Nobel Prize winner and former World Bank economist Joseph Stiglitz has called recent revelations that Barclays and other large banks colluded to defraud their costumers by artificially leveraging international interest rates a "textbook illustration" of how banks use privileged information and lax oversight to reap rewards for themselves while savaging the wider societies in which they operate.
In an interview with The Independent on Monday, Stiglitz argued (with Barclay's as just the most recent example) that bankers -- without threat of prosecution or jail time -- would continue to use their elevated status to exploit weak regulations, consolidate power, and avoid accountability.
The scandal at Barclays claimed the resignation on Sunday of Chairman Marcus Agius after traders at the bank admitted manipulating Libor, a baseline interest rate used by banks to set lending costs around the world and which acts as the benchmark, according to an estimate by Reuters, on $350 trillion in derivatives and other financial products.
Stiglitz argues, in paraphrase by interviewer Ben Chu, "that breaking the economic and political power that has been amassed by the financial sector in recent decades, especially in the US and the UK, is essential if we are to build a more just and prosperous society. The first step, he says, is sending some bankers to jail."
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The banks, said Stiglitz in the interview, "create the non-transparent market" by dominating the legislative process that is suppose to control it. "For every meeting that the government has with [bankers], it [should] have to have a meeting with the labor groups and the representatives of civil society," he said. "The problem today is that there’s not equality of access."
And it's not just the banks, Stiglitz says. "Everybody knew that there was this scope for Libor manipulation. Many economists couldn’t believe that it wasn’t going on. We’re focusing on the bankers but at the micro economic level this goes on all the time. I was party to a suit in the state of Alaska. Oil companies were supposed to pay the state royalties – 60 per cent of the net price, the price of oil net of their transportation costs. They manipulated the transportation costs. They had to pay the state of Alaska $1bn. Stealing a penny a time. For every gallon, they stole a penny, or a fraction of a penny. This is in the nature Adam Smith’s invisible hand when there is a lack of transparency."
In a related analysis, Naked Capitalism's Yves Smith, wonders why the Barclays' Libor scandal caused such justifiable outrage in the UK, but generated barely a murmor in the US. And separately, Reuters tracks developments in the Barclays' case as embattled CEO Bob Diamond fends off criticism after Agius' departure.
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