Robert Reich warns that the LIBOR case will hit Wall Street which he hopes will generate support for Glass-Steagall reform. Writing yesterday in Britain's Guardian under the title "Wall Street's Link to LIBOR," Reich asserts that there are "two different LIBOR scandals." One was the minipulation of LIBOR around 2007 "in order to disguise how much trouble they [Barclays and the banks] were in." The second is "worse, and is likely to get the blood moving even among Americans who assume they've already seen all the damage Wall Street can do. It involves a more general practice — starting around 2005 and continuing until ... who knows, it might still be going on — to rig the LIBOR in whatever way necessary to assure the banks' bets on derivatives would be profitable. This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us — whose money they've used to make their bets — losers and chumps...."
It this is proven to be true he writes, "It would amount to a rip-off of almost cosmic proportions — trillions of dollars that average people would otherwise have received or saved on their lending and borrowing that have been going to the bankers instead.
"It would make the other abuses of trust Americans have witnessed in recent years — predatory lending, fraud, excessively risky derivative trading with commercial deposits, and cozy relationships with credit-rating agencies — look like child's play by comparison."
While Americans tend to be jaded about Wall Street's misdoings, he concludes, "we may be reaching a tipping point where Americans move beyond outrage to political action. Recall that the bailout of Wall Street gave birth to both the Tea Partiers and Occupiers. Across America, one hears a growing demand that Glass-Steagall be reinstituted and that the biggest banks be broken up. Not long ago, the Dallas branch of the Federal Reserve, hardly known as a bastion of radicalism, proposed that the biggest banks had become too big to regulate and should be shrunk.
"The pertinent question here is whether the unfolding LIBOR scandal, which will soon hit these shores, will provide enough ammunition and energy to finally get the job done."
A similar blog for the Christian Science Monitor, today ("Scandal of Scandals: Barclays Corruption Probe Digs Up New Dirt"), Reich concludes: "When it comes to Wall Street and the financial sector in general, most of us suffer outrage fatigue combined with an overwhelming cynicism that nothing will ever be done to stop these abuses because the Street is too powerful. But that fatigue and cynicism are self-fulfilling; nothing will be done if we succumb to them.
"The alternative is to be unflagging and unflinching in our demand that Glass-Steagall be reinstituted and the biggest banks be broken up. The question is whether the unfolding LIBOR scandal will provide enough ammunition and energy to finally get the job done."