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.

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Pity the Premier League – so much money can get you into all sorts of bother

You’ve got to feel sorry for our top teams. It's hard work, maintaining their brand.

I had lunch with an old girlfriend last week. Not old, exactly, just a young woman of 58, and not a girlfriend as such – though I have loads of female friends; just someone I knew as a girl on our estate in Cumbria when she was growing up and I was friendly with her family.

She was one of many kind, caring people from my past who wrote to me after my wife died in February, inviting me to lunch, cheer up the poor old soul. Which I’ve not been. So frightfully busy.

I never got round to lunch till last week.

She succeeded in her own career, became pretty well known, but not as well off financially as her husband, who is some sort of City whizz.

I visited her large house in the best part of Mayfair, and, over lunch, heard about their big estate in the West Country and their pile in Majorca, finding it hard to take my mind back to the weedy, runny-nosed little girl I knew when she was ten.

Their three homes employ 25 staff in total. Which means there are often some sort of staff problems.

How awful, I do feel sorry for you, must be terrible. It’s not easy having money, I said, managing somehow to keep back the fake tears.

Afterwards, I thought about our richest football teams – Man City, Man United and Chelsea. It’s not easy being rich like them, either.

In football, there are three reasons you have to spend the money. First of all, because you can. You have untold wealth, so you gobble up possessions regardless of the cost, and regardless of the fact that, as at Man United, you already have six other superstars playing in roughly the same position. You pay over the odds, as with Pogba, who is the most expensive player in the world, even though any halfwit knows that Messi and Ronaldo are infinitely more valuable. It leads to endless stresses and strains and poor old Wayne sitting on the bench.

Obviously, you are hoping to make the team better, and at the same time have the luxury of a whole top-class team sitting waiting on the bench, who would be desired by every other club in Europe. But the second reason you spend so wildly is the desire to stop your rivals buying the same players. It’s a spoiler tactic.

Third, there’s a very modern and stressful element to being rich in football, and that’s the need to feed the brand. Real Madrid began it ten years or so ago with their annual purchase of a galáctico. You have to refresh the team with a star name regularly, whatever the cost, if you want to keep the fans happy and sell even more shirts round the world each year.

You also need to attract PROUD SUPPLIERS OF LAV PAPER TO MAN CITY or OFFICIAL PROVIDER OF BABY BOTTLES TO MAN UNITED or PARTNERS WITH CHELSEA IN SUGARY DRINK. These suppliers pay a fortune to have their product associated with a famous Premier League club – and the club knows that, to keep up the interest, they must have yet another exciting £100m star lined up for each new season.

So, you can see what strains and stresses having mega money gets them into, trying to balance all these needs and desires. The manager will get the blame in the end when things start to go badly on the pitch, despite having had to accommodate some players he probably never craved. If you’re rich in football, or in most other walks in life, you have to show it, have all the required possessions, otherwise what’s the point of being rich?

One reason why Leicester did so well last season was that they had no money. This forced them to bond and work hard, make do with cheapo players, none of them rubbish, but none the sort of galáctico a super-Prem club would bother with.

Leicester won’t repeat that trick this year. It was a one-off. On the whole, the £100m player is better than the £10m player. The rich clubs will always come good. But having an enormous staff, at any level, is all such a worry for the rich. You have to feel sorry . . .

Hunter Davies’s “The Beatles Book” is published by Ebury

Hunter Davies is a journalist, broadcaster and profilic author perhaps best known for writing about the Beatles. He is an ardent Tottenham fan and writes a regular column on football for the New Statesman.

This article first appeared in the 29 September 2016 issue of the New Statesman, May’s new Tories