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July 6, 2012 / politicsbitesize

Bob Diamond’s ‘Series of Unfortunate Events’

This week the news has been filled with the misdemeanours of some of the top executives from Barclays. Marcus Agius, the chairman of Barclays, was the first to resign over the weekend with Bob Diamond, the chief executive, and Jerry del Missier, the chief operating office, hot on his heels earlier this week. The reason behind the resignations of these three senior employees was the deepening scandal that has erupted over the rigging of the Libor interest rate.

But what is the Libor rate and what are the consquences of fixing it? The acronym stands for the London Interbank Offered Rate and it is defined as the the average cost of borrowing between banks. The Libor rate is calculated daily and is used to price trillions of pounds worth of loans and other financial services across the globe. Services such as variable rate mortgages would have been affected by even the tiniest rise in this interest rate, as would loans to small businesses.

As Owen Jones explains in his article for the Independent, because up to £500 trillion is notionally attached to the Libor rate, manipulating it by as little as 0.0001% can result in a profit or loss to the bank of around £50bn. This manipulation of the rate has, according to an article by Philip Aldrick in the Telegraph, been occuring since 2005 when ‘traders … started asking Barclays treasury function to submit artificial Libor rates to benefit their positions and boost profits’.

It is this artifical raising and lowering of the Libor rate that has found Barclays in trouble and seen them fined £290m. But what of the people who found themselves left with debts and mortgages that they couldn’t afford to pay? There has been no mention of them by politicans when they have been calling for an inquiry this week in parliament. It seems that the main political tussling is over whose inquiry will be the more effective. Will Ed Milliband’s public Levenson-style inquiry serve to determine what went wrong better than David Cameron’s parliament led one?

Many commentators have been calling for the bankers and traders involved in these illegal practices to be sent to jail. After all, they have robbed Barclays bank, its customers and the taxpayer. But wait, it is OK, because Bob Diamond apologised to the Treasury Select Committee on Wednesday afternoon and suggested that it was only ‘a series of unfortunate events [that were] to blame’ for the current crisis in banking.

As more and more scandals are uncovered within our financial institutions, isn’t it time a comprehensive review of the entire system was conducted? Compass is campaigning for better banking and to that end have set up the ‘Good Banking Forum’. For more details visit: http://action.compassonline.org.uk/page/s/good-banking—public-inquiry

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