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Economics no image

Published on July 14th, 2012 | by Kirsty McKellar
Image © [caption id="" align="alignnone" width="566"] Bob Diamond has been at the centre of much public fury © World Economic Forum[/caption]   Over recent weeks the Libor rate-rigging scandal has dominated headlines, it has sparked debate over the way it should be handled and the nature of worldwide banking culture. Prior to these revelations, many people hadn’t heard of Libor, the London Interbank Offered Rate i.e. the rate at which banks lend to each other; now it is regarded as yet another reason that the people who run our country simply cannot be trusted. First the MPs expenses scandal in 2009 exposed our elected representatives as greedy and corrupt. Then last year our media institutions were exposed in the phone-hacking and bribery scandal and their close relationships with politicians were revealed. It is now evident that our bankers have also been lying; through leaked emails it is clear that their manipulation of the Libor rate has affected loans, mortgages, credit cards etc. Whilst Labour called for a full, judge-led independent inquiry into banking culture, much like the Leveson inquiry, the government argued that this would take too long and have instead opted for a joint committee of MPs and peers. Lord Sassoon, the Treasury minister, accused Labour of attempting to slow down an urgent need for an inquiry (the committee is scheduled to report on December 18th, meaning it may have to convene over the summer recess). Whereas Ed Balls believes that a politician-led inquiry will result in political point scoring over whether the previous Labour government were to blame for the scandal. MPs for the inquiry were selected on the recommendation of their parties, hence many people believe that party allegiances will prove too strong and it will boil down to the blame pointing that has dominated recent discussions. Balls claimed that the problems with the banking industry go much deeper than the Libor scandal, therefore a public inquiry would have been more fitting. The idea that MPs, who have lost the public’s trust, are to be trying bankers, who have also lost the public’s trust, is also controversial. The atmosphere amongst the public suggests that any form of inquiry needed to happen as soon as possible, but either way it is unlikely that it will result in anything more than a few sackings and disproportionate fines. Evidence shows that rate-rigging activity began as early as 2005 through to 2009. When questioned by MPs, Former Barclays Chief Executive Bob Diamond told MPs that in October 2008 Paul Tucker (Deputy Governor of the Bank of England) had expressed his concerns over the high Libor level. Mr Tucker’s apparent statement that ‘it did not always need to be the case that we appeared as high as we have recently’ apparently piled the pressure on banks to lower the Libor rate. It appears that high pressure in tough economic times seems to have lead regulatory bodies to overlook lying and manipulation. Hence why government officials are blaming lax regulation i.e. the previous government, leading to a culture of impunity. There are now claims that Diamond lied to MPs in his testimony, sparking further public anger at banker’s lies. This has undoubtedly resulted in a loss of confidence in those that run the country. As always in public scandals, when the story first emerged it was put down to the odd ‘rogue agent’ or ‘bad apple’, however it soon became clear that this is a global issue, twelve global banks are now linked to Libor rigging. Public trust and government accountability are vital pillars of democracy and recent polls show that trust has been significantly undermined. Bankers did not have a good reputation to begin with, but a ComRes poll for ITV News last week shows that only 10% of us trust bankers to tell the truth, four in five of us do not, and 12% are not sure. The statistics are not much better for politicians, as 77% of the population do not trust them to tell the truth and only 10% do. Similarly, only 13% of us trust journalists. On the opposite end of the spectrum, 85% of people trust doctors to tell the truth, 73% trust judges and 59% trust police officers. According to The Telegraph, a poll by moneysupermarket.com reveals that almost one-fifth of people surveyed said that they had now lost trust in their bank completely. Labour MP John Mann, who has been excluded from the Treasury Committee, has expressed his concerns that the three most independent-minded Conservatives had not been included in the inquiry, claiming that this confirms warnings about a parliamentary inquiry being unsatisfactory. He has also branded the inquiry a total ‘whitewash’ before it starts. The inquiry itself - its nature and its outcomes, have the potential to turn around politicians’ and bankers’ standing with the general public and improve vital levels of trust, certainly Bob Diamond walking away with a £2million bonus does not.

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Corrupt Culture

Bob Diamond has been at the centre of much public fury © World Economic Forum

 

Over recent weeks the Libor rate-rigging scandal has dominated headlines, it has sparked debate over the way it should be handled and the nature of worldwide banking culture. Prior to these revelations, many people hadn’t heard of Libor, the London Interbank Offered Rate i.e. the rate at which banks lend to each other; now it is regarded as yet another reason that the people who run our country simply cannot be trusted. First the MPs expenses scandal in 2009 exposed our elected representatives as greedy and corrupt. Then last year our media institutions were exposed in the phone-hacking and bribery scandal and their close relationships with politicians were revealed. It is now evident that our bankers have also been lying; through leaked emails it is clear that their manipulation of the Libor rate has affected loans, mortgages, credit cards etc.

Whilst Labour called for a full, judge-led independent inquiry into banking culture, much like the Leveson inquiry, the government argued that this would take too long and have instead opted for a joint committee of MPs and peers. Lord Sassoon, the Treasury minister, accused Labour of attempting to slow down an urgent need for an inquiry (the committee is scheduled to report on December 18th, meaning it may have to convene over the summer recess). Whereas Ed Balls believes that a politician-led inquiry will result in political point scoring over whether the previous Labour government were to blame for the scandal. MPs for the inquiry were selected on the recommendation of their parties, hence many people believe that party allegiances will prove too strong and it will boil down to the blame pointing that has dominated recent discussions. Balls claimed that the problems with the banking industry go much deeper than the Libor scandal, therefore a public inquiry would have been more fitting. The idea that MPs, who have lost the public’s trust, are to be trying bankers, who have also lost the public’s trust, is also controversial. The atmosphere amongst the public suggests that any form of inquiry needed to happen as soon as possible, but either way it is unlikely that it will result in anything more than a few sackings and disproportionate fines.

Evidence shows that rate-rigging activity began as early as 2005 through to 2009. When questioned by MPs, Former Barclays Chief Executive Bob Diamond told MPs that in October 2008 Paul Tucker (Deputy Governor of the Bank of England) had expressed his concerns over the high Libor level. Mr Tucker’s apparent statement that ‘it did not always need to be the case that we appeared as high as we have recently’ apparently piled the pressure on banks to lower the Libor rate. It appears that high pressure in tough economic times seems to have lead regulatory bodies to overlook lying and manipulation. Hence why government officials are blaming lax regulation i.e. the previous government, leading to a culture of impunity. There are now claims that Diamond lied to MPs in his testimony, sparking further public anger at banker’s lies. This has undoubtedly resulted in a loss of confidence in those that run the country.

As always in public scandals, when the story first emerged it was put down to the odd ‘rogue agent’ or ‘bad apple’, however it soon became clear that this is a global issue, twelve global banks are now linked to Libor rigging. Public trust and government accountability are vital pillars of democracy and recent polls show that trust has been significantly undermined. Bankers did not have a good reputation to begin with, but a ComRes poll for ITV News last week shows that only 10% of us trust bankers to tell the truth, four in five of us do not, and 12% are not sure. The statistics are not much better for politicians, as 77% of the population do not trust them to tell the truth and only 10% do. Similarly, only 13% of us trust journalists. On the opposite end of the spectrum, 85% of people trust doctors to tell the truth, 73% trust judges and 59% trust police officers. According to The Telegraph, a poll by moneysupermarket.com reveals that almost one-fifth of people surveyed said that they had now lost trust in their bank completely.

Labour MP John Mann, who has been excluded from the Treasury Committee, has expressed his concerns that the three most independent-minded Conservatives had not been included in the inquiry, claiming that this confirms warnings about a parliamentary inquiry being unsatisfactory. He has also branded the inquiry a total ‘whitewash’ before it starts. The inquiry itself – its nature and its outcomes, have the potential to turn around politicians’ and bankers’ standing with the general public and improve vital levels of trust, certainly Bob Diamond walking away with a £2million bonus does not.

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About the Author

Kirsty McKellar

Kirsty has recently graduated from the University of Liverpool, obtaining a degree in Politics and Criminology (BA Hons). She is mostly interested in British politics, particularly the policies of the current coalition government. After completing her dissertation on the reasons for youth voter apathy with a First classification, she has developed a keen interest in young people’s relationship with and participation in politics. Kirsty has also undertaken some valuable work experience with her local MP, Esther McVey. She enjoyed the experience of working in local politics with Members of Parliament and Wirral Borough Council, helping to organise a charity event for the Big Lottery Fund. Kirsty intends to move to London this year to pursue a career in politics and social research, as it is something that she has always been passionate about.



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