Barclays is the second-largest bank in Britain, and one of the largest in… (Oli Scarff / Getty Images )
Why aren't more people furious about the LIBOR scandal?
That's a question mostly being asked on the political left these days, and they're right to ask it.
Here are the basics: Barclays is the second-largest bank in Britain and one of the largest in the world. It has admitted to U.S. and British regulators that it manipulated the London interbank offered rate, or LIBOR, which basically measures how much it costs banks to borrow money from one another for various periods of time. If you ever read the fine print on a home mortgage, credit card agreement or car loan, you've seen reference to LIBOR.
Indeed, a conservative estimate is that some $350 trillion in bonds and loans are pegged to LIBOR worldwide. That's more than 20 times the GDP of the United States.
In email exchanges between Barclays' New York traders and the bank officials who are supposed to submit honest data to the entity that calculates LIBOR, it's clear that the bank routinely rigged the data to maximize profits. It was so routine that nobody even bothered to hide their corruption in euphemism. One official responded to a request from a trader to fix the number, "Always happy to help, leave it with me, Sir." Another replied, "Done ... for you big boy ...."
Barclays agreed to pay $450 million in fines to avoid prosecution. Several officials at the bank, including American-born CEO Robert Diamond, have resigned.
The left's response, predictably, is to pound the table about corruption, the need for more regulation and the inherent sinfulness of capitalism.
They're entirely right about the first part, possibly right about the second and deeply confused about the third.
The corruption really is outrageous, and I wish my fellow conservatives could muster a bit more public disgust. There's really no point in simultaneously talking about "leaving things to the market" and celebrating the rule of law if you're going to respond to this kind of game-rigging with a yawn.
Moreover, as a political matter, staying on the sidelines almost guarantees that the problem will be made worse. The relentless push for more regulation and more oversight boards, commissions and agencies hasn't done anything to curb such scandals. But making the relationship between government and business more interwoven and complex has entrenched the "too big to fail" mind-set. What's required aren't new regulations so much as relentless enforcement of the existing laws, without fear or favor.
As the Manhattan Institute's Nicole Gelinas notes, despite several huge big-bank scandals — municipal finance manipulation at JPMorgan Chase, money laundering at ING, etc. — we haven't seen any big banks go out of business for criminal transgressions. They've paid some big fines, but those costs are passed on to consumers, taxpayers and shareholders. "The answers to our problems are straightforward. When a bank egregiously breaks the law, it should run the risk of a criminal conviction's throwing it out of business," writes Gelinas.
Which leads me to the left's confusion. Capitalism is not inherently sinful, capitalists are — but so are socialists, progressives, conservatives, libertarians and every other label we apply to human beings.
When I hear people complain about the evils of capitalism, it's like they think there's something especially corrupt about capitalistic institutions, as if every other institution — including government itself — isn't prone to the same basic shortcomings. If you don't think socialists or bureaucrats are just as likely to rig the rules to their benefit, you're quite simply ignorant of a lot of history — and current events.
You can never eliminate the temptations of sin. But you can create accountability for sinning. That's why our system of liberal democratic capitalism is superior to other systems: It creates more opportunities to hold wrongdoers — and fools — accountable.
Or at least it's supposed to. The market is supposed to penalize economic mistakes. The electorate is supposed to punish incompetent or venal officials. Civil society is supposed to police malice and buffoonery. And the government is supposed to punish criminals.
The key to all of this is the rule of law and the minimization of what Edmund Burke called "arbitrary power." When institutions — any institutions — become immunized against the legitimate forces of accountability, it should be seen as a scandal. The more inured we grow to such stories, the more we come to accept that acceptable behavior is simply whatever we can get away with.