It's looking like arrests are imminent in the LIBOR scandal, with U.S. and European investigators closing in on more than a dozen traders. For at least from 2005 to 2009, Barclays Bank, among others -- apparently, many others -- intentionally manipulated the interest rate benchmark LIBOR (the London Interbank Offered Rate), to which trillions of dollars of financial instruments, including mortgages, credit card rates and small business loans, are pegged. In the last week of June, Barclays reached an agreement with British and American regulators to pay a $450-million fine, and three top officials of the bank, including chief executive Robert Diamond, resigned.
Just how serious is the scale of this fraud? Some say that the amount tied to LIBOR is $360 trillion, some say $500 trillion, while others put it as high as $800 trillion.
"Manipulating the LIBOR is a big deal because it affects the cost of money for almost everyone," columnist Gretchen Morgenson writes in The New York Times. Or, as Dylan Matthews of The Washington Post put it, "a bank that mucks with the LIBOR rate isn't just playing around with esoteric derivatives that will only affect other traders: They're playing with the real economy that most of us participate in every day."
So outrage is entirely appropriate. But when I first read this story, I had a somewhat different reaction due to my personal connection to the bank. When I was 25 years old, I was living in London, and had just written my second book. I thought it was ready to be published, but publishers felt differently -- 25 of them had rejected it. So one day, nearly broke, I found myself walking on St. James Street mulling things over -- as in, "maybe I need a different career."
I saw a Barclays Bank and had an idea. I went in and asked to see the manager. We sat down and, armed with no collateral but a bit of chutzpah, I explained the situation and asked him for a loan. He thought it over and, to my shock, said OK. His trust in me actually changed my life, since it allowed me to keep going for another 13 publisher rejections ... and one "yes." His name was Ian Bell and he, and Barclays Bank, have always had a special place in my heart (I still send him a Christmas card every year).
So in my memory, Barclays has always been the good bank, even as recent years have shown more and more banks to be far from good. But now the good bank of my memory has become, like so many others, a bad bank. It wasn't so much that Barclays had changed, but that banking itself had changed. Barclays just joined the club.
In fact, 16 banks are being examined for manipulating the LIBOR or other rate indexes. Morgan Stanley estimates that total costs for the banks involved could reach $14 billion, while another report puts the number closer to $35 billion. "This is the banking industry's tobacco moment," said one bank's chief executive. "It's that big."
Just how brazenly lawless the banking world has become can be seen in the casual tone of the emails unearthed in the investigation.
"Dude. I owe you big time! I'm opening a bottle of Bollinger," read one. Another trader would write himself notes in his planner to remind himself to fix the market that day: "Ask for High 6M Fix."
This isn't how master criminals talk -- there's no hush-hush burn-this-letter-after-reading drama. It's the banal, everyday tone used by people who assume this is just how things are done. And, by and large, this is how things are done. It's hard to blame the front-line traders who were actually doing the rigging. The problem isn't a few bad apples, though that's how the industry is going to try to portray it. As London lawyer Richard East put it: "They'll obviously score direct hits with the particular traders, but will they catch the big fish? I don't think so."
It's not that bankers have somehow suddenly become bad guys; it's that concrete decisions were made to change laws in a way that made scandals like this inevitable. It was the deregulation of the '80s and '90s that allowed banks to morph from local institutions that knew their customers into the dangerous, near-lawless casinos they are today.
When talking about the pre-casino incarnation of banks, people often use the word "boring" to describe them. For example, here's Joe Nocera in The New York Times: "What banking most needs is to become boring, the way the business was before bankers became addicted to trading profits."
I completely agree with the prescription that banking needs to go back to what it was. What I disagree with is that this is necessarily boring. One of those boring, small-time decisions changed my life. The ability to engage with somebody face to face, to hear them out, to trust them and take a risk based on that trust -- that doesn't seem boring to me.
Of course, let's investigate and prosecute all those responsible for the LIBOR scandal. LIBORgate isn't the problem; it's a symptom. And until we separate the banks from the casino, more symptoms will appear. Hopefully, one day, I can go back to my fond memories of Barclays Bank. That would be a real occasion to open a bottle of Bollinger.