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Barclays' Bid-Rigging Deja Vu

Stocks in this article: BCS

NEW YORK ( TheStreet) -- We're in the middle of what I would call an "uncomfortable anniversary" -- the anniversary of an event that the so-called financial-services industry would like to forget, and usually does so without any difficulty.

In 1991 and '92, Wall Street was rocked by a tawdry scandal at Salomon Brothers, in which bond traders rigged the auctions for two-year Treasury notes.

In commemoration, Barclays is staging a lavish re-enactment.

The bid-rigging scandal that has rocked Barclays, involving manipulation of the benchmark LIBOR interest rate, has stunning parallels with the scandal that eventually brought down Salomon. Probably the most significant is the moral dimension, or lack thereof. Both demonstrate that, in their heart of hearts, some of the most august investment houses have the morals of a $20 hooker. Deregulatory propaganda notwithstanding, major corporations are only too willing to flush their "reputations" down the commode if it means squeezing out an illicit buck.

Also remarkable is the parallel lessons that they teach us about systemic risk. The only solution to that perennial issue is to prevent banks from growing so large that they can wreak havoc with the financial system. Because if they are big enough to do so, they inevitably will.

In the Salomon Brothers scandal, a trader named Paul W. Mozer -- under the noses of eminent super-trader John Meriwether and the much-hyped CEO John Gutfreund -- placed illegal bids for two-year notes. The purpose was to squeeze out some illicit bucks by cornering the market and exerting a short-squeeze on traders who were short the note.

Well, as you can imagine, people who knew Mozer were shocked -- shocked! -- that he would do such a thing. He was portrayed in the media as a "soft-spoken" fellow who had the milk of human kindness coursing through his veins. Much the same was said about Meriwether, who swiftly landed on his feet, founding a hedge fund called Long-Term Capital Management that performed so dreadfully that in 1998 it almost brought down the entire financial system. I'm sure that when we find whoever was responsible for the Barclays mess, we'll find that he or she is a soft-spoken, kind person.

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