Barclays Rips off its Customers—Your Bank Probably Does, Too
If "everyone does it," we should all be aware.
If you have a bank account or a mortgage—or have done any business with banks in the past five to 10 years—you should be watching the Libor scandal that’s unfolding at Barclays in London. For those unfamiliar with Libor, it’s an acronym for London Interbank Offering Rate. Essentially, it’s what banks charge you in interest based on what they expect money to be worth in the future.
Banks get privileged information and they’re supposed to use that information to make predictions on the value of money and set interest rates based on that. But instead, Barclays manipulated the numbers and lied about what they thought their Libor rate should be in order to pump up their rates and make more money. Now they’re paying fines to US and UK regulators to the tune of $453 million.
The most interesting thing to come out of the Barclays investigation was that their defense was basically, “Everybody does it.” Libor is a trillion dollar business—$360 trillion, give or take—so, if “everybody” is doing it, we’re all getting taken. People in the US and Europe are paying those extra trillions of dollars on mortgage loans, small business loans, personal loans and more.
The Big Four—JPMorgan Chase, Citigroup, Bank of America or Wells Fargo—all participate in setting the Libor rate and most people believe that Barclays couldn’t have rigged the rate without their knowledge and participation. Political economist and former Secretary of Labor Robert Reich summed it up pretty harshly in his recent Huffington Post op-ed, "The Wall Street Scandals of All Scandals."
“It would amount to a rip-off of almost cosmic proportion,” Reich said of the revelation that other banks participated in Libor manipulation. “Trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we've witnessed look like child's play by comparison.”
Keep your eye on news about the Libor scandal in coming weeks. If it can be proven that any of the Big Four violated Libor regulations, there could not only be punishment from the government, but a lot of money to be made in lawsuits by consumers who were bamboozled by the big banks.
