As the revelations pile up after the LIBOR rigging incident, it seems Europe and Britain are more committed to enforcement action than America. Real conservatives believe fully in market capitalism, that prices must come from uncorrupted market signals. Could this start a sea-change for enforcement globally?

By Bob Dowling

If you lived in Washington in the 1970s during Watergate, you picked up the Washington Post early each morning with palpable excitement. What new revelation about the Nixon White House would leap off page one? It was a story that never died.

If you’re in the New York area this summer, there’s a similar vibe building. But this time it’s about Wall Street. What new revelation about the banks will break today? The question is no longer whether the big banks might have broken the law and cheated, causing enormous economic damage to Americans and the world. The evidence is clear that they did. The question now is what else, and more importantly, whether a weak-kneed U.S. President Obama has the courage to do anything but yelp about it.

To suggest that Wall Street is a criminal enterprise is unfair to thousands who work in U.S. finance. Most Wall Streeters get in early, eat at their desks getting eye strain from screens flashing green digits, and ride the subway home tired each night, fervently hoping their bosses didn’t do something that will cost them their jobs.

But just as Watergate exposed a dark side of Washington that cast a shadow across an entire city, the bank scandals have revealed an above the law mentality emanating from the top of the world’s largest financial companies. That mentality suggests Wall Street executives believe they can personally get away with anything. If caught, the shareholders pay the fines, the bank pays for all legal fees and nobody even has to surrender the bonuses.

It’s now becoming clear to the general public that Wall Street and its counterpart, the City of London, are exceptions to almost any form of commerce in the world. From rigging the world’s most vital interest rate, LIBOR (London Interbank Offered Rate), to falsely approving mortgage documents to selling the world bogus subprime, AAA-rated securities which caused the Great Collapse, the banks and their Wall Street enablers have had a remarkable run. By paying billions of dollars in penalties to the U.S. government without admitting guilt, they have accomplished the Houdini act of admitting guilt without being personally charged for it.

As the drumbeat of revelations goes on, a new scandal seems to surface almost daily. The latest on July 11, for example, was of the attempted suicide by Russell Wasendorf Sr., the head of a mid-West commodities brokerage where regulators said some $215 million in customer funds, mainly belonging to farmers, was missing. It was a reminder of the collapse of MF Global Holdings nine months earlier, a commodities firm run by the former Governor of New Jersey and Goldman Sachs boss, Jon Corzine, a heavyweight Obama supporter who remains uncharged after MF Global lost $200 million in customer funds.

As the revelations pile up, it seems Europe and Britain are more committed to enforcement action than America. The European Union is moving toward a single banking regulator for large banks with the authority to override country heads anywhere on the continent. Unlike most American politicians who avoid directly challenging prominent bankers, European parliamentarians are becoming clear voiced.

Andrea Leadsom, a conservative member of the British parliament may have said it best when she asked the forced-out Barclays CEO Bob Diamond if he “lived in a parallel universe.” That was after Diamond said he did no wrong when his bank rigged the critical LIBOR. “This was about absolute corruption,” she replied.

So could LIBOR rigging start a sea-change for enforcement? That would be an irony, but also plausible. For the last four years of do-nothing enforcement, U.S prosecutors have said it was hard to bring subprime cases before a jury because the charges were so technical. Yet it’s been the interest rate scandal, the most technical of all the bankers’ transgressions, that has tipped the scales against individual bankers.

And it is British conservatives who are leading the way. Real conservatives, as Milton Friedman often reminded wobbly followers, believe fully in market capitalism. That means prices like interest rates must come from uncorrupted market signals. By sending in false numbers to influence the daily LIBOR, leading banks like Barclays corrupted the market, creating false pricing for trillions of dollars of other rates and transactions that hinge off LIBOR. Bank-friendly Brit Conservatives got the message. Diamond and two counterparts running Barclays had to go, forcing all three to resign under pressure.

Contrast that with President Obama, Federal Reserve Chairman Ben Bernanke and scores of U.S. prosecutors and regulators watching from the sidelines. Since the U.S mega banks also send in prices for LIBOR each day, the next revelation will be what U.S. banks did or didn’t do with their rate pricing, and if some cooked the books, what will happened to their leaders? As that action unfolds, a debate is also underway from Liberals about whether Obama’s top prosecutor, U.S Attorney General Eric Holder, a former Wall Street lawyer, is protecting the banks.

“As Evidence Mounts, D.C. Insiders Worry About Holder’s Inaction on Wall Street Crime” was the July 10 headline on a post by Richard (RJ) Eskow, a blogger who is widely followed on bank transgressions. Instead of accelerating a mortgage fraud investigation that the President promised just months ago, Eskow says Washington sources say Holder has starved the investigation of help and that it’s regarded as a PR stunt by the President.

Besides mortgage fraud, he goes on to note that Wells Fargo, the San Francisco mega bank, has been cited for laundering Mexican drug cartel money; that J.P Morgan has been cited in news stories for helping manipulate energy markets through companies like Enron and is fighting efforts in California to get emails related to the transactions. Also ignored has been evidence from a New York madam of Wall Street firms hiring her for drug and prostitution parties involving thousands of clients. So far, there is no inkling Holder’s Justice Department is assisting with any of these cases.

The big question among Obama supporters in Washington, he says is “Who, exactly, is Attorney General Eric Holder representing” implying that Holder isn’t bringing bank cases because he might want to return to his Wall Street law firm after the election. “As scandal after scandal erupts on Wall Street, involving everything from global lending manipulation to cocaine and prostitution, more and more people are worrying about Holder's seeming inaction – or worse – in the face of mounting evidence,” says Eskow.

If the Brits lead the charge on LIBOR and U.S. banks are involved, there remains a chance American prosecutors will get off their hands and feel forced to act against other big bank transgressions. At the same time Wall Streeters who might be endangered hope to run out the clock on a statue that would make them immune to criminal prosecution five years after the act.

With the U.S. Presidential election coming in November, any member of Congress could propose legislation extending the statue to 10 years. If it passed, a Democratic administration that has left all the big bankers off the hook might be embarrassed enough to finally take action. Among Liberals, it’s assumed that Obama’s expected opponent, former financier Mitt Romney, would have no interest in going after the banks.

But even that could be debatable. As British Prime Minister David Cameron showed in cracking down on Barclays, conservatives who truly believe in markets have a horse in this race too.

The expanding shadow of Wall Streetgate and LIBORgate could tell the tale.

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.