In this article of 6 July 2012, the ABC refers to a law firm that is "putting together a class action on behalf of businesses and investors who have used financial products that reference the Libor". Yet, arguably, in many cases, corporate and high net worth investors might have been benefiting from the LIBOR fraud. It's worth investigating. The article implicitly admits that "sophisticated financial products, which are derivative-based" are used in Australia.
The article also quotes a lawyer saying, "Retail [investors] - the mums and dads - don't usually invest in sophisticated financial products, which are derivative-based, and they don't invest in foreign currency and shifts in foreign currencies". The conclusion made was that "proving how they [retail investors] would have been directly affected by the Libor scandal would be much more difficult". Okay, so if you invest in complex derivatives, which are very difficult to understand, then you can expect to pay millions in litigation without getting very far. But if you don't get involved in those complicated products in which the big boys play and simply get what you're given as the end-product of all that complicated mathematical chicanery, then it's very difficult to prove that you've been lied to and robbed. Thank you ABC, oh public broadcaster.
Forget retail investors - what about retail borrowers? To what extent have retail borrowers' rates been jibbed by the criminal manipulation of the LIBOR rate? It would seem that banks need to prove that they were not involved.
LIBOR rates have a fundamental effect on banking in Australia. To speak of the "Australian equivalent" the BBW is to try to distract and redirect the conversation. LIBOR is fundamental in Australia too. Australian banks often borrow from overseas at the 3-month LIBOR rate plus some margin. However, those who speak about BBW might have a valid point. Australian financial establishments should publish all of their documents including emails - I mean all - online to prove that they are not fiddling the BBW.
Banks do not have the same rights as everyone else. They have fewer or no rights. They are not to be asked to do the right thing or to behave like responsible members of the community. They are essentially outlaws without the right to exist. Is this an overreaction? No, most likely it's a gross and overly-generous underreaction. In any case, by their own rules and standards, they are bankrupt, and so they actually don't exist. Under a Glass-Steagall standard, certain kinds of banking are socially useful and should legitimately be protected, but today's private bankers do not recognize the question of what is socially useful as a valid question to consider. Moreover, they expect protection and bailout even of their most egregiously fraudulent activities. They don't have a place at the negotiating table. There is no negotiation table anyway.
Does APRA the financial regulator of Australia take the view that when they go in to a bank for a review, they should not and cannot assume that every person they meet is involved in criminal activity? If not, then perhaps they should.
A large segment of the public regards the financial regulator as the "financial policeman". They do not make fine distinctions between the ASIC, APRA and the ACCC. They do not think that regulators should be chummy with the financial operators which are being regulated. Hence the public anger at APRA's denial of responsibility for the Trio collapse. There have been at least two public protests in Sydney in the last six months which named APRA, including one outside APRA's office on George Street. Arguably, the biggest and most destructive criminals play with billions if not trillions of dollars. The handbag thief at Downing Centre Local Court gets tougher treatment than the institutions APRA is supposed to be policing, which are the boys who play with billions if not trillions of dollars and destroy lives systematically.
Policemen don't write laws. By contrast, APRA routinely advises on policy and legislation. Thus, in addition to policing, APRA can write bills and propose them as laws to favour the public interest and make life very difficult for parasitical financial institutions which engage in fraud, deception or any kind of superprofit-making or other skimming activity. What is needed is the will and desire to do this. The revolving door between APRA and the private financial sector does not help.
If APRA does not have the resources to adopt a mindset against regulated entities that presumes criminality, then banker confidentiality should be revoked and all documents of banks should be uploaded and made available publicly. This means repealing s.56 of the APRA Act. The privacy of individuals who engage with banks as depositers and borrowers would still be protected by the Privacy Act 1988 (Cth). In fact, under s.57 of the APRA Act, APRA already has the power to declare any information it receives non-confidential in the public interest. Then there could be public investigation.
There would be many consumer rights groups not to mention accountants and lawyers struggling with their mortgage payments who would give their time for free to find out whether banks have been using illegal methods for years if not decades to extract billions and billions of dollars from the Australian working poor. More important than the dollars is the years and years of time, sweat, effort and stress that the Australian labour class (which includes "information workers") has dedicated to making payments to financial institutions which do not deserve the reverence they have been accorded by Australian political classes and policymaking circles. They are protected, sheltered, revered and lauded as something to be proud of, a bit like we should be proud of the Queen. Sorry, but there's nothing to be proud of in those institutions.
While APRA does not guarantee that no financial institution will fail, APRA has never publicly spoken out against the bailout operation abroad. APRA has the power to advise the Minister on any matter relating to safety and systemic stability of the regulated entities. See sections 8, 10 and 11 of the APRA Act 1998 (Cth). APRA has wide powers including "anything that is necessary or convenient to be done for or in connection with the performance of its functions" (s.11(1)).
APRA certainly has the power and, arguably, the responsibility to advise the Minister on Glass-Steagall. See this article and this article on Glass-Steagall. Australian regulators do not need to wait for the nod from London or New York, they can go ahead right now and push for Glass-Steagall in Australia. If they're about serious about safety and systemic stability, that is, and anything "necessary or convenient to be done for or in connection with" achieving safety and systemic stability. A financial system based on fraud in which APRA could push for the bailout of an institution that has messed up in its fraud cannot be conducive to the safety and systemic stability of the entities left standing. If there are none left standing, then that is not an outcome that a preoccupation with safety and systemic stability would favour, either.
Why should the Australian public labour under a Sword of Damocles not knowing whether or when their tax monies will be used to bail out the same institutions to which they have been in debt slavery all their working life, because those institutions caused themselves to go bust by engaging in fraudulent activity? or even in borderline legal but very risky speculative activity with no social benefit?
APRA and ASIC should be much more activist, on the front foot so to speak, for the public interest. It is not in the public interest to maintain the financial system and banking layer as it exists today. Paul Keating's dream of a Wall Street of the south, a "New Venice", should be flushed down a public toilet in Martin Place. (It should be, but there are no public toilets in Martin Place. The homeless can do it somewhere else; if they choose to beg from bankers in Martin Place that's their problem.) We don't need another Wall Street or Venice, we need an industrial renaissnace.
The ongoing drumbeat about "soundness" of the Australia financial system and refusal to publicly comment on bailouts abroad reminds of the Yes, Prime Minister character Sir Desmond Gladesbrook who said in an episode, "The slightest hint of suspicion and we'd have the chaps straight out to lunch. Ask them straight out." Prime Minister asks, "And what if they deny it?" Gladesbrook replies, "Well you have to take a chap's word." Of course, in that episode, Sir Humphrey engineered events to make Gladesbrook Governor of the Bank of England precisely so that he could orchestrate a hushed-up bailout of his fictitious troubled bank Phillips-Berenson using taxpayer money. That episode was made in the mid-1990s.
Given that the system is "globalized" and given that LIBOR is the most important interest rate in the world, and given that the big four Australian banks have over $8 trillion (from public sources) in nominal value of derivatives outstanding (and Australian GDP is about $1.4 trillion, by the way) it seems in this case that the entire system by-and-large benefits from the LIBOR fraud. This potentially could be likened to the benefit accruing to an entire class of insurers from the Medicare Levy Surcharge, or to another class of insurers from the CTP Green Slip system. Therefore, the regulator should assume that banks are involved are benefiting unless proven otherwise. Alternatively, or additionally, the banks might have been passing on rates fixed by fraud to Australian borrowers and reaping the instalments. Given that their supernormal profits do not result from magic, they ought to be assumed to be beneficiaries of the LIBOR fraud as well as of other shenanigans (mentioned below) unless proven otherwise.
Should banks be assumed to be criminal operations unless proven otherwise following full disclosure? The LIBOR fraud suggests that the answer is "yes". The cases of drug money laundering at HSBC and Wachovia also suggest that the answer is "yes". The profits that banks in Australia are making suggests "yes" they must be criminal because they certainly are not engaging in any scientific research, manufacturing or industrial activity - unless proven otherwise.
There is an ongoing jetsetting of Australian private finance staff including traders and managers of traders between Australia's Sydney-Melbourne "financial centre", and London and New York. The regulators in Australia are well-connected, swap staff and share roles with the IMF, World Bank, Basel Committee, BIS and other international financial policy setters. They are intertwined. They are privileged. But so what - they're still human and so have the capacity for moral judgement and action. Some of the wealthiest bankers and most powerful financial policymakers have called for Glass-Steagall. Ben Bernanke and Tim Geithner haven't, yet, but in any case we need not expect everyone to wake up and do the right thing.
Last updated: 13 July 2012