Barclays: Another Wall Street game fixer
And the punishment for cheating? A weak slap to the wrist.
By Dan Burrows
The scandals, fraud and fallout from the financial crisis just never seem to end, so you might be forgiven if your response to the latest banking bombshell is to throw up in your mouth only just a little bit.
Price-fixing is a crime, but as with every other scandal to emerge from the stupidity and greed that plunged the world into the worst economic crisis since the 1930s, don't expect anyone to go to jail.
Bob Diamond, chief executive of Barclays (BCS), resigned Tuesday, felled by a scandal in which the giant British investment bank rigged interest rates. Other senior management heads are rolling, too.
But as past is precedent, the punishment meted out on Barclays and its executives is a pittance. Barclays is paying a settlement to regulators amounting to $450 million. For a firm that made more than $6 billion in profit on $58 billion in revenue last year, that is something less than a slap on the wrist.
Meanwhile, the disgraced executives walk away several millions of dollars richer. Diamond earned more than $2 million in salary last year and is entitled to six months' salary if he resigns voluntarily.
As for regular folks? They lost their life savings in the market crash. They lost their homes and they lost their jobs. That would have been sufficient. But now that the rate-rigging has come to light, we know they probably were ripped off in countless other ways as well.
It turns out that back in 2007 and 2008, during the darkest days of the financial crisis, Barclays lied about the interest rate it would expect to pay other banks to borrow short-term cash. The bank reported artificially low rates to make it look healthier -- or more creditworthy -- to other banks and the market.
That's a big deal because those banks' self-reports form the basis of LIBOR, or the London interbank offered rate benchmark. LIBOR is used to set rates not just on derivatives and swaps and arcane financial products, but on consumer loans, too.
Indeed, LIBOR is used to figure rates on about $350 trillion worth of financial products like credit cards, mortgages, home loans and student loans. Fiddling with LIBOR distorts prices paid for all manner of consumer credit, meaning lots of people probably were collectively ripped off, even if only by fractions of a percent.
So surprise, surprise: From Wall Street to Main Street, the game was rigged, and it was rigged by shenanigans at a supposedly stellar institution.
Barclays actually was seen as a big winner coming out of the crisis. After all, when Lehman Brothers blew up, it was able to scoop up the best parts of the Wall Street investment bank on the cheap, transforming itself into a major player.
Now the scandal has claimed the bank's chairman, its CEO and its newly minted chief operating officer -- and, of course, its reputation.
Perhaps the fraud will be found to have been contained to Barclays, and only that firm and U.K. regulators will come out with black eyes. But don't bet on it.
As they say on Wall Street, there is never just one cockroach.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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