Banks, crumbling ethics and a shrinking middle class

By David Rohde
July 13, 2012

Maybe the acronym at the heart of the scandal is too confusing. Or Americans are simply tired of hearing about greedy bankers. By any measure, though, the Libor bank scandal is an extraordinary example of the 1 percent stealing from the 99 percent – and our crumbling ethics.

If an organized crime group was accused of breaking into the Nassau County Treasurer’s Office on New York’s Long Island and stealing $13 million, outrage would be widespread. And if the same group was accused of stealing millions from the City of Baltimore and other struggling municipalities, they would emerge as an issue in the presidential campaign.

Instead, the Libor scandal is emerging in dribs and drabs and drawing little public attention. The middle class is being victimized, and there is little protest.

Last month, the British bank Barclays agreed to pay $453 million to American and British authorities to settle allegations that it manipulated key interest rates for profit between 2005 and 2009, specifically the London Interbank Offered Rate, or Libor. American and British investigators are now examining whether traders at a dozen other banks – including the “too-big-to-fail” U.S. banks JPMorgan, Citibank and Bank of America – also manipulated rates.

It is hard to overstate the impact of the Libor benchmark, which is used to value some $360 trillion in loans and financial contracts worldwide. It affects lending to governments, businesses and consumers, and even student loan and credit card rates.

So Barclays’ victims weren’t just other banks and traders. They included taxpayers in dozens of communities who are believed to have paid millions more in interest than they should have at the height of the financial crisis. Teachers and other public servants may have been laid off because of bankers’ pursuit of ever-higher profits.

Lawsuits filed by the City of Baltimore and dozens of other parties against Barclays, JP Morgan, Bank of America, Citibank and Deutsche Bank have been consolidated into a single case in a New York federal court. Banks are denying any wrongdoing, and the true scope of the losses – and the role of American banks – is expected to emerge in the complex legal battles ahead.

I do not believe all bankers are evil. I admire business owners who innovate, create jobs and strengthen communities. But theft – whether the perpetrator is clad in a business suit or blue jeans – is theft.

And let’s not kid ourselves. Our ethical decay stretches beyond Wall Street. It spans industries, political parties and groups. In April, systematic bribery by executives of the U.S.’s second-largest company – Wal-Mart – was reported across Mexico. In June, American sports officials accused cyclist Lance Armstrong of engaging in a massive doping conspiracy. And Jesse Jackson Jr. appears to be the fifth member of Congress to be embroiled in an ethics scandal in two years.

Around the world, a globalized economy is creating planetary-sized profits – and relentless pressure. A May survey by Ernst & Young of 400 chief financial officers around the world found that a growing number of them were willing to pay bribes and falsify their firm’s financial performance to survive the financial downturn.

The number of chief financial officers who said they would engage in bribery to stay in business grew from 9 percent in 2011 to 15 percent in 2012. And the number who said they would misstate their company’s financial health to get though a downturn rose from 3 percent in 2011 to 5 percent in 2012.

“One of the most troubling findings of the survey is the widespread acceptance of unethical business practices,” Ernst & Young said in a statement. “It is particularly alarming that respondents are increasingly willing to make cash payments.”

Corporate boards and other overseers, meanwhile, appear to be looking the other way. Eighty-one percent of those surveyed worldwide by Ernst & Young said anti-bribery and anti-corruption codes of conduct were in place in their companies. But nearly half said they did not believe employees had been punished for violating those polices.

The same problem exists in American institutions. Senior executives at Wal-Mart tried to bury internal reports of bribes being paid. Leaders of Congress continue to hand out shamefully light punishments to their peers, such as the 2010 censure of New York Representative Charles Rangel.

And a report released today by former FBI Director Louis Freeh found that Joe Paterno and other senior leaders at Penn State covered up Jerry Sandusky’s sexual abuse of children for over a decade to protect the university’s multi-million dollar football program.

Many columnists have said this before and many more will say it in the future. I am no paragon of virtue and I have made mistakes. But we can and must do better. Our moral decay threatens us.

A liberal, capitalist democracy – and a middle class – can only thrive in a culture where the rule of law is respected, information is reliable and the playing field is as level as possible. If we abandon that, we lose much more than self-respect. We squander a way of life.

PHOTO: The symbol of Justice, with sword and scales, is seen in a lawyer’s office in Nice, southeastern France, October 9, 2009. REUTERS/Eric Gaillard

27 comments

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And you have had your savings ‘quantitatively eased’ into someone else’s pocket, too. The more dollars ‘printed’ reduce the value of the existing supply and some day our ponzi scheme economy is going to crash good and hard.

Posted by Shall_KS | Report as abusive

I can’t see how we can possibly hope to change this sad state affairs while being held hostage by a corrupt two-party system of government charading as democracy.

Posted by changeling | Report as abusive

Agreed, but note that the fish rots from the head and the head is Governments that rot most foul.
i.e.
Executive branch lets private insurance cos. write a health care law to feather their own bed and that of the prez. so he can take credit, for what?
Supreme Court agrees but then gives Congress a pass on the normal corrective action of having to re-write and re-pass the law to bring it into conformity. So now we are to follow a law that is not written as taxes yet is applied as taxes. All against the constitution so Roberts cannot be a responsible adult. The courts are MIA.
Congress sends about 1% of taxes per year out the window as foreign aid but doesn’t realize that after a few years or decades that adds up. Remember Hosni Mubarak of Egypt had $38 billion in his private bank accounts, the exact amount of foreign aid that the US sent Egypt over the years. It is the US tax slave that was fleeced.
Western powers give terrorists and fraudulent regimes a pass while entertaining them at the U.N. and allowing them to kill their citizens for sport, Syria, Iran, North Korea, Burma, Russia, China.
The upshot is that all Governments are the pinnacle of organized crime and all other actors beneath them are but amateurs upon the stage.

Posted by JP007 | Report as abusive

Lance Armstrong is the most tested individual for doping in the history of the planet. His has been accused hundreds of times in the press of doping. To date not an ounce of hard evidence has been found. An ounce of hard evidence outweighs a ton of speculation.

Posted by BidnisMan | Report as abusive

We are told this scandal is an extraordinary example of the 1 percent stealing from the 99 percent – and our crumbling ethics.

Then we see that they instead of stealing money they ‘manipulated’ interest rates.

May we see the contract? No? Oh, we are to believe that the banks ‘stole’ and the politicians are purely innocent of all knowledge and involvement in the terms of the millions of dollars they ‘borrowed’ because, what, the politicians are mostly Democrats and the bankers mostly Republicans?

I must have missed that day in ethics class.

Posted by BillDexter | Report as abusive

Our governmental systems were created by past generations that were very close knit, extremely patriotic society. Hence, they had common morals and ethics. Several generations later we are no longer a close knit society, we are a very diverse one. And with that diversity came diversification of our morals and ethics. A program created by one group to help others in their time of need, let’s say by providing food for them, works well for that group. But when you bring in ten other groups, some will be offended at the offer, some will accept it, and some will take advantage of it. So the program becomes a failure.
Since we cannot stop social changes, we should learn to re-evaluate our programs as we change. Expecting a program designed in the ’60s or ’70s to work today is just not being realistic or aware of the changes that are happening around you.

Use cash, starve a bankster!

Posted by tmc | Report as abusive

It is hard to connect this decay of ethics to any political party, but the Republicans are definitely more clear and open on their unethical way of thinking. It is said many times before, it is greed that drives the individuals under discussion. Some people never have enough in their lives. The lower and middle class workers in the US earn to little and pay to much. There is free enterprise and competition in this country, but salaries are not paid out in a balanced manner, and products are FAR too expensive across the board. Corporations nowadays are measured on generating profits, going to bonuses and shareholders. They are not necessarily growing revenue and creating jobs anymore. Wages at the bottom are standing still. This country is made for the greedy top layer, the middle class is shrinking and the lower class really has no point being in the US.

Posted by Fairness101 | Report as abusive

And Mitt Romney has stated in his campaign that he wants to eliminate the law that oversees and enforces ethics in business practices. Or is he flippin’ again? It’s frustrating to be forced again to choose between Tweedle-Dee and Tweedle-Dum for the office of President. God help the country!

Posted by act1 | Report as abusive

These acts by Barclays and perhaps others, if proven, are indeed wretched and unconscionable. Regulations by themselves have mixed effects; yes, they might prevent a few bad actors, but they also force the good actors to perform inefficient actions that drag everybody down. I believe the only way to prevent these kinds of theft is to remove the ability to profit from it. Banks and other organizations who are found to be guilty of these kinds of acts should be made to forfeit all gains that arose from the activity, making the stockholders (the owners of the company) hurt in the process. Only by forcing the issue with overwhelming monetary penalties will the system be given an incentive to end this sort of crap.

Posted by Randy549 | Report as abusive

Incompetent government is the cause.

From the FDA, through OSHA, to SEC the government is not doing its job.

Tainted food, dangerous drug side effects, financial crimes; the government is not protecting anybody.

Government employees and politicians draw their pay and business as usual.

PS None of the suggestions in other comments will work.

The facts no one wants to read.

Censorship is evil.

Posted by ALLSOLUTIONS | Report as abusive

What We, Wall Street, and Casey Anthony Have In Common – We Are “Normal” http://j.mp/Nlz6sw

Posted by LeeAdler | Report as abusive

[...] Banks, crumbling ethics and a shrinking middle class | David Rohde. Spread it:SharePost your thoughts below. No registration [...]

So what else is new? Our system is hopelessly corrupt and beyond the ability to reform itself. Where will it end? Badly for all, but worse than bad for the oligarchs and their families.

If you want to preserve your money, put it in something the Government cannot print or find. “Accounts” are merely a license to steal that you hand someone. They uniformly attract thieves, and it is just a (short) amount of time before they relieve you of your money. And our Government is incapable of rooting out corruption, or even admitting that it is a widespread problem. Payoffs, payoffs, payoffs.

Posted by usagadfly | Report as abusive

Randy549: I agree that “Banks and other organizations who are found to be guilty of these kinds of acts should be made to forfeit all gains that arose from the activity, making the stockholders (the owners of the company) hurt in the process”. But the “Banks and other organizations” are Corporations — Limited Liability Corporations. So no one will lose more than their investment, even if the damage exceeds that price. It’s interesting to ponder what the investment landscape might look like if investors could be held to account for the damage done by the organizations they invest in. Would Barclays have done what they did knowing that, were they to be caught and their shareholders held fully accountable, no one would ever invest in Barclays again? Knowing that the shareholders would in turn come after the perpetrators using every legal means available?

Posted by Sanity-Monger | Report as abusive

dont know if its “moral decay” as much as outright empathy or laziness or if its that difficult to monitor everything today

but the internet is helping by exposing a lot more

Posted by dan4noon | Report as abusive

One thing I think the author missed…. the loans to all of those consumers, businesses, governments and the like that were structured as floating rate loans based on a spread over LIBOR actually would have benefited from an artificial suppression of the LIBOR index. Who owes who then? Seems like a tangled mess that will be all but impossible to straighten out.

Posted by BhamSteve | Report as abusive

We Westerners are really governed by systems no less corrupt than those in China & Russia, are we ?

I am afraid everyone here, including the author, have missed the most important issue, and that is the ‘elite’ of all the developed & developing countries have already established their own private club cooperating extensively for the control of the population.

In fact, deep down, western elites are envious of the Chinese & Russian governing systems and are working very hard & fast in attaining a similar if not more a powerful one for themselves, and they are almost there.

Posted by GMavros | Report as abusive

All rules, from constitution to district by-laws, are outdated. They were established after problems emerged. Therefore now is the time to amend them, from constitution downward.

For me as a foreigner, it is inconceivable that the US presidents can accept money from rich people for their election campaigns prior to their presidency. This definitely constitutes bribery and corruption in my home village’s election no matter you call it donation or whatever. Of coruse if the authority treats it seriously.

Posted by Kailim | Report as abusive

I have been an apartment owner for over 40 years. When LIBOR was first introduced, I refused to take a loan based on a ‘made up’ rate. I insisted on th 11th district treasury bond rate. Through the years I have always avoided LIBOR loans, but sometimes that was all that was offered. There are some of us out here who think for ourselves. We questioned why were our loans sold to other institutions, why were banks loaning with only 3-5% down. Have you noticed that apartment industry loans didn’t have any trouble in this recession. Is that because we have always had to put 50% down on a building? There are still some of us small business people out here who can think and analyze what has been happening. Please vote for Romney!

Posted by SDRBOB | Report as abusive

Everyone is getting squeezed by de-leveraging. It will get worse. There will be violence once the middle class really gets pissed, hopefully in the form of legislative violence where the financiers get booted out. We don’t need them.

Posted by urownexperience | Report as abusive

Democracy in the article, democracy in the comments, Democracy, democracy, democracy didn’t everyone pass third grade social science.

We live in a republic.

Posted by niblick3 | Report as abusive

The word “Greed” is slung about as a substitute for ambition, endeavor, accomplishment, devotion to education and work ethic. Jealous have nots use the word “Greed” because they are too lazy to invest the effort to better themselves.

Posted by mulholland | Report as abusive

@allsolutions
Government is trying to substitute for individual responsibility. Government should not be expected to do so. We need less government, and more individual responsibility. Responsibility begins with respect for the law. Respect for the law begins with harsh penalties and a just legal system. Next responsibility comes with self education by taking advantage of educational opportunities such as libraries, news, and internet,

Posted by mulholland | Report as abusive

@ mulholland
Libraries, the news, and the internet (scoff) are certainly NOT equal to an education. Perhaps that is why you think the things you do. Without an experienced teacher/professor/mentor you won’t know the BS from the truth, and you will spend time on blogs posting nonsense like the above. Give me a break, how blind can you be to think that all our political system needs is “more personal responsibility?!” We have a political system to make up for the known fact that individuals cannot ever have enough personal responsibility to deal with all the myriad complex problems of a modern society. Unless you want to move back on to the farm… sheesh where do these people hide the rest of the time… yeah just vote Romney, I am sure he will solve your problems, because he is one of the guys… ffs

Posted by Benny27 | Report as abusive

Just from average citizen point view i don’t understand how what happens in London affects my rate of interest on my home or credit cards. I thought the federal reserve set that right? And right now rates are as low as they possibly could be. How is this an issue, i dont really get it.

Posted by muse9657 | Report as abusive

This reminds me of the old Steve Martin line:

“It’s not hard to get rich. For example, if you gave me a million dollars….. I’d be rich. We’re done.”

That’s about how much foresight banks are putting into their depositors’ money. Steal the money, hide it offshore, get bailed out…. by taxing those same depositors.

Once the line was allowed to be blurred again on investment banking, commercial banking, personal banking, insurance, hedge funds…… you’ve basically legalized fraud and theft. The crash was no coincidence. We literally have an arrangement now where banks and investment houses are in competition with their own depositors. They make more money shorting you than growing you. Anyone still investing into this racket gets what they deserve I suppose. Buy land. Or start a small business. Do anything. But control your own money. Tell JP Morgan and Charles Schwab to bite it. Wall Street is poison.

Posted by AlkalineState | Report as abusive

At least some of us can laugh at this, our present catastrophic predicament.

Democracy, Democratic Republic, Democratic Capitalism, Democratic Socialism, etc are meaningless.
Here is what’s at the bottom of it all.

The very first democratic president Pericles, in 500 BCE Athens, refused to run for a second term because too many of his friends & others were privately pressing him for favors that would profit their personal interests & business. (He eventually ran again because no one else would).

Also at this time the famous & very poor old man walking the streets of Athens in broad daylight holding a lit lamp “… looking to find one honest man.”

Nothing has changed & nothing will, unless…..

Posted by GMavros | Report as abusive

Make campaign donations akin to bribing a judge. Criminal offense. Oh yeah. The people who would have to pass these new laws…. are the ones receiving the money. Yep, broken system. Time for revolution. Roll the guns and the heads.

Posted by AlkalineState | Report as abusive