Translated from the French by Tim Gupwell
The paradox of the 2008 ‘LIBOR scandal’ – in addition to its familiar ring in 2012 – is that, as I alluded to at the time and as I recalled a few days ago, the fraud was well-intentioned for once: the ‘philia’ of Aristotle, the good will exercised by everyone so that a common activity can be pursued – in this case the very existence of the financial system.
Yesterday’s ‘surprise’ was that Paul Tucker, Vice-Governor of the Bank of England, was said to have advised Bob Diamond, who resigned yesterday from Barclays, to tone it down when the bank transmitted the amount of the rates that its peers were charging it over various terms.
In a memorandum addressed by Diamond on the 29th October 2008 to John Varley, Chief Executive of Barclays at the time, he explained that Tucker had called him the day before to ask him why the bank often gave higher rates than the other banks whose opinions contributed to determining the LIBOR rate. Tucker explained that his call was motivated by the fact that he was receiving numerous phone calls from members of the Government. Mr. Tucker reiterated that the calls he was receiving from the government were “senior”, according to Diamond, and that while he was certain that we did not need advice it did not always need to be the case that the rates appeared as high as we have recently”.
On Friday I explained in The Manipulation of the LIBOR why it was in the interest of banks like Barclays, in the interest of the Bank of England, in the interest of senior Government figures, in the interest of Great Britain and in the interest of financial markets as a whole, to fiddle the rates since at that time everyone in some form or another would have been heading to their downfall if they had behaved nay differently.
It is a particularity of the time required for criminal prosecution (the fine of 359 million Euros imposed on Barclays on the 27th June) and for popular indignation to be ignited, that the scandal – despite being known about in April 2008 (see my French article L’affaire du LIBOR) – only created a real buzz in the media four years later; sweeping before it (some might say “finally”), those in charge of commercial banks, central banks, and senior politicians, all of them sharing an uncustomary “surge of philia”, for which, irony of ironies, they were roundly punished.