Coming Soon to Wall Street: The Biggest Scandal Yet
Robert B. Reich
Just when you thought
Sit down and hold on to your chair.
Consider the most basic services banks provide you: You put your savings in a bank to hold in trust, and the bank agrees to pay you interest on it. Or you borrow money from the bank and agree to pay the bank interest on the loan.
We trust that the banking system is setting interest rates based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of lenders and borrowers all over the world (including central banks) about the future supply and demand for the dough.
But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them -- bets that will pay off big for them because they have inside information on what the market is really predicting, which they're not sharing with you.
That would be a mammoth violation of public trust. And it would amount to a rip-off of almost cosmic proportion -- trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we've witnessed look like child's play by comparison.
Sad to say, there's reason to believe this has been going on, or something very much like it. This is what the emerging scandal over "Libor" (short for "
Libor is the benchmark for trillions of dollars of loans worldwide -- mortgage loans, small-business loans, personal loans. It's compiled by averaging the rates at which the major banks say they borrow.
So far, the scandal has been limited to
There are really two different Libor scandals. One has to do with a period just before the financial crisis, around 2007, when
But the other scandal is even worse. It involves a more general practice, starting around 2005 (and continuing until ... who knows? It might still be going on), to rig the Libor in whatever way necessary to assure the banks' bets on derivatives would be profitable.
This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us -- whose money they've used to make their bets -- losers and chumps.
What to do about it, other than hope the
When it comes to
The alternative is to be unflagging and unflinching in our demand that Glass-Steagall be reinstituted and the biggest banks be broken up. The question is whether the unfolding Libor scandal will provide enough ammunition and energy to finally get the job done.
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Coming Soon to Wall Street: The Biggest Scandal Yet | Politics
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