Bob Diamond has resigned from Barclays in the last hour.
Except, as his resignation statement makes clear, he didn't as such resign: he was pushed and he admits it.
George Osborne seems to think that this brings the banking crisis to a close, based on deeply partisan comments made on Radio 4 this morning. But that's wrong for a number of reasons.
First, the fact that Diamond did not resign immediately but had to be pushed shows that there has been no change in culture at Barclays, or no doubt anywhere else in the City. This was a purely market driven decision. Morality and responsibility had nothing to do with it.
Second, a man who has already resigned for his part in this scandal is now appointing the new chair of Barclays, assisted by a man who was senior partner of KPMG at the time it was fined $455 million in the USA for selling abusive tax schemes. There's no hint of reform there.
Third, it is very clear George Osborne is now going to use this as an excuse to say the problem has been solved, the issue has gone away and let's move on. But that's not true. The problem was not particular; the problem was systemic. And that's why a judicial review of banking remains vital, as do the reforms I mentioned yesterday.
Fourth, there is now a clear need for Osborne and Balls to drop the party rhetoric on this. I'm bored by Osborne sayLng labour got regulation wrong when until 2008 the Tories (led by Osborne) opposed all Labour regulation as a matter of principle. And Labour can't say this all happened on the Tories watch: Labour made the mistake of believing bankers are honest but some of us didn't because we saw what they did offshore and knew that was not possible unless the whole structure was corrupted to the core. That was an error of judgement on Labour's part, even if one many made, and which the Tories still seem to make.
So let me put it another way: we have clear evidence of a culture of corruption in our most important current service industry. It's clear that Diamond resigning has changed nothing.One scalp will not change that culture: hundreds, if not thousands knew of this and the clear suggestion that the Bank of England knew and even by implication endorsed this behaviour now exists, meaning that the culture extended into the organisation now meant to regulate the system. Nothing less than a full review - and sweeping reform will change that.
Banks must now be split.
Vastly greater government control is needed.
But so are new people on the boards of these banks who can be shown to have the moral leadership to drive a process of reform.
And Osborne has said nothing at all about that. In other words, he's not willing to change the spots on banking, and nothing else will do if anything is to really change.
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Richard. I’m sure that you and most readers of your blog, well understand that the last thing in the world that the BBA, the City, the FSA, the Bank of England, the Big Four accountancy firms, etc, and, of course, the Tory Party, want is an independent inquiry into banking. Yesterday, (working in concert with the City I have no doubt) one strategy was tried by Barclays and the Government to head that off. By yesterday evening it was clear that wasn’t working and that as long as Diamond was still in post it wasn’t going to. I’m quite sure someone had a quite word with Bob late yesterday evening to make clear that for the greater good of banking, the City and the Tory Party (in other words to stop the spotlight being shone into all sorts of nasty little places) he needed to fall on his sword pronto. We now have the absolutely bizarre spectacle of someone who only yesterday explained at some length why the buck stopped with him now basically saying that that was simply bullshit and it didn’t after all, because it was Bob all along (what sort of Chairman is that?). In short, treating the public – once again – with complete contempt by demonstrating that they really don’t give a damn what anyone else thinks. Unfortunately for them – and Osborne – I don’t think it’ll work any more. The level of public disdain for, and lack of trust in, banks, bankers and the system is now increasing so rapidly that they are no longer in control of events or the agenda. What a shock that will be for the likes of Osborne, Angela Knight and co.
I think you’re right
They may be losing control of this one
And we know where that leads. In the interest of helping people prepare, may I remind people that my page (and others) on the subject can be easily found by Googling for UK Preppers.
If there was any justice Diamond would be prosecuted for money laundering offences in connection with the manipulation of LIBOR and all his bonuses from 2005 onwards confiscated as Proceeds of Crime. I wonder if Osborne put this to him when they spoke last night. Resign, play the game in front of the select committee and don’t rock the boat and we’ll keep plod off and you can keep your dosh. An offer he couldn’t refuse knowing he is as guilty as hell.
Certainly Osborne looked so smug this morning one has to assume he had been lapping up a big dose of cream.
No this will not do it, we still need root and branch reform. Osborne has lost it and this stroke will not loosen the circling white coats coming to take him away. Time for Vince to stick the knife in and take over hopefully.
If there is any justice in the world Diamond will be spending the rest of his days on workfare. After he has been to prison of course.
I was thinking that extraordinary rendition to the US – who have a rather tougher line on market rigging – might be appropriate
Funnily enough I’d had the same thought!
So long ‘Diamond’ Bob. This is still going to run though. The shadow banking system means that slight changes in LIBOR will have huge ramifications. “Unlike the conventional banking system, the shadow banking system is largely unregulated… That is what happened in September 2008 following the bankruptcy of Lehman Brothers, a major investment bank…it was a run on the shadow banking system that caused the credit collapse that followed. Investors rushed to pull their money out overnight. LIBOR–the London interbank lending rate for short-term loans–shot up to around 5%. Since the cost of borrowing the money to cover loans was too high for banks to turn a profit, lending abruptly came to a halt.”
Banks seem to prefer to use the repo rate, as opposed to LIBOR, as their preferred measure of ‘true’ costs as this links up to the shadow banking system closely (think Collateralised Debt Obligations, Credit Default Swaps and all those other securitised loan deals, linked up with pension funds, insurance funds, etc, all that stuff that nobody, not even the banking sector, really understands) as this is usually a lower, longer term measure. The BoEs official interest rate is the repo rate.
There appears to be an axiom that the bigger the gap between repo rates and LIBOR, the larger the market stress.
It might follow then that at a time when stresses in the shadow banking system were appearing, repo rates might start to be less attractive; manipulating LIBOR upwards would make repo rates seem more attractive in comparison, meaning that investment and dealing continued to take place in the shadow banking system, the world of sub-prime deals, CDOs, CDSs, etc. And of course, LIBOR linked loan deals, especially business loans, would yield more for the banks at the same time, which in turn fed into the connected shadow banking system as the loans came on stream.
In 2008, when banks started to realise how much exposure they had to ‘toxic’ debts via the shadow banking system, LIBOR started rising and repo started lowering as an indication that banks did not want to continue buying and selling on each others debts, as they were so toxic. While soaring LIBOR rates were a key indicator of market stress during the credit crunch, the best indicator of collateral crunch intensity is instead the repo rate. The lower the rate, the greater the crunch. The wider the spread between LIBOR and the secured (repo) rate, the greater the general distress in the market. Because markets view a big gap between repo and LIBOR as an ominous portent, banks, in order to hide that fact from governments and the markets, would then have sought to manipulate LIBOR down to reduce the gap between repo rates and LIBOR to downplay market stresses, hiding their own exposure to toxic debt and the wider market, in the hope that LIBOR linked rates would seem more attractive compared to repo rates, distracting attention from the exposure to shadow banking debts. However, it seems that banks were then involved in a Mexican stand off; they all knew, or suspected, how exposed they all were to these debts and the effects that would have on the wider economy, so LIBOR continued ro rise as an indication that it was ‘game over’ for that particular phase of the credit gamble. Yet at the same time, they still wanted to hide the true scale of the market stresses, knowing that to reveal the true extent would weaken their position and lead to flight from the banking sector.
The shadow banking system is worth many trillions; the worth of European repo contracts at the close of business on June 8, 2011, was $8.57 trillion. That was up from survey totals of $8.19 trillion in December 2010 and $6.42 trillion in December 2008, the post-crisis low.
As the repo market, and the wider shadow banking system, is so interconnected and interwoven with funds and investments that we all rely on, the true effects of the manipulations on the finances of the majority of the public may be very difficult to quantify, with so many investments, funds and loans involved; small changes in base LIBOR rate that might not seem significant to the new mortgage or loans market could have bigger ramifications elsewhere.
We shouldn’t forget that the banking sector has been bailed out to the tune of trillions by government and the public purse despite, or because of, this with all the terrible consequences of market urged austerity being visited upon us. To say these practices have had no real effect on ‘ordinary’ people, as some people seem to be suggesting, ignores a lot of factors. It would be hoped that an independent inquiry would cast light on these.