THIS is no longer just a crisis for Barclays, even though that particular bank has just suffered a devastating blow. This is now a crisis that could engulf the entire British establishment in a much broader way than anything we saw in 2008-09. The questions are piling up at an astonishing rate.
Remember that there are two strands to the Libor manipulation scandal: there was a set of disgusting actions by several traders at Barclays (and other banks) which saw them influence the Libor setters to try and serve their own financial self-interest. Astonishingly, nobody has yet been prosecuted for these disgraceful acts.
Then there was a decision from the top of Barclays – apparently, by COO Jerry del Missier, who also quit yesterday – to push down their Libor submissions to suggest that they were in a better position as a bank than they actually were. This policy was also pursued by other banks. What makes all of this explosive is that Barclays believes that it had informed the Bank of England that others were distorting Libor in 2008 – and that it only joined in after that conversation.
According to Bob Diamond’s version of events, Paul Tucker, the Bank’s deputy governor (and until now the frontrunner to become governor next year) sounded almost sympathetic to Barclays’ plight in a crucial telephone call, arguing that perhaps its rate needn’t be as high as it was and implying that senior Whitehall figures agreed. However, and somewhat confusingly, Barclays and the Bank both deny that Diamond was told or given the green light to cut his Libor submissions. Instead, del Missier is being blamed for having “misinterpreted” the memo.
Who knew what, and when? Did the Treasury under Labour know what was going on with Libor? How could it not have? What about the Bank of England? Why didn’t it act?
We also need to find out why Diamond suddenly performed a U-turn and resigned. Did Sir Mervyn King and Adair Turner tell the board to fire him, as seems to be the case? Did George Osborne endorse this? And did Diamond’s resignation have anything to do with the fact that Barclays had started to fight back and seemingly implicated the central bank in the whole affair? If so, we need to decide whether it’s right that the authorities have such power in a modern, open society; they don’t, after all, own Barclays. In past decades, it was accepted that the Bank was at the top of the City’s pecking order, that it wielded immense powers and that it could informally sack any banker without any possibility of appeal or scrutiny. But we live in a different society today, one which is meant to be governed by formal procedures and rules, in an American kind of way. So which is it to be?
It is hard to know what Ed Miliband’s game is. He thinks he’s managed to outfox Osborne by calling for a judicial inquiry but in reality could be about to blow himself up. His strategy is to pretend that all of the problems of the past few years came from the “culture” of banks. But any broader inquiry which also looked at the role of regulators (and the inane implicit guarantees, which fuelled moral hazard and risk-taking) and of the central bank – which inflated the credit bubble more than anybody else – would reflect extremely poorly on Labour. The growing Libor scandal will be devastating for Miliband if senior Labour figures are found to have turned a blind eye or deliberately encouraged wrong practices. This afternoon’s grilling by the Treasury select committee of Diamond could be a watershed moment in Britain’s political and economic history. Let us hope he lets rip.