Listening to the Commons exchanges yesterday on the Chancellor’s proposal for a Parliamentary Committee of Inquiry into the LIBOR scandal was depressing. It was the Commons at its worst: blame shifting; moralising; and, above all, opportunistic point scoring across the floor. It’s not just the bankers who don’t get it; lots of MPs also do not realise the scale of the disaster that is the UK financial system. A Parliamentary inquiry is a quite inadequate response to the scale of the problem. Some Parliamentary inquiries, notably those by the Treasury Select Committee, have done good work. But even when not beset by party divisions they simply have not measured up to the job. As in the notorious case of Fred Goodwin, they end up largely scapegoating individuals. Now Bob Diamond has followed his chairman in falling on his sword. It’s just as well he doesn’t have a knighthood; he could kiss it goodbye.
Andrew Tyrie is an honourable man and will do his level best with the inquiry – if it happens. But we can already see how inadequately he conceives the task: the inquiry will be “ring-fenced” (his words) to examine what the LIBOR tells us about the culture of the City. The LIBOR scandal is being trailed by the financial establishment as precisely that: a scandal. In other words, a single disgraceful event, and in the manner of all scandals in Britain it is taking a predictable course: moralistic fulminations, and the sacrifice of a few prominent scapegoats. Morals are important; the amorality revealed in the Barclays’ e mails is shocking to normal people. And it is certainly the case that wrongdoers need to be pursued and punished. But here at CRESC, where we have been tracking the financial crisis since 2007, we have been arguing for some time that there are fundamental defects in our financial system, and that these won’t be solved by short term hunting down of scapegoats. Faced with the LIBOR scandal, politicians, bankers and regulators have responded with the traditional Claude Rains defence: like Captain Renault, the character played by Rains in Casablanca, they are shocked, truly shocked, to discover that illicit gambling has been going on in the casino of the City of London. But the problems won’t be solved by firing a few top bankers, prosecuting a few white collar criminals, or even by conducting an inquiry into the workings of LIBOR – necessary though all these are. We need to dispense with the illusion that a casino is the best way to organise the financial system for a modern economy – a truth that Keynes famously expressed many decades ago.
Content from our partners
