“I guess I’m not as cynical as you are,” Neil Barofsky, former watchdog for the Treasury’s Troubled Asset Relief Program and presently the busiest cynic caught up in the government’s entanglement with the banking business, told The Observer.
In a time when everyone seems to be cheating—and most everyone getting away with it—we’d put it to Mr. Barofsky that there doesn’t seem to be much percentage in honest behavior. If Wall Street executives, tween idols and journalistic heavyweights are shirking the rules to get ahead, doesn’t it make sense for the commoners to do the same?
It was the third week in July, and Mr. Barofsky was promoting the publication of Bailout, his insider account of Washington’s response to the financial crisis. Three days prior, the Federal Reserve Bank of New York had revealed that in April 2008, a Barclays employee called the regulator and explained that the bank was fudging its Libor submissions. “You’d think someone would pick up the phone to the Department of Justice and say, ‘We believe there’s a global conspiracy to fix interest rates,’” Mr. Barofsky said. “Clearly no one did that.”
Of course, the Fed’s admission wasn’t a total surprise. In June, Barclays had paid some $450 million to settle charges that it had rigged Libor submissions for the short-term gains of proprietary traders, and at the behest of senior executives to halt a flagging share price.
News that the world’s most powerful regulator stood by as one of the world’s most powerful banks broke the law landed like a punch in the stomach. It wasn’t just Barclays. All summer long, the headlines bled with tales of financial perfidy. At least 10 other banks were under investigation for rigging interbank lending rates, and several had fired employees amid investigations. The founder of an Iowa-based futures broker had “lost track of” $200 million in client funds over the course of 20 years. HSBC had spent the better part of a decade banking to terrorists, drug kingpins and sanctioned nations such as Iran and Cuba.
It wasn’t just banking, either. Seventy Stuyvesant High School students caught text-messaging test answers to each other were allowed to retake the test. Journalistic wunderkind Jonah Lehrer had to be caught cheating twice before he lost his gig at The New Yorker.
The Olympics hadn’t even started yet, and everywhere we looked, people and institutions were breaking the rules and getting away with it. At some point, an honest man might get stuck on the notion that there wasn’t any point to good behavior. If everyone else is cheating, don’t people owe it to themselves, and their shareholders, to do the same? Is it possible that playing by the rules means doing a substandard job?
“It’s never that hopeless,” Mr. Barofsky argued. But we weren’t so sure.
