Mr. Blow is off today. In “Libor’s Dirty Laundry” Mr. Nocera says the Brits are in an uproar over the rate-fixing scandal. What will it take to get the same response here? Possibly the second coming, Joe. Ms. Collins looks into “Our Political Black Hole” and has a question: Did you hear about the discovery of the Higgs boson, people? Since it’s such exciting news, let’s see what it meant for the presidential race! Here’s Mr. Nocera:
Here in the early stages of the Libor scandal — and, yes, this thing is far from over — there are two big surprises.
The first is that the bankers, traders, executives and others involved would so openly and, in some cases, gleefully collude to manipulate this key interest rate for their own benefit. With all the seedy bank behavior that has been exposed since the financial crisis, it’s stunning that there’s still dirty laundry left to be aired. We’ve had predatory subprime lending, fraudulent ratings, excessive risk-taking and even clients being taken advantage of in order to unload toxic mortgages.
Yet even with these precedents, the Libor scandal still manages to shock. Libor — that’s the London interbank offered rate — represents a series of interest rates at which banks make unsecured loans to each other. More important, it is a benchmark that many financial instruments are pegged to. The Commodity Futures Trading Commission, which doggedly pursued the wrongdoing and brought the scandal to light, estimates that some $350 trillion worth of derivatives and $10 trillion worth of loans are based on Libor.
With so much depending on this one critical interest rate, there shouldn’t ever be a question about its reliability. Yet beginning in 2005, according to the C.F.T.C. and the Justice Department, derivative traders at Barclays, the too-big-to-fail British bank, with the active involvement of traders at other yet-unnamed banks, persuaded their fellow bank employees to submit Libor numbers that were shaded in ways that would help ensure their trades were profitable. Even Robert Diamond Jr., the former Barclays chief executive who lost his job over the scandal, said that reading the traders’ e-mails made him “physically ill.”
In 2007, as the financial crisis was gathering steam, banks also began submitting false Libor rates for a different reason. Libor, you may recall, was a measure that gave the outside world a sense of how much trouble the banks were in; the higher the rate required to borrow, the worse shape they were assumed to be in. So Barclays — with what appears to be the complicity of British bank regulators — started submitting rates that were lower than the reality. Its executives said the purpose was to keep Barclays from “sticking its head above the parapet.”
Even now, Barclays justifies the latter rationale as being a kind of emergency measure brought on by the financial crisis. But the bank is wrong about this. Submitting false data, for whatever reason, is a violation of the law — not to mention a fundamental abuse of trust. Once again, it leads one to believe that bankers feel neither the constraints of the law nor of morality.
Which brings me to the second big surprise. Britain and America have reacted to the Libor scandal in completely different ways. Britain is in an utter frenzy over it, with wall-to-wall coverage, and the most respectable, pro-business publications expressing outrage. Yes, Barclays is a British bank, and the first word in Libor is “London.” But still: The Economist ran a headline about the scandal that read, in its entirety, “Banksters.”
Yet, on these shores, the reaction has been mainly a shrug. Perhaps we’re suffering from bank-scandal fatigue, having lived through Bank of America’s various travails, and the Goldman Sachs revelations, and, most recently, the big JPMorgan Chase trading loss. Or maybe Libor is just hard to gets one’s head around.
But the Brits have this one right. They may not understand the intricacies of Libor any better than we do, but they sense, powerfully, that banks have once again made a mockery of the role that society entrusts to them.
“Why has the scandal created outrage in Britain? Because it truly is outrageous,” said Karen Petrou, the managing partner of Federal Financial Analytics. “They weren’t supposed to be fixing that rate — no matter what the reason.”
She continued: “If I give you my money, I need to be able to trust you with it. If you can only be trusted via regulation, then you might as well be a utility. And if banks can’t be trusted to manage their trading desks, then we need to rethink our whole model of banking.” Petrou is not an advocate of returning to the days of Glass-Steagall, the Depression-era law that separated investment banking and commercial banking. But with the Libor scandal, she said, she could certainly understand the growing calls for it.
Barclays, of course, is hardly the only big bank that manipulated Libor for fun and profit. It is simply the first to admit its wrongdoing and settle with the government. The word is that just about every big bank is under investigation for playing games with Libor, including JPMorgan Chase, Citigroup and other American-based financial giants.
Which means there is going to be a lot more opportunities for Americans to become outraged over this scandal. And, maybe, to finally summon the will to change banking once and for all.
When pigs fly, Joe, when pigs fly. Here’s Ms. Collins:
Scientists in Geneva announced this week that they had found a new subatomic particle that they were 99.999999 percent sure was the elusive Higgs boson, nicknamed the “God particle.” Even though we had no earthly idea what that meant, we were definitely excited.
It’s given us so much to think about: how existence began, the structure of the universe, the difference between bosons and fermions. And, of course, what it will mean to the presidential race.
The first thing all patriotic Americans are going to want to know is why something this important happened elsewhere. The Large Hadron Collider, where the physicists did the work, was built by the European Organization for Nuclear Research. We were building a Superconducting Super Collider of our own, in Waxahachie, Tex., but Congress stopped the financing for it in 1993.
“It’s disheartening that a large number of fairly intelligent people could do such a thing,” said Leon Lederman, a Nobel Prize-winning physicist, when the budget-cutting House of Representatives ended the program. This was, of course, a long time ago, back when Americans still undertook expensive, daring construction projects and believed the House of Representatives had a large number of fairly intelligent people.
But about the Higgs boson. As Dennis Overbye explained in The Times, it is “the only manifestation of an invisible force field, a cosmic molasses that permeates space and imbues elementary particles with mass.” And we have so many questions. Does it provide evidence of the existence of parallel worlds? If so, is it possible to move to one that doesn’t have Michele Bachmann?
Most of all, however, we want to know who this helps in the election:
WOLFEBORO, N.H. — Mitt Romney today denounced Barack Obama for allowing Europe to beat the United States at particle physics research. Under his administration, Romney vowed, “All particles that bind the earth together will be discovered in America, by Americans and for Americans.”
Under questioning from reporters, Romney said that his favorite kind of subatomic particle is the fermion.
SOMEWHERE ON A BUS — Speaking to a crowd of blue-collar workers in Ohio, President Barack Obama hailed the scientific news from Geneva as “a great moment in history, not unlike my rescue of the auto industry.” The physicists who made the discovery, Obama noted, all had health insurance.
TRENTON — Gov. Chris Christie today called for the privatization of the Higgs boson. “Binding the earth together is something that could be handled much more efficiently by the for-profit sector,” the Republican governor and deeply available vice-presidential prospect said. “Auctioning off the rights to the Higgs boson will create American jobs and balance American budgets.”
When a reporter noted that the boson was discovered in Switzerland, Christie called him “stupid” and “off-topic.”
CEDAR FALLS, IOWA — Rick Santorum today denounced the European Organization for Nuclear Research for discovering something that is nicknamed the God particle. “If God had wanted there to be a particle, he’d have given it to Adam and Eve,” said Santorum, who is traveling through the Hawkeye State this week because, really, he doesn’t have much else to do.
WOLFEBORO, N.H. — Aides to Mitt Romney said the former governor’s favorite kind of subatomic particle is actually the boson.
SOMEWHERE ELSE ON A BUS — President Barack Obama told a crowd of blue-collar workers that there have been more Higgs bosons discovered during his administration than during those of both George Bushes combined.
WOLFEBORO, N.H. — Mitt Romney said today that when he called for an American effort to beat the Europeans in particle physics research, he did not actually mean spending money to build a supercollider, but merely “the need for our physicists to think harder.” The Republican presidential contender said he believed this could be accomplished by “the elimination of onerous, physics-research-killing regulations.”
JUST OUTSIDE OF WOLFEBORO, N.H. — Protesters today passed out cartoons of Mitt Romney with a large, cuddly looking Higgs boson strapped to a crate on the front of his jet ski.
WASHINGTON — Surrogates for Barack Obama and Mitt Romney sparred over the meaning of the potential discovery of the Higgs boson. On “Meet the Press,” Gov. Bobby Jindal of Louisiana called it “a questionable throw of the dice by the same folks who gave us the euro.”
On “Face the Nation,” David Axelrod, the Obama campaign communications director, said that if the Large Hadron Collider had been acquired by Bain Capital it would have been “burdened with debt and sold for scrap metal” and that Romney would be “the most anti-physics president since Franklin Pierce.”
NEW YORK — Donald Trump told reporters that “my people in Hong Kong” have uncovered evidence that America’s failure to take the lead in subatomic particle research was because of a conspiracy between the Obama administration and unnamed Chinese industrialists. He also said that he had invited the Higgs boson to be a contender on “All-Star Celebrity Apprentice.”