Barclays Bank saga as explosive as Higgs boson
I really tried my utmost to appreciate the importance of discovering the Higgs boson. I read the leader in The Economist and a whole sequence of similar articles out loud, word by word, in the same comprehensible tone I would recite "Angelina Ballerina" to my five-year-old granddaughter.
The best I could reason is that when protons (little bits of an atom), travelling in opposite directions at the speed of light, collide, they form a fireball of energy for a millionth of a millionth of a second before disintegrating into a gigantic shower of other particles.
I know this may be nowhere near exact, but as a financial person it's my best effort to understand the unfathomable world of physics.
That was not the only mystery I was forced to unravel last week. My other poser was trying to establish how much the British taxpayer would fork out on various commissions to prove the extent to which Barclays Bank and other (soon to be investigated) banks benefited from manipulating the London Interbank Offered Rate (Libor) and the liability for damages a wide selection of banks could face as further information of their fiddling emerged.
That's not the primary area of concern linked to the latest international banking scandal. And the monetary harm - if it can be gauged - may not be as large as the clamour suggests. Rather, it's the public's outrage at the shameless and deceitful behaviour of highly rewarded traders employed by a business entrusted to fund global trade and protect the world's savings. The unfolding drama is likely to destroy what little trust remained in the banking industry.
Libor is a daily fix that determines what investors will pay for a range of loans and what they will receive on savings deposits. It covers 10 currencies and a succession of fixed-interest maturities, from overnight to one-year.
In the mid-1980s the popularity of a variety of new interest rate instruments pressured the Bank of England to introduce a standard measure around which issuers could price these complex new products. Leading English banks formed part of a series of panels that contributed daily estimates to the Central Bank, from which they computed the published rates. In an industry whose history was built on integrity, the authorities were entitled to assume the members would play by the rules.
Yet, as the financial world has learnt to its detriment, traders will brazenly lie to turn a profit or defend a position. Dealers at Barclays bragged openly about their attempts to cheat the system and influence one of the most important numbers in finance for their own advantage.
The Financial Times carried an intriguing article at the weekend on the conduct of traders, explaining how their minds and bodies function as a single unit in times of stress. When a piece of market-moving information is released, not only do their brains respond but their body parts as well. If they're on a winning streak, hormones are generated that lift their confidence and appetite for risk. As this condition rises, though, their judgment becomes impaired, sometimes resulting in a blow-up. The opposite applies too. Losing streaks lead to heightened uncertainty, sterilising a trader's capacity to handle risk and take on fresh positions.
Having spent my entire working life on the stock exchange I am obviously familiar with the mood changes that wild swings in the market can produce and the influence these volatile movements can have on personal relationships and physical wellbeing. More times than I care to remember I have come within a hair's breadth of packing up my profession in return for a simple and uncomplicated existence on a Pacific island far away from the internet, news agencies, research reports, cellphones and the plethora of other tools used to ply our trade.
But like so many other people involved in financial markets who countenance the stresses and strains of these daily ups and downs, the thought of cheating has never been a considered option. If you lose money, opportunities always return for you to recover a shortfall. If you lose your reputation, the market never forgives you.
It falls on management to create a culture of compliance through relentless supervision and sensible care, coaching troubled dealers through the tough times but also knowing when to rein in the successful in the good times.
Allowing staff to joke openly on the trading floor about the manipulation of important data and candidly discuss their deceit in mails, as Barclays allegedly did, is destined to engulf the City of London in a blaze of controversy that will steer calls for greater vigilance and perhaps even cause the disintegration of some of the world's premier banking institutions into particles of their former existence.