Libor banking scandal exposes rotten system

If the recent appearance of Bob Diamond, the head of Barclays Bank, before the House of Commons Treasury Select Committee was intended to demonstrate some kind of public accountability of bankers before parliament then it dismally failed. It served merely to emphasise the timid approach of establishment capitalist politicians towards the top bankers

  Apart from a little populist bluster, Diamond, who personified over a decade of greed and fraud at Barclays and Barclays Capital, came away without a glove being laid upon him over the Libor fraud. Even one of the leading MPs on the committee admitted “it’s fair to say we were useless”.

Now it seems likely that Diamond will still come away with a multi-million pound pay-off as compensation for his sacking on top of the £100 million he has been paid since 2005. Ordinary people are demanding that these gold-plated cheats like Diamond are jailed.

As the Libor scandal spreads it cannot be excluded that like the phone hacking scandal a few of the worst offenders could be prosecuted, but the penalties they face pale compared to the rewards they have gained from their criminal activity. The capitalist class want to contain the more aggressive financial parasites amongst them who threaten to undermine not just the ’reputation’ of the financial sector and banks, but the entire capitalist system.

Paul Tucker, deputy governor of the Bank of England, told MPs that the Libor rate system which regulates $360 trillion of contracts could collapse and, if American law suits are successful, the stability of the whole financial system could be jeopardised as a result of the fraud. Fear of undermining the system is the reason that the governor of the Bank of England, Mervyn King, made Diamond’s position untenable, culminating in his resignation.

A new study by Democratic Audit reported as an ’exclusive’ in the Guardian last week warned of the “long-term decline” of British democracy. The report specifically flagged up ’corporate power’ and ’unrepresentative politicians’. The Barclay’s scandal simply reinforces this.

The dominance of the financial sector in Britain has become a huge drag on the economy. It has an iron grip not just on the economy itself but reaches every area of public life – including the three main, pro-capitalist parties. The Guardian has revealed that about £100 million was spent last year alone by the financial services sector ’lobbying’ the government and parliamentarians.

The poison even seeps into the administration of government itself with top civil servants avoiding income tax. Even the HM Revenue and Customs is affected with a director of a company based on the tax haven island of Guernsey on its board.

Batting for the bankers

Tory Chancellor, George Osborne, batting for the bankers, is fighting against a proposal in the European Union to cap bankers’ bonuses to ’merely’ double their seven figure pay packets. The proposal would do little to limit their obscene payments because the bankers are already inflating their basic salaries in anticipation of bonus limits, but even this was too much for Osborne.

Lib Dem Business Secretary Vince Cable expressed the frustration of the diminishing manufacturing sector when he accused the banks of “choking off” the recovery. Another £50 billion of quantitative easing, on top of the previous £325 billion, is being channelled through the banks by the Bank of England to try and stimulate investment but, as Cable explained, little of it finds its way into the real economy or is loaned to small and medium sized businesses.

He admits the banks are “disproportionately influential”, but he is powerless to do much about it. His proposal to split high risk casino investment banking from the high street banking operations of banks would have little effect: the authorities cannot allow even independent investment banks to fail because of the knock-on effects of failure on the system.

Labour leaders who were quite happy to allow the banks full rein to commit these frauds before and during the banking crash when they were in power now call for more regulation. They call for an ’independent’ inquiry into the Libor scandal but not one that is independent from the rich business interests who are tied by a thousand threads to banking. They want an establishment judge to conduct the inquiry who would keep it within the safe bounds of the capitalist elite.

The Socialist has called for a genuinely independent inquiry to be conducted by representatives of trade unions, ordinary mortgage holders, pensioners, small business people and young people which could expose the fraud, corruption and extortion perpetrated in the city of London. Labour dare not challenge the vested interests of British capitalism so their proposed reforms barely pat the hands of the bankers.

Ed Miliband and Ed ’light touch’ Balls propose an extra two high street banks which merely reverts back to the situation before the banking crisis began in 2007 when NatWest and HBOS were separate banks. More powers for the Serious Fraud Office and the possibility of bankers being ’struck off’ will do little when tens of millions can be made from cheating the banking system.

And the banks’ control of the financial system means they will find a way around restrictions. Miliband’s ideas of stewardship banks as opposed to casino banks and the introduction of a new ’culture’ through professional associations echoes his idea of distinguishing ’predatory’ capitalists as opposed to ’responsible’ capitalists when in reality the whole system is predatory on working people.

The takeover of capitalism by its financial interests is a global phenomenon made particularly acute in Britain due to the decay of its manufacturing base. That cannot be reversed with a few painless reform tweaks. Miliband is trying to create the impression that Labour has changed from the pro-banker New Labour government whose first act was to de-nationalise the Bank of England. But the Labour front bench refused even to support Labour MP John McDonnell’s modest proposal that the House of Commons should be involved in the selection of the next governor of the Bank of England.

Gulf in society

The Libor scandal has reminded the mass of working people of the enormous gulf that exists in society that showers unimaginable wealth on a tiny, parasitic elite while inflicting suffering on millions of pensioners and the low paid. What is needed is a new party of the working class that can articulate the outrage of the mass against the few. And to change society it will have to adopt a programme that can surgically remove the cancer of a parasitic financial system on society: a socialist programme based on:

Nationalisation of the banks and main financial institutions with democratic public ownership with compensation only on the basis of proven need

A state bank run by representatives of banking workers and trade unions, the wider working class, as well as the government

 Cheap mortgages and loans to be provided to individuals on a secure basis, with guaranteed low interest rates

Publicly owned and democratically run control of capital trade to ensure the wealth created in society is maintained for the mass of people who create it to prevent the rich emptying the coffers