NEW YORK | Have Libor scandal shock waves reached this side of the Atlantic yet? There is no doubt they will. It may impact American consumers and the U.S. financial system: Barclays is the only bank confessing malpractices so far, although Wall Street has almost surely been involved in the same dynamics. So far we've only seen the tip of the iceberg but it sends a warning signal to the big American banks.
“Including the usual suspects — JPMorgan Chase, Citigroup, and Bank of America — because every major bank participates in setting the Libor rate, and Barclay's couldn't have rigged it without their witting involvement,” Public Policy professor at Berkeley and Secretary of Labor in the Clinton administration Robert Reich explains.
The unfolding Libor scandal has brought echoes of the Salomon Brothers case in the early 90s, when bond traders rigged the auctions for two-year Treasury notes. But mostly it has risen, once again, the concern about credibility, abuses of banks in the U.S. and legal loopholes. Two years af
ter the financial reform Dodd-Frank law, nearly 36 percent of the 400 rules required have yet to be written, according to a new report, because of the intense lobbying from Wall Street.
Lately disgraced ex-governor of New York, Elliot Spitzer, known because he famously went after big banks when he was the state's attorney general, declared on his Current TV show that
“mob learned from Wall Street, not vice versa”.
For president and CEO of Better Markets, Dennis Kelleher, the Libor scandal is proof that the financial industry
“is corrupt and rotten to its core.”
“The same executives [using] the same business model that crashed the entire financial system in ’08 are still running these banks,” he says.
“The alternative is to be unflagging and unflinching in our demand that Glass-Steagall be reinstituted and the biggest banks be broken up,” explains Prof. Reich.
THE ROLE OF THE FED
According to a statement from the district bank, the Federal Reserve knew about Barclays problems with Libor since 2007 and it shared proposals for reform of the system with British authorities in the spring of 2008.
Treasury Secretary Timothy F. Geithner and Fed Chairman Ben S. Bernanke have been asked to “be prepared to answer Senators’ questions on this matter” at upcoming hearings.