By: John Charles Dyer, UK Correspondent
6 July 2012. A Tsunami called LIBOR swept across the gleaming edifices of global finance. The banks nations bailed out, the banks that across the West forced austerity and bigger bailout funds using the leverage of sovereign debt interest rates, the banks we trusted with the underpinnings to our economies, pensions, children’s futures, these banks (or some of them) systematically rigged LIBOR rates. Sometimes to benefit a rogue trader. Sometimes, allegedly, as bank policy. Observers argue this scandal will eventually dwarf JP Morgan.
The Tsunami crashed into “The City” (the euphemism for London’s financial sector), leaving its Archbishops figuratively trembling with dread beneath their desks. It left in its wake the shattered remaining credibility of banks and banking sector. It also left scattered amid the wreckage respect for the Rule of Law and political good judgement.
A match in a basement full of gasoline
On 4 July Barclay’s released a 29 October 2008 email from suddenly former CEO Bob Diamond to Barclay’s Chairman John Varley and COO Jerry Del Messier. Diamond informed them Bank of England Deputy Governor Paul Tucker had warned Diamond that day “Whitehall” was on Tucker’s back about Barclay’s relatively high LIBOR interest rates. Del Messier allegedly took this email to be an instruction to Barclays to artificially lower its rates.
Shortly after Barclay’s release, commentators raced to interpret. Tucker’s communication was an instruction from Whitehall to artificially lower its interest rates. Barclay's did because of this intervention. Gordon Brown and Ed Balls were implicated. They have “questions to answer.” Pundits named who they believe was the mystery Minister. If anyone asked if the email accurately represented Tucker’s communication or was another explanation equally plausible, it was lost in the furore.
Speculation soon morphed across Twitter into “Balls has questions to answer” including from Tory MPs. This may have been just spontaneous reaction from those who have long believed Brown and Balls have evaded owning up to culpability for the financial crisis. It may have been a reflexive “gotcha” from politicos smarting from months of bad news and claims from Balls the bad news vindicates his economics. It may have been a coordinated campaign to regain ground lost in the polls.
Whatever it was, it was premature.
High Noon in the Commons
5 July the uproar reached a dramatic “high noon” in the Commons.
The Spectator published Chancellor Osborne’s allegation Brown and Balls “have questions to answer,” elaborating on the theme Brown’s government caused Barclay’s to artificially lower their rates. During a subsequent Parliamentary debate Osborne repeated the charges. Balls defended his integrity. It went on for three extraordinary, bitter hours.
It appalled everyone.
BBC’s Nick Robinson seemed to defend the Chancellor, arguing Osborne just believed Brown and Balls ought to be held to account for their handling of the banking crisis. But most, even the conservative Daily Telegraph, focused on Osborne.
Shortly after debate closed, Osborne withdrew his allegations. While Osborne did not apologize, he acknowledged Brown and Balls were not themselves personally culpable.
Some say Robinson appeared crestfallen delivering the news for BBC, but I did not observe that myself. I did observe heightened tension and broad outrage at Parliament’s loss of proportionality and judgment.
The original purpose of the debate was to decide whether to refer the investigation of LIBOR to a Parliamentary committee chaired by the widely respected Treasury Committee Chair, Andrew Tyrie, or to an independent, judge-led inquiry on the model of Leveson. The government proposed the former, Labour the latter. Labour scheduled the debate during its “Opposition Day” time.
The outcome of the vote was a foregone conclusion. The Coalition partners defeated Labour’s motion.
That did not itself immediately end it. Tyrie made it clear prior to debate he would not chair without cross party support. Under considerable pressure, and perhaps fearing public perception, Labour agreed to cooperate even before Osborne’s climb down, sealing the deal.
It is doubtful the credibility of the process can be rescued
Osborne and eager Tories opened Pandora’s Box. Sometimes legislative committees guided by counsel can do decent work. But it is hard to see how Tyrie's committe can transcend the manner of its birth.
Apart from public perception, I question the capacity of a politically constituted body in such a politically charged atmosphere to adequately investigate, much less put to bed, the demons Party pols already unleashed. Yet, now unleashed, it is imperative they receive a fair adjudication promptly.
The performance of Tyrie’s own Treasury Committee offers no comfort.
I watched them question Diamond, an American listening to an American questioned by British politicians with a hurricane at their backs.
Conservative members on the Committee immediately tried to expose the assumed involvement of Labour Ministers. Labour members reflexively defended Labour. Neither really heard what Diamond said. When Diamond did not give answers they expected, they appeared (and were subsequently reported to be) furious and openly incredulous. Several, including the Chair, commented negatively on Diamond’s “evasiveness” and “lack of plausibility.”
In doing so they slighted and ignored two key pieces of testimony and two key principles of due process.
Diamond testified he did not take the Tucker conversation memorialized in his email as a veiled instruction to artificially lower Barclay’s LIBOR rates. He learned only last week that COO Jerry Del Messier purportedly did.
Diamond further testified that- “in context”- the focus was nationalization of the bank. He took Tucker to be warning that Whitehall was concerned because of the comparison of Barclay’s LIBOR rates to Barclay's competitors. Diamond wrote to prompt Varley to talk to Whitehall to explain the competitors rates were too low. Diamond feared an alarmed Whitehall in the midst of the 2008 crisis would nationalize Barclay’s. No, Diamond did not know who the Ministers were, or even if they were Ministers, although that's how he took it.
Committee members did not appear to want to hear it. They interrupted. They expressed disbelief. They insisted Diamond enter their frame of reference rather than understand Diamond’s.
It is perfectly credible to me, an American, that an American used to brutally direct American business communications might well have missed any subtle suggestion Tucker might have been making. If, indeed, Tucker was, for remember, an American wrote this email to describe something he experienced through American eyes. It is not a faithful recording of Tucker’s words. It is an American sounding the alarm.
Diamond’s email, read in plain American, is consistent with Diamond’s explanation. Tucker gave Diamond “a head’s up.” Diamond feared what it might mean in October, 2008 was “nationalization.”
That is a long way from an indirect “ask” to fiddle Barclay’s LIBOR rates.
Also lost in the rush to find dirty Ministerial hands was Diamond’s acknowledgement Barclay's had artificially lowered its LIBOR rates- as a matter of policy- for a full year prior to the Tucker communication. Tucker's comment could not have caused that, even if Tucker intended an instruction. Nor does it begin to evidence that any Minister sought to pressure Barclay's to fiddle its rates.
It is a principle of due process in such matters that one must accept the more innocent of two equally plausible explanations. It is also a principle of due process that it is the duty of the accuser both to produce evidence and to prove the misconduct, not the duty of the accused to prove his innocence. The committee, Osborne and the chorus trampled these principles.
It reinforces my pre-existing skepticism. How can any Parliamentary committee, even led by a respected and measured Chair, now adequately investigate and not kick over serious procedural cans of worms in the process?
This week's dismal spectacle is all too typical
The current government has transformed Conservative into its antonym. A hallmark of "conservative" philosophy is respect for the Rule of Law. Fundamental to the Rule of Law is the integrity of due process. This government disregards due process time and again. So often there is not space enough in a blog to recite it all.
Most recently, as Coalition partners sought to turn this moment into “all about Labour,” Culture Secretary Jeremy Hunt publicly claimed Leveson had exonerated him. Judge Leveson himself repeatedly clarified this was not the case. The Prime Minister steadfastly refuses to submit the Hunt matter to an independent review actually charged with adjudicating Hunt's conduct.
There may well be facts to “get at” concerning Labour’s role. But those facts will not credibly emerge from this tainted process. Any more than anyone has credibly adjudicated what the Prime Minister and Secretary Hunt did or did not do. Both issues require an independent, judge-led inquiry, focused on all issues fairly raised by the facts, not compromised by politics. Unless and until that happens, the Rule of Law in Britain twists slowly in the wind.