THE 1% THIS WEEK #6
By: Steve Askin
What happens to the boss when a bank gets in trouble for cooking its books? If you run Britain’s largest Bank, Barclays PLC, you go home with a $31 million pay package.
A few weeks ago, 1% this Week told the story of JP Morgan Chase’s Jamie Dimon, who got to keep his job and lavish pay after bad trades cost the bank at least $2 billion.
The Brits, we learned this week, are tougher… but not by much. Barclays CEO Robert Diamond gave up his job after the bank agreed to pay $450 million to the US and UK to settle charges of manipulating the London Interbank Offered Rate (LIBOR). But he rebuffed demands in the British Parliament that he give his outsize pay packet to charity.
So why should the 99% care about the banking industry’s LIBOR lies? Because the twenty banks which control the daily resetting of this obscure interest rate influence $360 trillion in mortgages, auto loans, credit cards and other savings and investments which are pegged to the LIBOR. Their daily estimates of how much it costs to borrow from each other decide what you will pay on your car or home loan. If the big banks falsely inflate this rate, the entire banking industry gets to charge us more.
Investigators concluded that Barclays manipulated interest rates before, during and after the financial crash of 2008. At first, they bet on increases in LIBOR while submitting artificially high interest rate estimates. Later, they low-balled estimates to make the bank look better to regulators and “lesson chances of government action,” as the Washington Post explains in its always-valuable “Wonkblog.”
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