Wednesday, July 11, 2012
Why aren't more people furious about the Libor scandal?
That's a question mostly being asked on the political
left these days, and they're right to ask it.
Here are the basics: Barclays is the second-largest bank
in Britain and one of the largest in the world. It has admitted to U.S. and
British regulators that it manipulated the London interbank offered rate, or
Libor, which basically measures how much it costs banks to borrow money from
one another for various periods of time. If you ever read the fine print on a
home mortgage, credit card agreement or car loan, you've seen reference to
Libor.
Indeed, a conservative estimate is that some $350
trillion in bonds and loans are pegged to Libor worldwide. That's more than 20
times the GDP of the United States.
In email exchanges between Barclays' New York traders and
the bank officials who are supposed to submit honest data to the entity that
calculates Libor, it's clear that the bank routinely rigged the data to
maximize profits. It was so routine that nobody even bothered to hide their
corruption in euphemism. One official responded to a request from a trader to
fix the number, "Always happy to help, leave it with me, Sir."
Another replied, "Done ... for you big boy ..."
Barclays agreed to pay $450 million in fines to avoid
prosecution. Several officials at the bank, including American-born CEO Robert
Diamond, have resigned.
The left's response, predictably, is to pound the table
about corruption, the need for more regulation and the inherent sinfulness of
capitalism.
They're entirely right about the first part, possibly
right about the second and deeply confused about the third.
The corruption really is outrageous, and I wish my fellow
conservatives could muster a bit more public disgust. There's really no point
in simultaneously talking about "leaving things to the market" and
celebrating the rule of law if you're going to respond to this kind of
game-rigging with a yawn.
Moreover, as a political matter, staying on the sidelines
almost guarantees that the problem will be made worse. The relentless push for
more regulation and more oversight boards, commissions and agencies hasn't done
anything to curb such scandals. But making the relationship between government
and business more interwoven and complex has entrenched the "too big to
fail" mind-set. What's required aren't new regulations so much as
relentless enforcement of the existing laws, without fear or favor.
As the Manhattan Institute's Nicole Gelinas notes,
despite several huge big-bank scandals -- municipal finance manipulation at
JPMorgan Chase, money laundering at ING, etc. -- we haven't seen any big banks
go out of business for criminal transgressions. They've paid some big fines,
but those costs are passed on to consumers, taxpayers and shareholders.
"The answers to our problems are straightforward," Gelinas writes.
"When a bank egregiously breaks the law, it should run the risk of a
criminal conviction's throwing it out of business."
Which leads me to the left's confusion. Capitalism is not
inherently sinful, capitalists are -- but so are socialists, progressives,
conservatives, libertarians and every other label we apply to human beings.
When I hear people complain about the evils of
capitalism, it's like they think there's something especially corrupt about
capitalistic institutions, as if every other institution -- including
government itself -- isn't prone to the same basic shortcomings. If you don't
think socialists or bureaucrats are just as likely to rig the rules to their
benefit, you're quite simply ignorant of a lot of history -- and current
events.
You can never eliminate the temptations of sin. But you
can create accountability for sinning. That's one reason why our system of
liberal democratic capitalism is superior to other systems: It creates more
opportunities to hold wrongdoers -- and fools -- accountable.
Or at least it's supposed to. The market is supposed to
penalize economic mistakes. The electorate is supposed to punish incompetent or
venal officials. Civil society is supposed to police malice and buffoonery. And
the government is supposed to punish criminals.
The key to all of this is the rule of law and the
minimization of what Edmund Burke called "arbitrary power." When
institutions -- any institutions -- become immunized against the legitimate
forces of accountability, it should be seen as a scandal. The more inured we
grow to such stories, the more we come to accept that acceptable behavior is
simply whatever we can get away with.
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