June 28, 2012
Two hundred and ninety million pounds – that’s how much Barclays has been fined for attempting to manipulate the Libor interest rate. That’s not much less than the estimated £300m cost of last year’s riots in London, and it may only be a small fraction of the total damage Barclays has caused. As Philip Aldrick noted yesterday, loans with a value of $10 trillion are indexed using Libor, while over-the-counter derivatives indexed to Euribor, the European Libor equivalent, total over $220 trillion.
But what is the most severe punishment that anyone will suffer for this massive, immense wrongdoing? Bob Diamond may lose his bonus; he may even be sacked. So too may a few Barclays executives. But no one will be imprisoned for this colossal abuse of the financial system. No one will pay in anything approaching a proportionate level to the damage done.
Because some on the Left tend to see finance as an enormous, destructive and parasitical “vampire squid”, the Right has traditionally defended finance. They are right to do so: the importance of a robust and innovative financial system to a strong economy is often underappreciated. As Labour’s first prime minister, Ramsay MacDonald, put it: “finance is the nervous system of capitalism”. Innovations like derivatives are not (only) designed to allow rampant speculation – they give firms real benefits, like the ability to “hedge” against price increases in their raw materials. Reducing uncertainty, supplying capital and spreading risk creates real economic growth.
But that doesn’t mean that outrageous, greedy behaviour should be tolerated. And there is a growing chorus of voices from the Right calling for more bankers to be thrown in jail. The Conservative MP Matthew Hancock has proposed “a law which makes it possible to prosecute executives for serious financial recklessness”, which this manipulation would surely come under…