Under-Reported Barclays Story Reveals Two Hidden Bigger Stories

I haven't included Barclays news in the Buried Headlines because I figured that a scandal that affected nearly every loan in the world (almost $400 trillion worth) would have been front page news. I was wrong. The media have been covering the story, but not nearly to the extent they should.

To recap, Barclays agreed to a $453 million settlement with British and American regulators to resolve accusations of rigging the London Interbank Offered Rate, or Libor. This is very significant, as Libor is the benchmark for interest rates on nearly every loan: mortgages, student loans, everything. The scandal has cost CEO Robert Diamond and COO Jerry del Missier their jobs, which is big news. But there are two hidden bigger stories.

The first hidden story is that Barclays was just one of several players in the rate rigging conspiracy. You see, in order to rig its *offered* rate, the bank had to conspire with other banks. And conspire they did, with some several mega banks around the world. From BloombergBusinessweek:

U.S. and U.K. regulators found that Barclays “systematically” attempted to rig the London interbank offered rate, Libor, and the euro interbank rate starting in 2005. The two-year probe, which involves regulators on three continents, has touched as many as 18 financial institutions, including Citigroup (C), Deutsche Bank (DB), HSBC Holdings (HBC), JPMorgan Chase (JPM), and Royal Bank of Scotland Group (RBS). A dozen firms have fired or suspended traders in connection with internal probes looking at whether their employees tried to manipulate Libor.

The number of willing participants in the scheme suggests that the financial crisis did not sufficiently purge the banking industry of its unscrupulous players. Indeed, Bloomberg published Monday a story entitled There’s Something Rotten in Banking.

The second hidden story is that the settlement has opened the gates to a flood of lawsuits from institutional investors. (It would be nice to see class action suits from ordinary people who were foreclosed on or defaulted on their student loans, but that's not going to happen.) Justice for the common man aside, the complicit banks are going to get hammered, and that's going to badly hurt the financial industry as a whole, which is already one Eurozone default away from implosion. From Bloomberg:

“We expect that the cost of lawsuits related to Libor manipulation will dwarf the fines imposed on Barclays,” said Sandy Chen, a banks analyst at Cenkos Securities Plc in London, who is “penciling in multi-year provisions that could run into the billions.”

Hopefully, the media will cover these bigger stories in greater detail as they develop.