To be specific…

Why is Nobody Freaking Out About the LIBOR Banking Scandal?

Matt Taibbi, Rolling Stone

July 3, 9:04 AM ET

Most intriguingly, or perhaps disturbingly, there were revelations last week that Bank of England deputy Governor Paul Tucker had a conversation with Diamond at the peak of the crisis in 2008. The conversation reportedly left Diamond, and subsequently his traders, with the impression that the bank had carte blanche to rig LIBOR downward in order to help allay spiraling public fears about the banks’ poor financial health.

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That is explosive stuff. Members of Parliament will be grilling Tucker tomorrow about those events in what is sure to be a far more combative and entertaining legislative inquiry than the Jamie Dimon dog-and-pony show we just went through here in the states in recent weeks.

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Anyway, the LIBOR story is leading the front pages of most of Britain’s dailies, it’s on TV, and it’s producing blistering editorials and howls of outrage amongst politicians and activists. But as compadre Yves Smith at Naked Capitalism put it, where’s the outrage here in America?

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(T)o me what’s missing from all of this is the “Holy Fucking Shit!” factor. This story is so outrageous that it shocks even the most cynical Wall Street observers. I have a friend who works on Wall Street who for years has been trolling through the stream of financial corruption stories with bemusement, darkly enjoying the spectacle as though the whole post-crisis news arc has been like one long, beautifully-acted, intensely believable sequel to Goodfellas. But even he is just stunned to the point of near-speechlessness by the LIBOR thing. “It’s like finding out that the whole world is on quicksand,” he says.

Mirabile Dictu! Barclays CEO Bob Diamond Resigns Over Libor Scandal (Updated)

Yves Smith, Naked Capitalism

Tuesday, July 3, 2012

This sudden announcement also makes it seem much more likely that serious shoes will drop at the Wednesday hearings.

Although this news has just broken, and I’m sure there will be a ton more commentary in the next few hours, I suspect the proximate cause is that Diamond’s attempts to defend the rigging of Libor during the crisis as being tacitly approved by the Bank of England was not going to fly.

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In other words, Diamond was saying “you can’t really blame us for this, we told everyone and no one said no.” We’ll find out soon enough, but the effort to shift blame to the regulators may be what sunk him. Paul Tucker, the deputy governor to the Bank of England to whom Diamond spoke directly on October 28, 2012, has had subordiantes issue denials of Diamond’s account.

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The other interesting side effect is that this development, that of two heads falling in short succession at the top of one of the UK’s biggest banks, the only major institution not to receive any bailout funds, will raise the visibility of the Libor scandal in the US considerably. One correspondent has said the price manipulation goes back to 2001, and if that proves to be true, this is an even bigger cesspool that the reports so far envision. And the fact that top executives have been forced to resign from a bank that cooperated in the investigations and the settlement documents said deserved to be treated with leniency as a result, raises the question of what sort of sanctions should be meted on the executives of less cooperative and presumably equally culpable institutions.

Behold, the British establishment, panicked

Paul Mason, BBC

3 July 2012

Here is the central problem with Barclays. Its business model has become heavily reliant on the kind of investment banking Bob Diamond pioneered at Barcap, a division he created and was determined to lead to global dominance until Alistair Darling impolitely stopped his acquisition of Lehman Brothers in September 2008.

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The results have been felt in every community in Britain. Four years ago, Barclays was lending £52bn to non-finance, non-property businesses in the UK, 27% of all loans.

Now the figure is £38bn, and just 16% of business loans. In the process the bank – single handedly – has taken £3bn of capital out of manufacturing, more than £3bn out of retail/wholesale, while ploughing an extra £10bn into home loans and £6bn into property.

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It has reduced its exposure to British business, carries a £700bn net credit risk that is only possible because of the implicit guarantee the October 2008 bailout gave to all banks. And it is:

“(a) a machine for enriching investment bankers … with £1.5 billion in staff bonuses last year versus a pre tax profit of £3billion (b) the risks to the tax payer are not offset by corporation tax, because Barclays has used losses to minimise its payments; [paying] just £113 million in UK corporation tax in 2009.”

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But the crisis threatens to escalate in three directions. First to the 20 other global banks who stand accused of manipulating Libor.

The scale of class-action lawsuits being readied in the United States is, say some, big enough to sink certain of these banks. We will soon hear the results of the other – regulatory and criminal – investigations into the City of London.

Second, to the City of London itself.

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(T)he management of the bank: its board, its chairman and its CEO stood accused, effectively, of negligence. Yet again London turned out to be the dodgiest place to do business, and that was why the original slap on the wrist did not work.

So now we have a third direction of escalation. Both the SEC and FSA left unanswered questions about the manipulation of Libor for “survival” reasons.

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By last night, that meant the Bank of England – an institution created in the Christopher Wren era – was getting calls from financial journalists of the type normally aimed at, well, people like Bob Diamond. In short order he was gone.

Such is the power of the British establishment. But its problems are not over.