There’s a huge scandal going on in the banking world that most people (myself included) are probably having difficulty really grasping. You’ve probably seen the word LIBOR and the names Barclays and Bob Diamond in financial news headlines, but you would be forgiven if you didn’t take the time to wrap your mind around what those stories are about. Eliot Spitzer, former NY governor and current Current TV host, with guests Matt Taibbi of Rolling Stone and Dennis Kelleher, a former K Street lawyer now working to reform the banking system, lays out the scandal a little more clearly in this brief clip.
As Taibbi says in a July 4th piece on RS.com:
Libor, the London Interbank Exchange Rate, is the rate at which banks borrow from each other. A huge percentage of the world’s variable-rate investments are pegged to Libor. When Libor rates are high, it suggests that the banks’ confidence in each other is low, and high Libor rates are generally an indicator of shaky financial health among the banks. If the banks manipulated Libor, they did it to make themselves look healthier, but this had the consequence of affecting hundreds of trillions of dollars’ worth of financial products worldwide.
The LIBOR scandal, which has been developing over several months, concerns evidence that several banks–not just Bob Diamond’s London-based Barclays bank–were found to have lied about the LIBOR to manipulate other rates, which enabled them to rake in huge “profits” on commercial loans and other financial transactions with rates tied to LIBOR. If Spitzer et al. are right and this is the “megascandal of megascandals” waiting to break wide open setting us up for a worse crisis than 2008, it would be nice to get fair warning , wouldn’t it?
Incidentally, I think Spitzer’s glee may owe to the possibility that some of the players in the financial industry may be about to be hit with universe-deliveredl retribution. Some of these guys are the same ones who pulled Republican strings to topple Spitzer (Wall Street’s Public Enemy No. 1) in 2010. If you’ve seen the documentary Client 9: The Rise and Fall of Eliot Spitzer, you’ll know what I’m talking about. If you haven’t seen that film, I highly recommend it. It will probably open your eyes about the political power of Wall Streeters and change your mind at least a little about Spitzer.
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