Since at least the time of my graduate training in history, I have been interested in the question of how legal, regulatory, financial structures affect people, how they shape behavior, and how they can facilitate or impede prosperity.  Partly for that reason, I wrote a dissertation concerning the activities and impact of mutual aid societies on the lives of English working men and women, prior to the foundation of the British welfare state.

Now that I am an archivist, I retain an interest in these topics, but with the twist that I also like to keep tabs on how records about financial history are generated, used, saved, uncovered, preserved, and used.  I typically spend  a portion of my lunch hour reading about economic topics.  For the most part, these topics are documented via the ephemeral communication formats used in modern society: blog posts, PDF reports, tweets, instant messages and—especially—email messages.  The news regarding our economic problems provides a strong rationale for society’s need to identify and preserve records that have permanent archival value.

To date, I have seen no greater evidence of this fact than the LIBOR scandal and the alleged crimes that allowed that scandal to develop.   I would even go so far as to say unless sufficient evidence regarding LIBOR manipulation is preserved, we will never understand the true causes of our current economic problems, much less be able to fix them in a way that will prevent them from happening again.

If you haven’t heard of the LIBOR scandal, it involves the falsification of information concerning the interest rates at which 18 ‘megabanks’ borrow money from each other.  Here are some sites I’ve found particularly useful in wrapping my head around what this scandal is all about:

The fact that an interest rate was manipulated sounds like an arcane piece of financial news.  (The scandal has not been heavily reported in the US media, but it caused a firestorm in Britain.) But given what I have read, it is possible that the scandal will continue to grow, and become bigger and bigger news over the summer.

If you read each of the above pieces carefully, you will find that a small number of people engaged in self-dealing at a systematic, global scale, without any effective check on their power–exactly the type of situation our founding fathers warned against.  The fraudulent behavior of financiers and banks potentially harmed billions of people: anyone who has borrowed or lent money over the past ten years.  LIBOR is one example, but how many others lie waiting to be uncovered?

Many Americans (Tea Party Members and 99%’ers alike) feel that the financial system and economy are rigged against them. LIBOR shows one specific way that they are correct, in the most fundamental way.  It also shows that our governments have no way to prevent future scandals of a similar nature and that that nothing of substance has changed since the 2008 financial crisis.

The scam worked like this: banks falsely reported information used to calculate a benchmark interest rate, a rate against which against which over 500 trillion dollars of other securities are priced. They conspired to report either higher or lower interest rates than they were actually paying.  This allowed them to falsely price securities to their own advantage, instead of allowing rates to be calculated on the open market.  They may even have shaved fractions of a percentage of interest from those other securities, to benefit the bank as a whole or an individual trader, to the detriment of everyone else.

Anyone who holds a mortgage, a municipal bond, a derivatives contract on a future bushel of corn, or any other security pegged to LIBOR was potentially harmed.   As a result of this activity, Barclay’s bank has already paid a fine of $455 million dollars, and the other banks are being investigated.

As several of the authors above argue, the LIBOR scandal lays bare the corruption of the the global system on which modern finance and financial contracts are based.  The lack of mainstream media attention to these events does not obviate the fact that they took place, and that similar events will continue to take place unless those responsible are brought to justice and the financial system is repaired.

For that reason, it is interesting to note that much of the evidence concerning these incidents is drawn from email.  The legal pleading submitted by the Commodities Future Trading Commission and leading the the Barclays fine makes this clear.  A portion of the evidence cited in the report, particularly as it relates to trades directed by senior managers is drawn from recorded phone messages, but most evidence regarding daily manipulation, to benefit Barclay’s trading position, comes from email records of individual traders, who became so blaze about their behavior that that even set calendar reminders to themselves so that they would not forget to submit fraudulent reports.

Kind of make you wonder how other banks, the Federal Reserve, and other organizations are managing their email and instant messages, doesn’t it? Wouldn’t that be the kind of thing that might be of interest to a congressional committee—if our political system were ever able to muster up the courage to investigate the banking industry like Ferdinand Pecora did in 1932?


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