The successful attempts of big banks to manipulate LIBOR, a key interest rate benchmark, are in the headlines again as the European Union became the latest entity to fine miscreants in this sordid tale. This Wall Street Journal graphic provides a solid overview of allegations and files in this ongoing tale.
At this point, the facts are pretty well known and they aren’t the subject of my post. What I’m more interested in considering is will the fines and headlines make any difference to potential future scams around interest rates and with other financial instruments? And what does it say about our financial system that such headlines have become almost routine, not really prompting much outrage?
You can probably see where I’m going. First of all, I don’t think the fines are going to make any difference in terms of deterring future bad behavior. For the largest financial institutions, it seems to me that these fines have just become another cost of doing business. After all, it’s just money and they make plenty of it. And it’s easy enough for top brass to blame rouge employees, traders or whomever rather than take responsibility for the imbedded cultural attitudes that make this type of behavior the norm in just another day at the office. Their reputations aren’t great anyway, and it’s just another black mark that will be quickly forgotten as the news cycle moves on to the next Miley Cyrus video.
Secondly, I see this behavior as more typical than not of our financial system. As the most recent financial crisis showed, governments are willing to do just about everything and anything to keep the financial system up and running, even when it is demonstrably corrupt. Tough regulations, even when they are actually proposed, end up either being watered down so much that they don’t mean much or enforced with so little vigor that they might as well not be on the books. Financial institutions have been fined for so much bad behavior at this point, everything from this scandal to illegal foreclosures and so forth, that it just doesn’t mean anything.
Onto the next scandal…