentive pay.
Greg Fleming, who runs Morgan Stanley’s wealth and asset-management businesses, and Colm Kelleher, who heads investment banking and trading, each received a total package of $16m in 2014. James Rosenthal, chief operating officer, earned $11m.
Any talk of tightening banking rules has been systematically met with threats by big banks to relocate abroad. HSBC is presently considering moving its headquarters from London. The same goes for Standard Chartered. Such threats only intensify the mood of outright disdain felt by ordinary people towards this dictatorship of finance capital.
Bankers are viewed by the general public as being on the same level as crooks, criminals and paedophiles. They were handed billions of pounds in bailouts, after helping to tip the world economy into the deepest crisis in history. The tax-payers had to bail them out from the mess they created, and now the working class is being asked to pay the price through austerity.
Of course, ordinary workers who work in banks are also being constantly squeezed by the bosses, where the threat of redundancy is never far away. Already, HSBC has announced 8,000 redundancies in Britain and tens of thousands worldwide.
This dictatorship of finance capital is only the pinnacle of the dictatorship of capital as a whole. Their decisions, dictated by the drive to maximise profits, decide the fate of millions. These millions are but small change to the banker-crooks.
They are so powerful, that politicians, high court judges and police chiefs are all in their pocket. Democratically-elected governments are under their control. This is the real dictatorial face of the capitalist system.
Rather than regulation, which is completely ineffective and laughed at by these tricksters, the banks must be nationalised and brought under public control. The banks and the insurance companies are the life-blood of an economic system. They are too valuable to be left in private hands and mis-run for private profit. There must be a real inquiry. The guilty must be brought to account. Those who have plundered and salted away their ill-gotten gains will have their wealth expropriated and these resources used for everyone’s benefit. The millionaire crooks found guilty will find themselves behind bars for a very long time.
Of course, all the deposits of ordinary people held by the banks will be guaranteed. Their money is safe. However, the banks as an economic entity must be in public hands if we are to control the economy. But we would not stop there. The handful of monopolies, which dominate our lives, will be taken out of the hands of billionaire families that presently own them, without compensation. This will allow us to introduce a rationally planned economy, under workers’ control and management. Only then can we deal with the ills of society and abolish poverty, unemployment and homelessness once and for all.