[jyl]

You may have missed this story, if you get your news from a blonde Fox anchor.

http://dealbook.nytimes.com/2012/06/27/barclays-said-to-settle-regulatory-claims-over-benchmark-manipulation/

A huge British bank, Barclays, will pay $450 million for fraudulently manipulating LIBOR over several years. It looks like other large banks, including Citigroup, are under investigation for doing the same.

LIBOR is the London interbank overnight borrowing rate. It is the variable interest rate that determines borrowing rates on most other forms of variable rate debt. Corporate borrowing, consumer loans, and some bonds are all set on LIBOR. As LIBOR goes up, those interest rates go up and those borrowers pay more. As LIBOR goes down, those rates decline and the lenders get less.

LIBOR is determined every day by aggregating the reported rates from numerous large global banks. Each bank reports what interest rate it would half to pay, or it would charge, for an overnight loan from another large global bank.

Naturally, if a bank, or multiple banks, could manipulate LIBOR, that bank, or banks, could find a way to profit handsomely from it. To prevent this, there are supposed to be Chinese walls between the bank's departments who handle overnight lending, and the bank's traders and other departments.

At Barclays, these Chinese walls were ignored. The bank reported the LIBOR rates that the bank's traders wanted to be reported. Thus Barclays, and apparently other major banks, manipulated a key interest rate that determines the borrowing costs of, quite literally, almost the whole world.

As punishment, Barclays' CEO is giving up his bonus - for one year. The traders involved have so far paid nothing, nor have they been criminally indicted. The fine paid by the bank is, while not small, not terribly big. It will probably be a tax deduction.

In the four years since the financial crisis blew up, the banking industry has been caught performing misdeed after misdeed. There seems to be no end to it. No bank CEO has gone to jail. No bank has been broken up. No bank has been placed under regulatory handcuffs. The Dodd-Frank attempt to tighten bank regulation has been tied up in legislative and lobbyist delay, and half the politicians in America now want to repeal it (and guess which industry is their biggest donor?)

This is ridiculous. I am in the financial industry, and I understand this crap better than most. This is ridiculous. We need FDR.