AlterNet/By Joshua Holland
July 10, 2012
Earlier this year, researchers at the university of Southern California published the results of a study examining whether the wealthy – the mythical “engines of our economy” – display a better character than the rest of us.
As it turned out, after conducting seven experiments they found that the narrow pursuit of self-interest at the top of the economic heap leads our elites to behave like complete dirtbags. As Bloomberg summarized, the researchers found that the richest among us “were more likely to break the law while driving, take candy from children, lie in negotiation, cheat to raise their odds of winning a prize and endorse unethical behavior at work.”
“It’s not that the rich are innately bad, but as you rise in the ranks -- whether as a person or a nonhuman primate -- you become more self-focused,” Paul Piff, the lead author of the study, told Bloomberg. It is their lust for wealth, paired with a lack of empathy for others – their disregard for the consequences of their actions on the “little people” – that makes them, at times, appear to simply be evil.
That research may help us understand why high-flying traders at Barclays Bank – and those at an as yet unknown number of other financial institutions – were willing to risk the credibility of the entire financial sector, as well as their cushy jobs, to rig interest rates in order to squeeze out more profits. And it certainly helps explain why they didn't think twice about the individual and institutional investors they ripped off: millions of ordinary people with credit cards, auto and home loans and other lines of credit.
That is what the budding scandal over banks lying in order to manipulate key lending benchmarks is all about. It's a story that doesn't lend itself to flashy headlines, and hasn't been getting the media attention it deserves in this country, so we asked David Dayen of Firedoglake to help break it down for us on this week's AlterNet Radio Hour. Below, is a lightly edited transcript of the discussion (you can listen to the whole show here, or subscribe to the podcasts on iTunes).
Joshua Holland: David, I want to talk about this LIBOR scandal. You’re a wonky guy and I wanted to get the story in a way, I hope, that my grandmother Ethel can understand.
I think it’s important to point out that this isn’t a story about boring interest rates. It’s about high-level banking executives lying and manipulating the system in order to make a bigger profit, and in doing so ripping off millions of people around the world. First, what is the London Interbank Offered Rate or LIBOR?
David Dayen: The London Interbank Offered Rate is sort of the rate that banks charge amongst themselves for lending. More important than that, it’s used as a benchmark rate for pretty much all loans. We’re talking student loans, car loans, adjustable rate mortgages, and all sorts of structured finance deals. There almost isn’t a lending product that isn’t affected by the LIBOR in some way or another. It’s a benchmark which is used to set those other rates.
JH: So this is what a bank lending rate in London has to do with you folks out there. If you have a home loan, if you have a credit card, if you have an auto loan, if you’re living in, say, Nebraska, this London bank rate affects your pocketbook. This is really the nub of it. So what happened, David?
DD: It’s almost a bit unfair to single out Barclays Bank. Let me go through that, and then get into what happened with the LIBOR.
Barclays agreed to a settlement with the Justice Department over allegations that it rigged, or tried to manipulate, the LIBOR. It did that in a number of ways. In some cases their traders were asking for the LIBOR to be set up or down based on how they could make money off of derivatives trading. The spread in the rate would give them a leg up on the competition and improve their profits.
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