Libor Scandal: RBS Was Complicit

Crisis management 101 would maintain that during periods of turmoil a problem should be ring-fenced and a proper firewall developed so that the fallout does not spread. I believe that senior Wall Street management is utilizing that exact game plan in the midst of the Libor-manipulation scandal.

Wall Street would welcome paying token fines and sacrificing a handful of ‘rogue traders’ for the rigging of Libor. Those penalties would be exceptionally cheap prices to pay for the largest financial scandal in Wall Street history. If token fines being levied and a small cadre of traders being fired and perhaps prosecuted are how justice is defined in this scandal then American justice and America itself will have sunk to a new low.

Somebody Had To Know
It is incomprehensible to think that a scandal of this magnitude could have gone on for so long without the knowledge and approval of senior Wall Street management. To that end, we learn this morning of new details in this ongoing intrigue that strongly support that premise. Bloomberg writes, RBS Managers Said to Condone Manipulation of Libor Rates,

Royal Bank of Scotland managers condoned and participated in the manipulation of global interest rates, indicating that wrongdoing extended beyond the four traders the bank has fired.

In an instant-message conversation in late 2007, Jezri Mohideen, then the bank’s head of yen products in Singapore, instructed colleagues in the U.K. to lower RBS’s submission to the London interbank offered rate that day, according to two people with knowledge of the discussion. No reason was given in the message as to why he wanted a lower bid. The rate-setter agreed, submitting the number Mohideen sought, the people said.

Mohideen wasn’t alone. RBS traders and their managers routinely sought to influence the firm’s Libor submissions between 2007 and 2010 to profit from derivatives bets, according to employees, regulators and lawyers interviewed by Bloomberg News. Traders also communicated with counterparts at other firms to discuss where rates should be set, one person said.

“This kind of activity was widespread in the industry,” said David Greene, a senior partner at law firm Edwin Coe LLP in London. “A lot of the traders didn’t consider this behavior to be wrong. They took it as the practice of the trade. This is how things operated, and it seemed harmless.”

I personally do not think it would be difficult to pinpoint individual traders, managers and executives who participated, condoned and ultimately approved the manipulation of Libor.

The Core Issue
But who and what are really on trial here? The system of American justice itself.

Please refer to my other commentary today highlighting the ineptitude of financial regulators and legislators. Will these individuals largely stand idly by, mete out some token fines, and allow some traders to go down as the definition of justice for this greatest of all financial scandals?

The managers across Wall Street occupying the rungs of the ladder that runs to the top of Wall Street’s banks MUST be seriously questioned in this investigation. Can Wall Street survive a scandal of this magnitude?

I would pose a different question.

Can capitalism and America survive if real justice is NOT fully and properly pursued?