Diamond in the rough
The latest scandal to hit the banking sector could become truly explosive, writes Paul Demarty
Of all the German compound nouns one associates with Marxism - Fetischcharakter, Mehrwert and all the rest - Schadenfreude is not the first to come to mind. We Marxists are supposed to look at things with the ruthlessly objective gaze of science; the moral judgments come after the facts. A steady diet of denunciations may keep the average Socialist Worker journalist in rude, puce-cheeked health; but more serious analysis demands a level of self-denial on the part of a revolutionary.
An exception, surely, must be made for erstwhile Barclays chief executive Bob Diamond. Here, after all, is a man who insisted, in what can now be seen to be the early stages of the current crisis, that bankers should stop apologising; who paid himself in eight-figure sums; who justified his every sickening act of public avarice by pointing out that, after all, his bank never needed public money. He was the banker par excellence, in both the literal and Cockney-rhyming senses of the word.
Now, even that dubious reputation is in tatters. Barclays has been fined, by US and British authorities, a whopping £290 million for fixing inter-bank lending rates, causing a precipitous collapse in its stock price. First chairman Marcus Agius fell on his sword; then Diamond followed.
Speaking before the treasury select committee on Wednesday afternoon Diamond apologised for the rigging, blaming a group of 14 traders out of 2,000, but failed to explain why the bank had only discovered their misdoings last month. But the main thrust of his evidence was designed to appear blameless. There were only a few rotten apples, other banks had misled markets about their ability to borrow, the regulators had turned a blind eye, etc.
This is both predictable behaviour, and yet more evidence of Diamond’s impressive brass neck. The notion that the CEO was in a position of complete ignorance is laughable to anyone with the slightest knowledge of standard practice in corporate governance. That Diamond seems unwilling to own up to his own role illustrates the clinically sociopathic psychology reigning at the summit of finance capitalism.
The final hypocrisy is the one that makes the whole scene so beautiful for anyone who, against their better nature, enjoys seeing such a reptilian individual suffer. It is also the one that could make this scandal a second generalised disaster for the establishment as a whole in under two years.
Having blasted us all with endless hot air about Barclays not being RBS, HBOS or any of the others - that his bank was a special case, in that it continued to make money like a proper business, and certainly was not in need of taxpayer largesse, still less under any obligation to rein in executive pay, the truth is now coming out and Diamond seems determined to bring others down with him.
Exactly what were Barclays - and the rest of them - up to? The answer, inevitably given the stock in trade of the banking sector, is somewhat obscure. Keeping the sector in motion requires banks to lend to each other vast sums of money - ‘real’ or fictional. The interest rates at which banks borrow is governed by a series of statistical averages - in this case, the Libor and Euribor rates. These rates are in turn generated, naturally, by the banks themselves - at the close of trading every day, each bank submits an estimate of tomorrow’s borrowing costs.
If ever there was a system ripe for abuse, this is it. The only defence against the manipulation of rates is that each bank makes its Libor/Euribor submission separately, so there is no way one company can pull it off. Yet nobody needed Marx to point out the inevitability of cartelism and cooperation between capitalists on matters of mutual interest. “People of the same trade seldom meet together,” Adam Smith famously pointed out, “even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
And so it has come to pass. Traders at Barclays - along with the firm as a whole - have been found guilty of something which very much fits the profile of a “conspiracy against the public”. As for raising prices, the truth is that one can make a fast buck out of movements in either direction. A network of traders at a minimum of 16 different banks, it is now clear, manipulated the rates over (in Barclays’ case) at least the period spanning 2005 to 2009.
This includes, of course, the very rough patches in that period. Barclays, and its unknown allies, apparently conspired to keep the lending rates low in the meltdown period following the collapse of Lehman Brothers. At the time, Barclays was looking shaky; it directly benefited from the rate being kept down. At other times, the banks conspired to push the rate up, which has other benefits: many mortgages, pension funds and other derivatives are tied to the Libor rate. There is many a shilling to be screwed out of an unsuspecting populace this way.
Now, however, the state bureaucracy has been pulled into it - and so has the Labour leadership. After all, this bad behaviour all apparently stopped before George Osborne took over at the treasury (I’m sure), and that leaves the previous Labour government - which included the present leader of the opposition and shadow chancellor - in the frame for, at best, failing to stop it.
For the Sir Humphreys of this world, the story is even grimmer. Barclays has released emails which squarely put officials at the Bank of England and elsewhere in the frame. The reasoning is hardly difficult to discern. Repeatedly we have heard the wailing of the great and the good over the last few years at the resistance of banks to expanding their lending. Not for nothing did they call it the ‘credit crunch’ (now slightly too quaintly specific a phrase for a world situation in which the euro could collapse almost overnight). There was certainly an incentive, in those days, for governments and civil servants to turn a blind eye to price-fixing activity which could ease the credit drought. Obviously it was too compelling an incentive to resist.
Not a clue
What to do about all this? The bourgeois establishment, conforming to an increasingly obvious pattern, has not a clue. There are worthy calls to ‘change the culture of the City’ from some quarters, and trifling reforms to pay structures and such that would supposedly achieve such a thing. The government has called a parliamentary inquiry into the matter - clearly it has learnt the lessons of Leveson, and is wary of bringing into being another long-running PR fiasco, shielded by the independence of the judiciary. There are equally those whose liberal politics leads them, conversely, to call for just such an inquiry, which will supposedly transcend the petty bickering among the bourgeois parties.
All these suggestions are laughable. In reverse order: the judiciary, as we never tire of saying here at the Weekly Worker, is not independent. It is, itself, an instrument of bourgeois power. It was lucky enough to avoid the Leveson cluster bomb, and will probably dance clear of this one too; but its luck cannot last forever. One becomes a judge by being a good lawyer - a ‘good’ lawyer wins a lot of cases; and winning cases ultimately depends, in the long run, on attracting the clients with the deepest pockets. The judiciary is a self-selecting gang who have all earned their stripes as willing functionaries for big capital and the state. To expect from them more radical suggestions than those this government will come up with is absurd.
As for Cameron’s parliamentary committee, it is obviously self-serving, and its remit is so restricted as to guarantee a whitewash.
Finally, ‘changing the culture of the city’ is a chimera. The function of the City is to make money. Thus, in the square mile, money will be made by any means necessary. It is perfectly normal, at the dying moments of the business cycle, for finance capital to become increasingly creative in its attempts to siphon off a greater proportion of surplus value. Just as industrial capitalists will cut all sorts of corners - sometimes playing with their workers’, and even their customers’, lives in order to minimise costs - so high finance will resort to the most unscrupulous means to maximise its own profits.
This state of affairs is made necessary by capitalism’s need for credit. It is not the case, as some imagine, that finance capital is somehow uniquely parasitic; productive capitalism needs credit, and thus invests those who provide it with immense power. In this respect, despite its additional peculiarities, finance is little different to transport and utilities infrastructure - and, as with those sectors, private ownership breeds cartelism and rampant corruption.
Changing this culture means changing the fundamental drives which produce it endlessly anew. It means, in short, moving towards socialism.