Libor Liberty

Today it was reported that a banker has gone to jail for fourteen years for fixing LIBOR. I cannot help but feel that somehow, something does not sit right here. Can a single individual truly fix the inter-bank lending rate? If so, should we blame him when he does so, or should we blame the system? Is it only me that sees this as having something of the scapegoat about it?

Banking is all about buying and selling money, and taking margins between the two. So, a banker will always do his best to get the best margin he can in any financial transaction; that is his job. Now it does seem that Mr Hayes may have gone out of his way to manipulate the system in a manner that is unacceptable, but he could not have done so single handed. Nor could he have done so if the system he was manipulating were sufficiently robust to prevent manipulation.

It is inevitable that if we put a child in a sweet shop unattended, he will eat sweets. So why are we surprised if bankers seek to profit unfairly in an environment designed to allow them to profit unfairly?

The problem that many of us face is that the lines between right and wrong are getting increasingly blurred. We are apparently required now not just to abide by the law, but now we should take care to abide by the intentions of the law, even if the law does not say we are doing anything wrong. Where once we were told “ignorance of the law is no excuse”, we are now told, “inability to read the mind of the Chancellor, after he has changed his mind several times and seen what gets published in the press, is no excuse”. This is the gist, for example, of the “GAAR” (general anti-abuse rules) in connection with tax avoidance. In the situations where the GAAR applies, if you are judged to have abused the tax legislation, HMRC can try to set aside what you have done.

Mr Hayes did wrong, for sure. I am not a judge and did not hear the case, so I cannot form a view on whether or not his punishment was appropriate. I am not suggesting for one second that Mr Hayes should be seen as an innocent victim. I can, however, comment that we seem very quick to punish and vilify those who profit from a poor system, while we seem very unwilling to improve the system or deal properly with those charged with governance, yet who failed to make the system strong.

I do not want to see an endless procession of people being sent to prison. Before we know it, we will all be inside for such crimes as Not the Nine O’Clock News created: walking after midnight in a built up area with a loud shirt, or being in the possession of an obnoxious spouse, perhaps. The silent majority would like us to face the challenge of an ever more complex socio-economic environment in a manner which is constructive and purposeful. Perhaps we should not always look for the easy wins of culpability, but look to our systems and identify what has gone wrong?  And then, perhaps, even put it right?

In the business world

These observations are relevant to the ordinary business world as well as to banks and government.  Many owner-managers with whom I talk have a very clear view of error and even fraud. That view is, yes it is wrong. If it is fraud – deliberate criminal behaviour – the law should take its course. But people make mistakes, and get things wrong, and sometimes they even think that their actions are not wrong (for example, MP’s claiming for duck houses). In such cases, blame is not appropriate. Education and training is appropriate. And the systems that give rise to the problem need to be changed.

Business cabin learn from these macro-economic issues and apply them to their own systems.  Internal controls, preventative systems, training and education are far better at prevent fraud and error than punishment and rebuke.

Yet, in the case of banking, it seems that the main culprits are those in a position to have understood how LIBOR could be manipulated and who stood back and enjoyed the profits while others got their hands dirty. I don’t know who they are, but surely it is they who should be pursued?

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Jonathan Franks

A man of limited intellect spurred on by a belief that if you say enough, some of it might be right. Also a specialist in self-deprecation.

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