'PEOPLE of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." The words of Adam Smith, written in 1776 in The Wealth Of Nations, ring true today.
The email traffic published last week between employees of Barclays Bank revealed the culture of cynicism among the investment bankers who have come to dominate financial services. "I'm opening a bottle of Bollinger." The interest rate fixing scandal is only the latest in a long line of scandals that have made British banking a byword for fraud, deceit, recklessness and spivvery.
This scandal affects us all, and not just because Libor is one of the benchmarks used for setting mortgage rates. The Scottish economy is increasingly dependent on the financial services sector, yet the industry has acquired a disastrous image problem. Simply: those entrusted with our money are no longer trusted.
The very minimum that must happen now to address this sorry state of financial affairs is a full-scale public inquiry, such as has been launched into the ethics of the press under Lord Leveson. The case for this is unanswerable. To understand the full ramifications of what has been going on in the murky world of investment banking we need a judicial inquiry which can demand evidence under oath and can force individuals such as Barclays' group chief executive Bob Diamond to answer in public for what has been going on in their name.
The Governor of the Bank of England, Mervyn King, says there is no need for a judicial inquiry because the problem of "casino banking" has already been investigated by the independent banking commission under Sir John Vickers. But he is wrong. Things have moved on, and the fact that both King and Vickers were apparently ignorant of the Libor manipulation shows that these investigations have been too limited.
This may not be enough to restore public confidence in the banking system, but it would at least allow us to understand the full extent of the wrongdoing. The cost of this inquiry should not be borne by the public purse but by the bankers themselves. Perhaps some of the fines levied on Barclays et al by the Financial Services Authority could be diverted towards the cost of this exercise.
More than 4000 people have signed the Number 10 petition calling for a judicial inquiry, which has been backed by the shadow chancellor, Ed Balls. Much of what happens in the City of London is cloaked in secrecy and protected by precisely the kind of collusion that the great Scottish economist Adam Smith warned of. It is time to throw open the shutters and let in some light.
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