Barclays Libor scandal: how can UK change its banking culture?

A superb article by Aditya Chakrabortty of Guardian.

He says the Libor rigging crisis provides UK a second chance of reforming its financial sector. The first came post Northern Rock/Lehman failure in 2008 which was just withered away.

In the wake of the Lehman’s collapse of 2008, there was much talk about how the relationship between state and finance would be changed in the public interest. Those efforts were effectively killed off by the finance lobbyists and, if we’re honest, the unpreparedness of progressives in Britain to seize the opportunity. The Libor scandal offers a second go at the same argument. We either have it out this time, or we run the risk of repeating 2008. Only next time, the British might need to cough more than 20 grand each. A lot more.

This 20 grand bit is based on analysis which shows each UK citizen has paid nearly GBP 20,000 as support to the financial sector:

We don’t know each other, but I want to offer you a deal: You each give me £20,000. And that’s it. What do you get in return? Well, it’s a fair question but I can’t even promise to pay it all back. But let me assure you of this: your hard-earned cash will keep me in the style to which I’m accustomed. And that’s got to be good for all of us. So I’m sure you’ll agree that 20 grand is an absolute bargain. Indeed, I would call it a once-in-a-lifetime offer; only I can’t promise not to come back again.

You’ve probably guessed that the transfer I’m talking about has already happened. Each man, woman and child in Britain has already handed over £19,271. And our money has gone to the banks.

According to the IMF, the British stuck £1.2 trillion behind the finance sector. Read that again: well over a trillion pounds in bailouts, and loans and state guarantees on bankers’ trading.

In just a few months, and with barely any public debate, every household subbed£46,774 to the City. A sliver of that money eventually went unused; as for the remaining hundreds of billions, we have no idea just how much we’ll get back – or when.

 The author says US atleast tried to look at causes of the crisis:

Or there’s the fact that, nearly five years on from the collapse and subsequent nationalisation of Northern Rock, British taxpayers have still not been provided with a comprehensive review of the causes of the financial crisis. One of Barack Obama’s first acts as US president was to commission the Financial Crisis Inquiry Report, a 600-page document that was reviewed in the New York Review of Books as “the most comprehensive indictment of the American financial failure that has yet been made”. What’s the nearest British equivalent? The Bischoff report commissioned by Alistair Darling in the wake of the crisis, which looked into the long-term outlook for finance. Totting up the career histories of the authors of this government-sponsored review, the Cresc team calculated that three-quarters of their combined working lives had been spent either at a bank or in a closely-related field.

The comparison is laughable. Without review of how the UK ended up in this mess, or reform beyond the narrowly technical proposals made by the Vickers Commission (40% of whose authors were ex-bankers), we are doomed to repeat the same mistakes again and again. Indeed, the evidence is that London is already gaining the reputation of being the SpivZone of international financial markets. At a hearing in the US last month into how JP Morgan lost up to $9bn in the UK in derivatives trading, congresswoman Carolyn Maloney commented: “It seems to be that every big trading disaster happens in London.”

Hardly any political willingness to reform finance. Politicians prefer interest rate group (read financial sector) over general voters even after the crisis and one scam after the other.

Dr. YV Reddy recently said certain banks are bigger than central banks. Well the former seem to be bigger than anything and everything on planet earth…

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