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Libor libel: has George Osborne defamed Ed Balls?

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Following UK Chancellor George Osborne’s apparent fingering of former Labour Government figures over the Libor affair – and his failure to either apologise or substantiate the claims, the question arises, has Osborne libelled his opposite number Ed Balls or members of the previous Labour Government?

Baroness (Shriti) Vadera has acted to ensure the media does not imply her involvement in pressing Barclays to reduce its Libor Panel submissions (she was former financial adviser to the Labour government in 2008 and had legitimately expressed the need for Libor to come down) and she has gained the deletion of a section of Question Time in which journalist Dominic Lawson repeated the Osborne claim.

Basically Osborne’s allegation is that people close to former prime minister Gordon Brown “were clearly involved” in the Libor issue – and the interview in the Spectator suggests he means they were involved in pressing for Barclays to reduce its Libor Panel submission so Libor would fall with a beneficial effect on interest rates generally.

The truth of the matter is that the Government was indeed worried about Libor and Barclays’ high submissions – and considered perfectly legitimate assistance to bring it down (explained in The still missing killer email). There is no evidence of wrongful pressure brought on Barclays by Vadera or Balls (who was Children’s Secretary at the time, not with the Treasury).

Libel is a defamatory statement in a permanent form – including broadcast in these iPlayer, YouTube days. The BBC would not be liable for Dominic Lawson’s live statement “as the broadcaster of a live programme containing the statement in circumstances in which he has no effective control over the maker of the statement” (S.1(3)(d) of the Defamation Act 1996) but probably would be liable if it kept it on a BBC website.

To prove libel it has to be shown that the statement was defamatory, that it was published and that it referred to the complainant (including that the person is identifiable if unnamed). To avoid liability the defendant must then prove it is true or “fair comment on a matter of public interest” or was covered by privilege – as Osborne’s comments in Parliament were, though not those to the Spectator. Defamation is an untrue statement that injures someone’s reputation including lowering him or her in the esteem of right-thinking members of society. On the face of it suggesting illegitimate pressure on Barclays would damage the reputations of those against whom the allegation is made.

Osborne, since the most recent revelations and testimony that fail to support his apparent implication has not elaborated or apologised, simply repeating that Balls “has questions to answer”.

Here, to give context, are some extracts from the Spectator article. It makes clear that Osborne was in a good mood as a result of the Libor scandal: “He saw almost instantly that a story that started with 14 big boys at Barclays trying to make a profit by hook or by crook could fast turn into something that threatens to destroy reputations in Westminster as well as in the City.” (Trashing reputations is what gets George Osborne up in the morning – even at the expense of a trashed economy all around him.*)

This element of the story is about failed regulation from 2006-08 when the Barclays boys were trying to manipulate Libor for profit. It is arguably fair enough to make political hay out of this sort of thing on the grounds that it happened on Labour’s watch and under Labour regulations – it is fair comment on a matter of public interest.

‘They were clearly involved and we just haven’t heard the full facts, I don’t think, of who knew what when’ – Spectator’s ‘bombshell’ Osborne quote

But the article goes further, focusing on late 2008 when the Government and the Bank of England wanted interest rates down and were concerned that Barclays was keeping them up through its Libor submissions. The article has Osborne first blaming the regulatory system for Barclays’ 2006-08 behaviour but it then goes on:

But suddenly, and far more explosively, he moves on to the political efforts to keep Libor low during the financial crisis of 2008.As for the role of the Labour government and the people around Gordon Brown, well I think there are questions to be asked of them’, he says. He starts to discuss reports that those in the Brown circle were pressuring Barclays to manipulate the Libor rate it was paying. Then he drops a bombshell: ‘They were clearly involved and we just haven’t heard the full facts, I don’t think, of who knew what when’.”

This, the Spectator goes on to say, “is a remarkable charge” – “But Osborne does not stop there.”

He continues: ‘My opposite number was the City minister for part of this period [May 2006 to June 2007] and Gordon Brown’s right-hand man for all of it, so he has questions to answer as well. That’s Ed Balls, by the way’.” For these last words, Osborne leaned close to the reporter’s microphone, we are told.

Thus the two issues become conflated, apparent failure of regulation, alleged pressure on Barclays to manipulate Libor. The Spectator is clear that none of this is “the usual political point-scoring” but “crucial to Osborne’s electoral ambitions”.

The potential libel, then, is specifically about 2008 and centres on the words “they were clearly involved”, meaning Labour Government figures. The Spectator wonders whether Osborne “intended to bring into question Balls’s defence that he couldn’t have known about any-rate fixing as he was Secretary of State for Children at the time”.

No defence
The fact that Osborne has not named those “clearly involved” would be no defence to a libel action if people such as Vadera or Balls were clearly identifiable as the target of the allegation. Vadera
is, arguably, identifiable, which, one might assume, is why she has taken action against the media to stop repetition of the untrue claim – libellous if deemed to be damaging to her reputation.

Balls, given his Children’s brief at the time, is less identifiable – except that Osborne seems to bring him into the frame as Brown’s “right-hand man for all of it” – meaning the whole period of 2006 to 2008. The Spectator suggests Osborne is seeking to undermine Balls’s Children’s Secretary defence – but that is not the same as Osborne actually pointing the finger at Balls regarding alleged government manipulation attempts.

This leaves Alrich in some difficulty. The burden of the allegations has been reproduced here. Repetition of someone else’s libels is still libel – even, in many cases, if you make clear you don’t believe it. All being well, though, a defence of “fair comment on a matter of public interest” will put paid to that.

There is, however, also a danger of suggesting that the Spectator, rather than Osborne, has committed a libel by its contextualising commentary on what Osborne said – implying it was directed at Balls by undermining his Children’s Secretary defence and implying it relates to the untrue claim of government pressure on Barclays rather than the just the regulatory background to Barclays’ Libor manipulation.

The answer to that would be that the man on the Clapham omnibus reading the Spectator (if he still bothers, rather than picking up a free copy of Metro like most people) would indeed draw that conclusion from the words published.

If Osborne did mean to point the finger at Balls, the Spectator’s implications that he did are not untrue – but the substantive allegation remains (we believe) untrue. The Spectator would be on the hook for publishing the claims even though they are Osborne’s. On this reading, the “bombshell” bit of what Osborne said was libellous and the Speccie should not have published it.

One suspects Osborne will rely on some of this for his own defence. He will insist that nothing he actually said explicitly or impliedly suggests Balls approached Barclays or was involved in a decision to approach Barclays to push down Libor. His attack was more of a scattergun affair justified as political knockabout or “fair comment on a matter of public interest” ie comment on the regulatory failure.

However, he has had ample opportunity to clarify which allegation he is making and has failed to do so. So what can be concluded with any safety? Perhaps we may use Osborne’s own formulation: the whole issue leaves him with questions to answer.

*Note: This, on the face of it, shocking suggestion – that Osborne cares more about scoring points against his opponents than dealing with bankruptcies, unemployment and rising poverty in Britain. It qualifies as a statemnt likely to bring him into “hatred,  ridicule and contempt”, according to the libel law formulation. Fortunately we are able to ridicule politicians, not merely because they are very often ridiculous, but also because “mere vulgar abuse” is accepted and excepted under libel law.

A more detailed look at the legal issues, including relevant cases, is here
See also the Defamation Bill 2012 PDF version, 113KB


Barclays, Libor and the still missing killer email

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The political row about Libor and UK Chancellor of the Exchequer George Osborne’s attempt to suggest the previous Government tried to manipulate it  becomes more bizarre in the light of emails we now have on the issue. Coupled with the testimony of the Bank of England’s Paul Tucker, they raise the question: “Has Osborne libelled Labour politicians about their involvement in Libor fixing?”

Osborne has tried to conflate two things: the perfectly reasonable concern that the Bank of England and Labour Government had that interest rates in 2008 were too high; and the practice of trying to manipulate Libor by Barclays “submitters” from 2005 to 2008 in favour of Barclays traders who had taken risky positions on interest rates via derivatives or swaps or other arcane financial instruments.

On the latter: there are supposed to be Chinese walls between the submitters and the traders. Each morning the submitters for the banks on the Libor panel are supposed to produce their honest assessment of the short term rate at which other banks will lend to their bank. They are answering the question: “At what rate could you borrow funds, were you to do so by asking for and then accepting inter-bank offers in a reasonable market size just prior to 11 am?” The submission is put in independently without seeing the other banks’ rates.

The answers are received by Thompson Reuters who aggregate them and put them through a formula (including ditching the outliers – the top and bottom quartile figures), and the resulting Libor (London interbank offered rate) is then published.

Desperate
The submitters’ rates are based on their perceptions of what the right answer will be, not on actual transactions; they do not know whether, at the end of the day, they will have surplus funds to lend to other banks or be in deficit and so have to borrow. It reflects how secure the banking system is seen to be. The higher the rate, the more risky a bank’s creditworthiness, the lower the rate, the less risky.

The rate has knock-on effects on all sorts of other interest rates – which is why the traders in another part of Barclays are interested in it. If, for example, they are (in effect) betting on interest rates falling and they can get their chaps, for the odd bottle of Bolly, to massage down the figure submitted from Barclays, that will have a small but significant effect on the aggregated Libor rate. As a result, the interest rates our trader is interested in will go down (only slightly – we are talking big profits out of tiny movements in rates). The trader cashes in, Barclays raises its profit and the trader preserves his bonus for the year – and possibly his job.

That’s why some of the emails from the traders to the submitters were pretty desperate. If the interest rate market went against them, they could be in deep trouble. And it is this for which Barclays was hit by a £290m fine.

All this is quite a separate issue from the 2008 correspondence between Barclays and the Bank of England apparently prompted by the Cabinet secretary, Sir Jeremy Heywood.

The email we now have that sets out the position most clearly, indicating the issues at stake, is that between Heywood and Bank of England Deputy Governor Paul Tucker of 26 October 2008.

“There is no incentive for lenders to offer funds after 10.30 at or below Libor when they know two banks continue to pay above Libor throughout the remainder of the day.” Email from Jeremy Heywood

There had been turmoil in the financial markets, Britain and the world was staring into the abyss – depression and potential financial collapse. The Government, unsurprisingly, was interested in interest rates and would want Libor to be falling – that would indicate confidence in the banking system and also lead to lower interest rates generally for businesses and those with mortgages, all of which would help get us out of the crisis all the quicker.

The email notes that rates in America were falling, but Libor was not – or at least it was falling too slowly. Two banks, Barclays and RBS, were apparently bidding it up. “For example, on 23 October 3-month Libor fixed at 6.005%,” says the email. “RBS continued to bid 6.050% through the remainder of the day.” In other words RBS was defying the Libor Panel with a higher rate after Libor was set at 10.30 that day. “There is no incentive for lenders to offer funds after 10.30 at or below Libor when they know two banks continue to pay above Libor throughout the remainder of the day.”

For whatever reason, Barclays and RBS were willing to go out on a limb and borrow at above Libor.

At this time too the 2008 Credit Guarantee Scheme (CGS) was in play. This was, in effect, a guarantee of government money available for banks to borrow if their liquidity looked like drying up in the crisis – so they could keep on lending.

Speculative
But it came at a price. The Heywood email notes that the CGS rate of interest, including fees, would be higher than Libor and speculates that Barclays was willing to borrow on the money markets at above Libor because “avoiding the CGS signals that banks using the Interbank market need no government assistance in borrowing”.

It then speculatively proposes a scheme to set CGS at slightly below Libor at a price based on a Dutch scheme where fees are set at what might have been reasonable for 2007-08 but excluding the September turmoil (which had pushed the price up).

This is very far from asking Barclays to manipulate Libor down.  Quite the opposite. It actually acknowledges that Barclays might have had good market reasons, from its point of view, for bidding Libor up. Quite naively perhaps, in the light of what we know now, it does not suggest Barclays might have had an interest in gaming the system.

What we don’t have here is the killer email from Ed Balls, Children’s Secretary, (for that is what he was at this time) pleading with Barclays: “My people are hurting; for God’s sake bring that Libor rate down so that I can put food into their little mouths.”

Paul Tucker has now “absolutely” denied  seeking to manipulate Libor and denied any ministers suggested it.

Osborne is at least naïve but more likely deviously trying to rewrite history and misinterpreting the meaning of words to construct a stick to beat the Labour Government with. He is the arch-manipulator here.

It beggars belief that the Government in the fraught times of 2008 would close its eyes, sit on its hands and not ask questions about why Barclays was bidding up Libor. If it knew why, it might be able to help out. That is what the emails actually show.

So has George Osborne libelled Balls and Baroness (Shriti) Vadera, former financial adviser to the Labour government? This issue is considered in a supplementary posting: Libor libel: Has George Osborne defamed Ed Balls

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