Justin's Political Corner

London—As lies go, none is greater than the one that suggests banks are capable of “self-regulation.”

Given authority over their own affairs, through fantasies such as “self-reporting,” CEOs, CFOs and COOs who travel in limousines, wear very expensive suits and give to all the right charities will do what comes naturally to them: lie.

Indeed, they will engage in practices so deceitful that, the governor of the Bank of England, Sir Mervyn King, says they “meet my definition of fraud.”

King’s level of bluntness with regard to the scandalous behavior of international bankers has yet to enter into the mainstream discourse of the United States, where most politicians (with notable exceptions such asformer New York Attorney General and Governor Eliot Spitzer and Congressman Dennis Kucinich) remain determined to do the bidding of their Wall Street paymasters—and where most media can’t be bothered to cover stories about the costs these cozy relationships impose of society.

But the conversation about crooked banks and lying CEOs is getting more interesting in Britain—so much more interesting that it is all but certain to have an impact on the United States. Why sort of impact? Hopefully, it will be a recognition that the so-called bank reforms of 2010 were, as former Senator Russ Feingold, Congresswoman Marcy Kaptur and others suggested, dramatically insufficient.

Teddy Roosevelt was right when he argued that strict regulation was needed to prevent the bad players of the private sector from creating monopolies so over-arching that they could destroy not just competition but—through their exercise of political and media power — democracy itself.

Roosevelt’s observations take on a new urgency with each news report from Britain, a country that has been shocked into something akin to consciousness by the revelation that some of the biggest banks in London (and the world) had—when given leeway to manage information critical to the functioning of financial markets—cheated. They filed false information to, in the words of London’s Independent newspaper “help mask losses and help improve their own financial positions.”

Obviously, this is not just a British problem.

The scandal has spread to the United States, with the revelation that key US players such as Treasury Secretary Timothy Geithner knew about the potential for massive wrongdoing by big banks. When he headed the New York Federal Reserve in 2008, Geithner alerted British authorities to the prospect that banks might be “deliberately misreporting” Libor submissions.

Unfortunately, Geithner’s warnings did not lead to action that might have averted the deliberate misreporting. 

Geithner now faces questions about what he knew and when he knew it, and about whether he followed up sufficiently on his 2008 warning. Inquiries about due diligence will become incredibly significant, as investors lost tens of billions of dollars as a result of the manipulations by the men who manage the false constructs that we refer to as “too big to fail” banks. (Despite the claims made about the banking reforms implemented in 2010 by Congressional Democrats and the White House, the “too big to fail” threat remains; which is why Feingold and other serious reformers opposed the legislation.)

Federal Reserve chairman Ben Bernanke on Tuesday admitted to Congress that the Libor system is “structurally flawed.” Inconveniently for Bernanke, he is giving his semi-annual report to Congress this week. He told the Senate Banking Committee Tuesday morning that the whole scandal has undermined confidence in the financial services industry.

In Britain, this will require a radical remake of the Libor system. In the United States, it can and should begin with the restoration of the Glass-Steagall Act and other regulations that were scrapped at the behest of the banksters and that now must be restored at the behest of the American people.

h/t: John Nichols at The Nation