A cartoon by the genius known as "Matt" best sums up the perplexity of the public at the latest banking scandal: a spivvy-looking cashier is displaying three upturned cups to the customer at the front of the queue and says, "Guess which one your money is under." This beautifully encapsulates the general sense that bankers, people we were brought up to think of as straightforward and even stolid, have become little better than street conjurers, adept at deception – with our own money as the participant in a vanishing act.
Illusion certainly seems to be at the heart of the Libor fixing affair that tomorrow the Barclays chief executive Bob Diamond is to answer for in front of the House of Commons Treasury Select Committee. As we now know, Barclays traders responsible for supplying information to those setting the London Interbank Offered Rate were systematically lying by claiming that the firm was borrowing money at lower rates than it was actually able to do. This deception reached a peak in 2007/8, at the height of the credit crunch, when rumours were rife that Barclays was about to run out of credit – and would, therefore, have to be bailed out by taxpayers.
In a letter to the Treasury Select Committee chairman, Andrew Tyrie, ahead of tomorrow's hearing, Diamond implies that every bank was giving falsely low figures to the Libor setters, in order to create the impression that they were not having difficulty in raising short-term credit; and that if Barclays were seen to be outliers having to pay a higher rate, then the markets would indeed have closed for them, with catastrophic consequences.
In other words, this was not done primarily for personal greed, but out of desperation to prevent a financial panic: in his evidence to the Financial Services Authority, Diamond has even suggested that this deliberate misrepresentation of the true state of affairs was actually encouraged by the Bank of England, presumably on the basis that it would hardly be in the national interest if there were a run on Barclays. That seems most implausible – and does not address the wider point that this behaviour seemed endemic – but if anyone can arrive at the truth through questioning of witnesses, I would trust Tyrie, as formidable and forensic an interrogator as our legislature has to offer.
In any case, it won't save Diamond even if he manages to demonstrate that there were no adverse consequences for the public as a result of Barclays' manipulating of the figures. Nevertheless, to the limited extent that Libor is a benchmark for home loans, it follows that if there had been an effect on mortgages from what Diamond euphemistically calls "low submissions", it certainly would not have been to make them more expensive. The dupes here were not the ordinary consumers, but the capital markets themselves – which perhaps explains why it is the Financial Times which has been especially savage in its editorial denunciation of Diamond.
The political parties have more than matched the newspapers in competing among each other to be the most condemnatory of The Great Libor Con-Trick. Well, that's fine: part of the politician's role is to give vent to the public's concern. On the other hand, there is something disquieting in the way that the main aim of Conservative and Labour front benches seems to be to prove that each is the more distant from discredited investment bankers, when the truth is that both had wanted to be their best friends on the financial dance floor when the party was in full swing.
More to the point, when it comes to the finagling of figures, or deceiving the public about the true state of balance sheets, governments allow themselves to pull stunts which really would put bankers in jail. For sheer scale and audacity, there is little to match so called Quantitative Easing, otherwise known as printing money – which George Osborne denounced as "the last resort of desperate governments" when the policy was introduced under Labour in 2009, but which he has allowed to continue unabated. QE is as much a mystification to the wider public as the Libor rate, but its adverse consequence on savers has been all too tangible; it has dramatically driven up the price of gilt-edged securities required to produce a given annuity – so much so, according to Saga's director-general Dr Ros Altmann, that the cost to those seeking a secure retirement income has risen by at least 25 per cent. Even more infuriatingly to these individual victims, the biggest beneficiaries have been the big banks, which are essentially being sold money with an almost free coupon which they are then passing on to secondary users at much higher rates.
Then there is the great National Insurance con-trick. By keeping the name which it was given when launched in 1911, the impression is given that we are putting money into some personal fund that we can draw down. Yet the money is not put aside by the Government to pay us in our old age or infirmity – in fact, it is not hypothecated at all. It is simply more income tax, used to pay current expenditures. Like a Ponzi scheme, the newest entrants are used to pay the money now required by previous contributors: the reason why the Government is having to reduce state sector pensions is that this particular Ponzi scheme has hit the buffers in the usual way – there aren't enough new entrants to meet the demands of those now expecting to see a return on their contributions.
The scale of this deception is colossal: the real rate charged to basic-rate taxpayers is not the 20 per cent that government always talks of, but 32 per cent when so-called "National Insurance" is included; and this rises to 40.2 per cent, when the employer's contribution (also mandatory) is added. The figures are not hidden, admittedly: just deliberately made confusing. Yet I wonder how many basic-rate taxpayers realise that more than 40 per cent of what they are paid is sucked back by government (before it starts hoovering up VAT at 20 per cent on what they spend); and there's not even space here to go into the scandal of the Private Finance Initiative, by means of which the last Government managed to push billions of debt off the official balance sheet.
Unlike bankers finagling the figures, government ministers are not seeking personal financial gain; only votes; but whereas financiers who've messed up suffer social obloquy and are stripped of their knighthoods, their political equivalents are actually given peerages as consolation for being found out by the voters.Reuse content