The honest truth about dishonesty - how we lie to others and especially ourselves

Dishonesty is a fickle mistress. Alex Radzyner looks at Dan Ariely's book on the matter and looks at how it relates to the Barclay's scandal

by Alex Radzyner on 9 July 2012 12:36

On July 4, Bob Diamond, the recently deposed Chief Executive Officer of Barclays Bank, an institution tainted by the LIBOR scandal, appeared before the Treasury Committee of the British Parliament, an institution tainted by the expenses scandal. I watched on Sky News, part of News Corp. an institution tainted by the hacking scandal.

There is now in the Western world a general bemoaning of greed in the financial services industry. A lot of blame is being put on institutional and cultural factors. In a recent leader The Economist, a voice of free market capitalist reason, states: "culture flows from structure".  It does, but not exclusively. Culture also flows from predispositions inherent in each and everyone of us. 

Mr Diamond explained that there were only 14 employees at Barclays greedily acting with no thought for anyone but themselves. Somehow they did not "love" Barclays quite as passionately and selflessly as their former leader.

Their behaviour, said Diamond, had nothing to do with Barclays culture. Somewhat bizarrely he added that some of these people had been at Barclays for 25 years. To have kept themselves aloof from Barclays' culture, while working for the organisation for 25 years, shows remarkable resistance to the founding Quaker-values of their employer.

The story of the rogue 14 among the overwhelmingly wonderful 114,000, is however only one possible version of what might have happened. It is of course the one that suits Barclays and Mr. Diamond best.

What though, if the traders concerned, were not especially greedy and selfish criminals, but good people like you (and I)? Could this be conceivable?

It could. The following scenario came to my mind after reading bestselling author and social psychologist Professor Dan Ariely's new book "The Honest Truth About Dishonesty - How We Lie to Everyone - Especially Ourselves"

You are a LIBOR rate-reporter in Barclays dealing room. Your colleague, the money market trader, asks you to use your discretion and power in setting the LIBOR by raising or lowering it a few hundredth of a percentage-point from what you originally might have had in mind.

Framed this way, you don't have to think think about the few hundred million dollars this might add to his profits at the detriment of some other trader at another bank. And anyway, if the banks of the other traders with the opposite position to that of your bank's are regularly doing this too, you are redressing the balance. Isn't that only fair?

You also know that tweaking rates is not designated a criminal offence in the relevant regulations; why would that be, you ask yourself, if not to signal that it is in a "grey-zone"?

You can help your dealer-friends make more money for Barclays Bank, an organisation you "love" just as much as your boss,  Mr. Diamond. As a result of what you do, Barclay's shareholders get better returns, your dealer friends and your bosses get bigger bonuses. 

You are not acting selfishly or greedily since as rate setter you do not get any financial gain for yourself, just the gratitude of those who know that you helped them. Sure, you might even get a bottle of Bollinger champagne now and then when you help an ex-colleague who now works at another bank.

What makes this deed even more acceptable in your mind is the fact that you do not know whether tweaking your LIBOR submission will actually influence the final rate. After all the highest and the lowest submissions by all banks who submit them will be excluded from the LIBOR rate calculations. So, in effect, perhaps you actually changed nothing - and who is to tell whether even without intervention from your dealer friends you might not have given a slightly lower or higher rate anyway?

After all, rate setting is more of an art than a science, is it not? Otherwise, why would it need human intervention at all? Could it not be automatically calculated based on actual transactions? As to the ordinary people out there affected by LIBOR, if you made the rate go up slightly you were if anything helping all prudent people and pensioners with their savings. If you made the rate go down slightly, you were if anything helping people who have borrowed money by taking out mortgages and loans.

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