Phone-hacking, then rate-fixing – which industry is next?

The anatomy of a modern-day scandal.

Regardless of the outcome of the Leveson inquiry, one of the most long-lasting effects of the revelation of the phone-hacking culture in the tabloid press seems to be the creation of a blueprint for how to overhaul an industry.

In that respect, the revelation that Barclays had been systematically lying to the British Bankers Association about the rate they thought they could borrow at is just the latest step in a process that we have all been through before. Not for nothing have bankers been talking, in private and ever more frequently in public, about the Libor manipulation being a "Milly Dowler moment".

For years now – ever since the crash, but even before then – there has been widespread belief that the daily grind of a banker's life involves dishonesty. The popular understanding of the financial crisis is that it involved misselling of complex financial instruments (the infamous collateralised debt obligations, which allowed sub-prime mortgages to be sold in tranches disguising the inherent risk in owning them) causing a crash which the perpetrators didn't suffer from due to their closeness to the sources of political power. Not only were the institutions bailed out, but the allegations of widespread criminality resulted in not a single British prosecution, despite the pre-election talk of David Cameron.

Just as phonehacking was never confined just to the News of the World, despite the fact that it was their hacking of a murdered teenager's phone which brought the scandal into homes nationwide, so the Libor manipulation seems extremely unlikely to be just the work of Barclays. The Financial Times reports, for instance, that 

[Barclays] admitted that [it] understated its borrowing costs during the financial crisis because it believed other banks were doing the same.

And a post today from ZeroHedge claims that the Libor manipulation was common knowledge. "Everyone knew" and "everyone was doing it", apparently:

Everyone knew we couldn't borrow at Libor, you only needed to look at CDS to see that... with real Libor rates 3 to 4 per cent higher than the BBA's submitted Lie-bor.

The "everyone knew" defence was trotted out under similar circumstances for the phone-hacking scandal, seemingly in an attempt to minimise the perceived transgression. There at least it was easily proveable. Journalists seem to find it much harder to keep quiet about these sort of things than financiers, for some reason. So we have Piers Morgan's infamous passage in his autobiography from January 2001 revealing that:

Apparently, if you don’t change the security code that every phone comes with then anyone can call your number and, if you don’t answer, tap in the four digit code to hear all your messages.

And nearly every celebrity who has given evidence at the Leveson has given evidence of stories being published which couldn't have come from any source other than phone hacking.

In both cases, everyone did know, and it really did mean that the average person finding out afresh was less shocked. After all, if you and the fifth person in a room finding out something that everyone else already knows, it hits a lot less hard than if everyone finds out all together.

Even worse, the structure of both industries lends itself to minimising harm (harm, that is, caused to the industries). Newspapers inculcate an attitude that the scoop is all, that it should be earned at any cost and that the editors won't ask questions beyond whether it is true or false; banks want their traders to earn money and don't particularly care how its done. In each case, it is easy to pass anyone caught in the act as a rogue reporter or a rogue trader.

So in the end it takes a single, uncontrovertible piece of evidence to shake the foundations of the industries. The hacking of Milly Dowler's phone showed the nation that, even if it was just one rogue reporter, the structures that let it happen couldn't be allowed to continue; and when the thread began to be pulled, the whole thing unravelled, and the idea that it could ever have been "rogue reporters" looked laughable. With the Libor scandal, a similar process seems to be under way; the story that it was junior managers acting illegally looks unlikely to last the week, given we now know that Bob Diamond and the Bank of England's Paul Tucker had conversations which somehow metastisized into instructions to give fake submissions.

And we seem to be reaching the apotheosis of the scandal: the chancellor is expected to announce a full inquiry into Libor this afternoon, which he is hoping to keep one step short of a complete Leveson-style investigation.

The uncanny similarity between the two events raises two questions: can we handle them better? and where is the next one coming from?

After all, the idea that endemic criminality in an industry can just be "talked out" seems absurd; and yet it is looking less and less likely that the Leveson inquiry will result in anything other than a light being shone on the industry. Damaging for those used to operating in the dark, but a far cry from justice. And holding a Leveson-style inquiry up as the best outcome for the Libor scandal, when we don't even know how the Leveson inquiry itself will end, seems foolish.

But the bigger question should be attempting to pre-empt the next scandal. We don't have to leave it until the event which shocks everyone into action, if we learn to recognise the signs. Large amounts of independence on the ground, a culture that emphasises no-questions-asked successes, and the dismissal of anyone revealed to be acting out of line as a "rogue" element are the warnings we should be looking out for. And personally, if I were the Metropolitan Police, I would be wondering who my Clive Goodman is going to be. 

 

Former News International Chief Executive Rebekah Brooks leaves her lawyer's office in London. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.