Barclays scandal: Should bankers take lessons from mafia?

London was stunned this week by revelations that Barclays and as many as 15 other major banks had rigged the world's most important global interest rate for years.
Even the Financial Times, the city's hometown paper, has given up on the bankers: now the editorial page is saying they can't be trusted, full stop. "Today's banks represent the incarnation of profit-seeking behaviour taken to its logical limits," wrote Martin Wolf, the FT's resident economist, "in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with."
Yet despite the credit crisis, despite the public revulsion at undeserved bonuses, despite political pressure, the banks just don't seem to learn.Frustrated by the news that Barclays had paid a £290 million ($455 million) fine as a settlement for years of participation in a price-fixing scheme to manipulate the London Interbank Offered Rate (Libor), the FT has even called for the resignation of this whole generation of bank executives - a sort of Cultural Revolution of the financial sector.
But what would that change? After all, some criminal organisations have existed for hundreds of years, despite the best efforts of judges and prosecutors. You might send a few godfathers to jail, but the organisation remains intact.
The conventional wisdom is that a better system should take care of some of the trouble. "Transparency is the answer to the problem," says R Christopher Whalen, a US bank analyst. "This is banking, keep in mind, so a certain degree of larceny is a given."
To cut down other kinds of risky behaviour, others have suggested ring-fencing depositors' money from trading capital, but Lawrence White, a professor of finance at New York University's Stern School of Business, argues that this wouldn't actually prevent banks from making enormous, system-crashing bets.
Maybe it's time to take a different tack. Institutions that blow up every decade or so lack the kind of stability people have a right to expect from a criminal class. Instead of trying to work against the grain, policymakers might do well to consider another tactic entirely: help this organised crime syndicate become a bit more organised.
Institutions that blow up every seven or eight years are not sustainable. True, manipulation of world interest rates over a period of seven or eight years is quite a caper, but in the scheme of things, that's just a startup business. After all, some criminal organisations are models of corporate governance: the Yakuza in Japan go back to the 17th century; the Sicilian mafia goes back to the mid-19th century.
An Offer You Can't Refuse
The analogy is not as much of a stretch as it might seem. Mobsters and banksters, as the Irish call them now, actually have more than a few things in common. They like offers you can't refuse. In the mafia's case, this is a fairly straightforward threat of bodily harm.
Among the banks, being 'to big to fail' does them one better - play ball or I'll go out of business and cause a global financial meltdown that could send us back to the Middle Ages. They often share the same fondness for snappy suits. The lime-green tie former Barclays' CEO Bob Diamond wore to his parliamentary grilling notwithstanding, the two groups tend to dress for success.
They also like nicknames and salty, violent language. The best investment bankers' quotes typically can't be printed in a family newspaper. Michael Lewis, in his book Liars' Poker, recalls the speaking style of his instructor this way: "His world was filled with copulating inanimate objects and people getting their faces ripped off."