London
A political farce is playing out in the corridors of power in Britain against the backdrop of a double-dip recession and increasing desperation of citizens bearing the brunt of the economic downturn. The giant private bank, Barclays, has been charged by financial regulators in the US and the UK of fixing two crucial interest rate mechanisms — the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (Euribor). As with previous exposes of manipulative behaviour of elite financial institutions, Barclays has been slapped a fine of £290 million which the bank is happily paying as one more operating expense for conducting business.
No criminal prosecutions are in the offing and no individuals in Barclays are heading to jail for tampering with basic structures that determine the cost of borrowing for everything from home mortgages to student and car loans.
The law, say the politicians in power in the UK, cannot apply retroactively and the bankers and traders at Barclays did not specifically violate the laws of the time when they were colluding with compatriots in HSBC, the Royal Bank of Scotland, Citigroup and UBS to falsify the interest rates in order to make oversized profits from derivatives and to artificially inflate their own creditworthiness. It was pure, unadulterated self-interest of these investment banks as a whole, buttressed by naked greed of their trading divisions and managers in particular, whose bonuses would swing up or down depending on the volatility of LIBOR. Yet, the long spell of financial deregulation that commenced in the time of Margaret Thatcher and Ronald Reagan ensures that no banker is likely to face criminal proceedings. The markets are designed to be rigged by the big fish who continue to stay above the law.
The latest skeleton to slip off the financial sector’s cupboard has kicked off a parallel political scandal in the UK, with the ruling Conservative Party accusing its predecessor, the Labour Party, of enabling a few big bankers to toy with benchmark interest rates that are theoretically meant to be determined by the overall demand and supply for money globally. Labour’s deputy chief whip in the House of Lords then went on to admit guilt by blurting out, “Yes, it’s our fault. I hope my leaders don’t hear me say that.” That single unguarded revelation tells the tale of why the global economy has been in a tailspin since 2008 and why there is no chance of recovery. The centre of gravity in the political spectrum in advanced economies has shifted so much to the Right in the last three decades that there is no mainstream party which stands on the side of common people against the financial sharks.
Under a revamped leadership, the Labour Party is now attempting to reclaim the space to the Left of the spectrum that had been lost during the era of Tony Blair, but this has not translated into radical opposition to the high street financial oligarchs who are the de facto rulers of the economy. There is some huffing and puffing in the Labour Party against bankers each time a scandal breaks out, but the degree to which polities in the Western world have been enmeshed in corrupt relationships with the financial sector means that there are defined limits to the radicalism of parties. The Labour Party may rhetorically claim that it is inching back to its socialist ideals of upholding trade unions and workers’ rights, but we know from the past that this hot air has not been accompanied by a systematic cleanup of the moneyed vested interest groups in the City of London area.
Over the last week, a routine question I heard among ordinary Britons, who are chafing at the audacity of the banks to ruin their lives and still keep popping the champagne bottles, is: “What will the government do to rein in the financiers?” There needs to be a contrapuntal to this — What will the people do? Citizens in advanced economies have in the past been badly divided on racial identity lines and on public policy grounds (welfare recipients versus taxpayers who shoulder the former’s burden). Simultaneous to the Barclays interest rate scandal, British Prime Minister David Cameron was drumming up support for slashing social welfare spending as part of the overall mantra of austerity. I found that many working class British people supported this downsizing of the state’s role as a provider of the disadvantaged due to the belief that “too many undeserving, lazy folks live off taxpayer expenses”.
Austerity is working nowhere in Europe, but popular opinion has been sufficiently gamed to justify using the language of “fiscal responsibility” and balanced budgets. Economist Paul Krugman’s new book, End this Depression Now! argues that the only way advanced economies can pull themselves back to recovery is through massive state stimulus spending to succour the middle classes and the jobless. But racist stereotypes about “welfare queens” and news stories about how the state is sheltering and feeding worthless groups of people are giving neoliberal actors like the bankers and investor community a much-needed ideological cover to bounce back during this economic crisis.
There is an intrinsic link between the Conservative Party’s efforts to break down Britain’s welfare state and the supremacy of the banking elites in the City of London. The key phrase which connects the two is “market confidence”. The large banking conglomerates in the West prefer small governments which are incapable of collaring the financial sector. Every bit of austerity policies being applied in Britain and other recessionary countries is aimed at further weakening the capacity of the state to have a stake in running the economy. Social movements like Occupy Wall Street and Occupy London will need to launch a massive counter-campaign of their own on behalf of the rights of citizens to prevent the financial industry from railroading politicians into
deeper and deeper austerity quagmires.
So, what do the people need to do now, with governments in thrall of big banks and consistently failing to bell the financial fat cats? The Western world, plagued by crisis, is ripe for the formation of new political parties and for social movements that are permanently mobilised to apply pressure. Historically, parties have been formed as reflections of deep social cleavages on class and identity lines. The intense polarisation being generated by the economic crisis since 2008 is fertile soil upon which new parties can arise, or, where possible, old parties that abandoned pro-people ways can be rebuilt. This work has to go on simultaneous to the protests and sit-ins against banking oligarchs that are now regular features across the economically-distressed West. Social institutions that hold governments accountable and banks under check are age-old necessities, but their need has never been more crucial than now.

The author is a professor and dean of the Jindal School of International Affairs