Just when you thought Wall Street couldn’t sink any lower, an even deeper level of public-be-damned greed and corruption is revealed.
Consider the most basic services banks provide you: You put your savings in a bank to hold in trust, and the bank agrees to pay you interest on it. Or you borrow money from the bank and agree to pay the bank interest on the loan.
We trust that the banking system is setting interest rates based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of lenders and borrowers all over the world (including central banks) about the future supply and demand for the dough.
But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them — bets that will pay off big for them because they have inside information on what the market is really predicting, which they’re not sharing with you.
That would be a mammoth violation of public trust. And it would amount to a rip-off of almost cosmic proportion — trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we’ve witnessed look like child’s play by comparison.
Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor,” or the London interbank offered rate.
Libor is the benchmark for trillions of dollars of loans worldwide — mortgage loans, small-business loans, personal loans. It’s compiled by averaging the rates at which the major banks say they borrow.
So far, the scandal has been limited to Barclays, a big, London-based bank that just paid $453 million to U.S. and British bank regulators. Barclay’s top executives have been forced to resign and its traders’ emails give a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks.
But Wall Street has almost surely been involved in the same practice, including the usual suspects — JPMorgan Chase, Citigroup and Bank of America — because every major bank participates in setting the Libor rate, and Barclays couldn’t have rigged it without their witting involvement.
Read more: Robert Reich | More evidence we must break up the big banks - KansasCity.com
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