Robert E. Diamond Jr., the chief executive of Barclays, one of the largest banks in the world, resigned on July 10, in the wake of a controversy that involved deliberate lying by Barclays staff with regard to the data they reported for Libor, the London Interbank Offered Rate. The lies affected credit transactions with a face value of at least $800 trillion (“Lie More, as a Business Model,” by Simon Johnson, The New York Times Economix. Mr. Johnson is a professor at the M.I.T. Sloan School of Management).
Mr. Johnson’s article points out that The Financial Times, “not a publication generally hostile to the banking sector,” published an editorial blasting the lies at Barclays and its “a long-running confidence trick,” as follows: “The Barclays affair may lack the spice of some recent banking scandals, involving as it does the rather dry “crime” of misreporting interest rates. But few have shone such an unsparing light on the rotten heart of the financial system.”
Within Barclays, in fact within the entire banking system, it has become acceptable, even desirable, to lie. According to Mr. Johnson: “The employees of Barclays were doing what they were paid to do – and the latest indications from the company are that none of their bonuses will now be ‘clawed back.'”
Today’s banks ask not what is their duty or their responsibility, but what can they get away with, Mr. Johnson says.
He and The Financial Times think it important because (in the words of the Times editorial): “The bankers involved have betrayed an important public trust – that of keeping an accurate public record of the key market rates that are used to value contracts worth trillions of dollars.”
When bankers lie about matters so fundamental to their public trust, no one should believe them when they argue that financial reforms “will bring the economy to its knees,” Mr. Johnson writes, adding: “What is needed is a clean sweep of the executive offices of these too-big-to-fail banks, which are still being governed by the same business model as before the crisis: do whatever you can get away with to get the biggest paychecks as possible.”