The Brokers On Trial For The Libor Scandal Promised Each Other Curry And Champagne

A trial that started this week in London is revealing more evidence of the reckless frat boy culture that critics say is rampant in international banking.

Six financiers were charged on Tuesday with conspiracy to defraud in a scandal involving the London Interbank Offered Rate, or LIBOR — an interest rate big banks charge to loan each other money.

"Can you please get 3 and 6-month as high as is possible today," wrote Darrell Read, referring to different terms for loans, in a 2006 email to Colin Goodman, the Guardian reported. "We'll sort you out with a curry takeaway next week in recognition of your efforts. Thanks mate."

Read allegedly went by the nickname Nog or Big Nose, prosecutors allege. Goodman was known as Lord Libor. Referring to each other as "dudes" and "big boys," the financiers — all men in their forties and fifties — also promised each other beer, bottles of Bollinger champagne and other treats for rate rigging, the Wall Street Journal reported.

"It just confirms what was pretty obviously the case. The LIBOR system was rotten to the core," said Thomas Ferguson, a senior fellow at Roosevelt Institute. "It's a bank cartel. After all this nonsense about the increase of competition in the world economy thanks to the spread of financialization, at its heart you have a cartel. That's the big lesson of LIBOR. They can game the system and they know it."

Set daily by a bunch of bankers who submit their proposed interest rates in the morning in London, where an office then tallies an average for everyone else to use, LIBOR rates ripple throughout the Leviathan-like world economy, impacting credit cards, mortgages, commercial loans and therefore retailers, rents, business hiring, etcetera.

It's an understatement to say LIBOR is a big deal. At least $300 trillion — yes, trillion — worth of financial instruments ride on it, according to a British government report. Other estimates have pegged LIBOR's impact on the world economy at as much as $800 trillion, the report said.

The six bankers allegedly helped former UBS trader Tom Hayes set rates in ways that favored his bottom line between 2006 and 2010 — right through the nadir of the Great Recession. They're pleading innocent. In August, Hayes was found guilty of conspiracy to defraud and sentenced to 14 years in prison. He's now appealing.

American, British, and European regulators have fined Britain's Barclays, New York-based JP Morgan and Citigroup, Switzerland's UBS, Royal Bank of Scotland, Germany's Deutsche Bank and others a total of around $9 billion in the scandal, according to the Council on Foreign Relations. Then-Barclays Chief Executive Bob Diamond resigned in 2012 after the scandal erupted — an extremely rare case of a banker quitting under a cloud. In May, five of the banks pled guilty to LIBOR-related criminal charges.

The British government has since moved the guys who set LIBOR from the British Bankers' Association to the London office of the Intercontinental Exchange and beefed up regulators' oversight of the process, including keeping records of transactions rather than basing rates simply on what bankers say they would be willing to charge each other.

Those measures might eliminate the chummy system that allowed Hayes and his alleged co-conspirators to force millions of people to unwittingly pay more than they should for credit.

But Ferguson was not so sure.

He said he didn't see why bankers needed to be involved at all in setting rates like LIBOR. Ferguson asked: Why not simply task high-powered computers to track the rates banks charge each other in real-time? Why is anyone averaging interest rates when a mindless computer could do a better job more quickly?

"The thing you learn from LIBOR is that if you leave these people any discretion, they will abuse it," Ferguson said.

In July, addressing criticism of LIBOR reforms, John Grout, policy director of the British Association of Corporate Treasurers, said machines couldn't do the job of setting rates as well as humans. "It is essential judgment is not thrown out of the window [just] because it's abusable," Grout told the Wall Street Journal.

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