New Orleans Watching the banks back track and squirm in Spain over foreclosures that ended in several well-publicized suicides that are now roiling the political establishment in that country is a good lesson in how financial institutions can actually be moved when political will begins to coalesce. In the USA we certainly do not seek dramatic suicides, but it would be wonderful in the wake of the recent election if we could finally build the political weight to offset the banker’s financial interests, contributions, and army of Washington lobbyists.
The headline in the Wall Street Journal oversells the Spanish action (“Spanish Banks Freeze Foreclosures”), but still spoke eloquently to the Spanish banks’ recognition in their foreclosure crisis that they had to spin another way, rather than continue to flip off mortgage holders and foreclosure victims which has been the standard USA operation procedure. The banks there claim that they will “suspend” foreclosures for two years due to “humanitarian reasons” when homeowners are “in extreme financial need.”
They had little choice and this voluntary offer might not be enough to meet the political crisis in Spain over this issue. Both of the major political parties have come together, as we have noted elsewhere, to revise bankruptcy laws, which are the impediment in refinancing in Spain, just as they are for many here in the United States, to allow homeowners to reorganize to the market values, which is also a huge part of our crisis. Advocates there are arguing that “the government should implement a law halting all planned evictions of indebted families acting in good faith,” which also sound like a great step forward.
With Geithner finally on his way out at Treasury and the likelihood of removing some of the officials that are standing in the way of restating home values to market in the name of “moral hazard,” even though Wall Street and all banks have eternally sworn off moral hazard for their own accounts years ago, it is worth seeing the issue of housing being part of any agenda for potential bipartisan activity. It can’t be wrong to finally make bankers accountable to the government. It can’t be wrong to finally hold banks and mortgage holders accountable for wrecking the economy and setting back the prospects of “citizen wealth” for millions of families.
Spain is showing the way we need to move. Now is the time!
Little Rock Put London and banking in the same phrase, squeeze it into an acronym and snores start rising from nodding heads all around the world, and that’s too bad, because the LIBOR scandal that has erupted at Barclay’s and in Parliament will engulf the big US-based banks like Chase and Citicorp and might finally yield enough total revulsion and disgust at the greed and lack of good faith that has warped the culture of all banking institutions that reform might finally be possible, if not inevitable.
I used to hear the phrase LIBOR all of the time when we were in negotiations around banking agreements and home mortgages. I can still remember having to ask one of my colleagues what the heck it was and then having to Google it later. LIBOR is the London Interbank Offered Rate. In plain English, that means that this is the rate used by banks when they loan money between each other. An interesting article on its derivation ran this week and essentially it emerged over the last 20 or more years to replace the “prime” rate in prominence as a banking benchmark standing for the fairest lending rate fixed at a particular place in time. The rate was arrived by consulting all of the major banks on what the rate they were using that day in lending money in major areas, throughout the high rate and the low rate, and then taking the average of the rest of the rates to equal the LIBOR for the day.
This was the gold standard of banking practice backed by the full confidence and good faith of the financial systems that this stood for something fair and certain about what constituted the real interest rates. Results of the investigations revealed thus far have now proven that that was a total lie and what’s more, it is fairly clear that banking at the very top is certainly more of a criminal conspiracy than the MAFIA or the drug cartels might have ever imagined practicing.
Barclay’s will pay close to a half-billion in fines in Britain for their manipulation of the rates. Unlike other criminal conspiracies, the $10 million dollar a year CEO of Barclay’s recognized no code of omerta and in trying to rationalize his own inept management (I’ll come back to this!), pointed his finger with clear evidence that the regulators turned a blind eye to the rate manipulations and other banks, like the big boys in the USA, were also involved in the interest rate fixing. It is now clear that what was happening was the bankers and their traders were setting the average rates falsely during the financial crisis so that they seemed more financially solid than they were and with less interest rate cost and liabilities, and furthermore their own traders in some cases were gaming the rates both higher and lower, sometime against the interests of their employers in order to maximize their short term trades and therefore returns and therefore their personal rewards.
Whether subprime mortgage brokers, trading desk cowboys and cowgirls, or your regular banking shysters is it not finally abundantly clear that if you pay people based on their percentage of the kill, their systemic self-interest will bleed everything dry including their employers? These CEOs are simply unable to surprise their employees on a banking model that is pay-as-you-go. For all of their “not me’s” there are not enough mea culpas where they admit they simply are unable to curb the greed of their troops on a business model from the City of London financial district to Wall Street and beyond which incentivizes greed and therefore destroys institutions and makes the concepts of “trust” and “good faith” oxymoronic when it comes to banking.
Furthermore, who do you think was responsible for setting the LIBOR? If you guessed the government or regulators, go to the back of the class. The British Bankers’ Association was in charge and the very banks that were part of the criminal conspiracy were in fact heading up the committee that surprised the LIBOR rate setting for trillions of dollars worth of loans costing companies and governments billions and ordinary citizens thousands as well. Unbeliveable!
Supposedly the UK Serious Fraud Office (SFO) is looking at criminal charges now, but the Wall Street Journal was pretty clear that their record to date is lame and, mostly noted by the Times, they have buckled in the face of business interests. It is hard to believe that we will get much more from the USA side.
The least we should be able to expect is the end to the fiction that banks can self-regulate, that banks can supervise both trading and security of funds (how can we not bring back some form of Glass-Steagall?), and banking isn’t much more than criminal enterprise until government and citizens clean this mess up. Given the low level of current interest rates and the practices of banks, it seems under the mattress may once again be a viable and secure option for handling your personal funds.