The right has a reservoir of writers who can be relied on to defend and even praise elite white-collar criminals, but the center has managed to produce eager apologists for lies. This column discusses the BBC’s Business Editor, Robert Preston. The title of his article emphasizes his view that it is exceptionally difficult to know whether the banks’ lying about Libor was desirable: “The elusive truth about Barclays’ lie.” Preston frames the question in a fashion that favors finding Barclays’ lies desirable.
“Aside from the forensic analysis about who said what to whom, there is a very simple question at the heart of the furore of Barclays’ involvement in the LIBOR-rigging scandal: is it ever acceptable to lie?”
That question rigs the answer. Of course it is acceptable to lie in some circumstances. Had the Nazis successfully invaded England and demanded that the banks identify their Jewish customers it would have been an act of moral courage to lie and forge documents purporting to show that the bank had long refused to do business with Jews.
Preston makes clear that the City of London is amply stocked with senior bankers who think it was noble for bank officials and (faux) regulators to lie in setting Libor.
“As it happens, a number of senior figures in the City who are unconnected to Barclays think this lying was the right thing to do in the circumstances. They think Mr [Paul] Tucker [Deputy Governor of the Bank of England] encouraged Barclays to lie and they applaud him for doing so.
You might well say that is evidence of a cancerous moral relativism at the heart of the City. Or you might applaud their common sense realism.”
Where does Preston come out on this “elusive” moral question?
“Barclays’ defence is that it was dreadfully unfair that its perceived borrowing costs were higher than other banks. And it is convinced that many of these banks were even bigger liars than it was about what they were paying to borrow.”
Barclays’ defense asserts the existence of what economists, criminologists, and (real) regulators describe as a classic “Gresham’s dynamic” in which bad ethics drives good ethics out of the markets. The paramount function of financial regulators is to serve as the “cops on the beat” who engage in vigorous regulation, examination and supervision, enforcement, and who make the essential criminal referrals to the prosecutors in order to prevent the unethical from gaining a competitive advantage. The alternative is that markets become perverse and fraud can become the dominant strategy. A Gresham’s dynamic is “cancerous,” but it does not produce “moral relativism.” It produces endemic immoral conduct, not for the greater good but to enrich the senior officers leading the fraud. It also requires the evisceration of effective governance and setting an aggressively “immoral tone at the top.” The senior officials who set the immoral tone at the top can be relied upon to “applaud” fraud. Over time the most moral employees leave in disgust and the moral dregs rise to the top of the septic tank. The employees often find that additional lies will increase their wealth.
Once lying becomes common and “applaud[ed]” by senior management the euphemisms for and “jokes” about the lies proliferate. Robert Preston’s article demonstrates both of these characteristics: “We need Paul Tucker’s side of the story to evaluate whether he did indeed nudge Mr Diamond to a policy of economy with the truth on the bank’s borrowing costs….” Diamond manages to combine a classic English euphemism for lies with irony and a banking pun: “economy with the truth.”
The BBC promo box the reader clicks on to read Preston’s full article makes clear their answer to the “elusive” question of morality.
10:35 UK time, Wednesday, 4 July 2012
Was Barclays’ lie about its borrowing costs for the legitimate purpose of trying to save itself from collapse? Or was its instinct to lie at the very heart of the problem, the reason why it was so little trusted in markets and was having to pay more than others to borrow?
Manipulating Libor through lies to produce a false reported index is a “legitimate purpose.” The BBC’s position is that any financially troubled firm (or individual) can “legitimate[ly]” lie in order to deceive its creditors and investors and prevent them from learning that it is financially troubled. The banks can kill whistleblowers under this “logic” because their action in telling the truth must be “illegitimate.” (If this seems over the top make sure you read my next column.)
Tony Blair got a bad rap. His “Cool Britannia” effort succeeded – England is now so cool that the drunken lads having public sex in Greece cannot hold a candle to the City of London’s top bankers when it comes to moral depravity. The top bankers are so cool that they openly “applaud” fraud in their on the record (but never for attribution) interviews with the BBC’s business editor. The UK is channeling its good old days when it gave letters of marque to privateers and sent them out to loot the world’s commerce. Sir Walter Raleigh is the very model of the modern City of London banker. They even get to help depopulate Ireland again.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.
Follow him on twitter @williamkblack