:00:08. > :00:11.to make it possible for dad. Tonight on Newsnight Scotland, more
:00:11. > :00:14.trouble for the Royal Bank of Scotland, as they are subpoenaed in
:00:14. > :00:19.the US over the fixing of interest rates. Could scandals at the banks
:00:19. > :00:22.end up having a severe effect on the economy?
:00:22. > :00:27.And we explore how both tenants and landlords fear losing out in the
:00:27. > :00:30.housing benefit reforms. Good evening. Over the past four
:00:30. > :00:33.years, the banks have given us many lessons in greed, incompetence and
:00:33. > :00:37.recklessness, and in the process, they almost brought the world
:00:37. > :00:39.economy to its knees. But being stupid and avaricious is not the
:00:39. > :00:42.same as being criminal, and until recently, the bankers could console
:00:42. > :00:52.themselves that while many of them were fired, by and large, they
:00:52. > :00:56.
:00:56. > :01:02.weren't accused of being crooks. The latest banking scandals have
:01:02. > :01:09.changed all that. There have been accusations against HSBC of
:01:09. > :01:14.allowing money laundering by good cartels. And Standard Chartered has
:01:14. > :01:22.just agreed to pay the authorities in New York A $340 million fine for
:01:22. > :01:26.breaking sanctions against Iran. At first sight, the ongoing inquiries
:01:26. > :01:31.into manipulation of LIBOR may seem a more abstract and technical
:01:31. > :01:36.matter. But it isn't. The London interbank offered rate, to give it
:01:36. > :01:40.its full title, is the interest rate which determines how much
:01:40. > :01:43.banks have to pay other banks to borrow money. It played a starring
:01:44. > :01:48.role in the financial crisis, which started when interbank lending
:01:48. > :01:52.seized up. The latest scandal, which erupted at Barclays Bank
:01:52. > :01:56.early in the summer, concerns another aspect of LIBOR. The rate
:01:56. > :02:00.is set each day by banks telling a committee how much they have to pay
:02:00. > :02:06.other banks to borrow from them. The rates are then averaged out to
:02:06. > :02:11.give the LIBOR rate. The allegation is that some banks lied about their
:02:11. > :02:17.trades in an attempt to manipulate LIBOR. That is a big deal,
:02:17. > :02:21.particularly in the United States, where there are almost 1 million
:02:21. > :02:26.mortgages where what householders pay depends on LIBOR. But LIBOR
:02:26. > :02:30.influence is much more than that. Something like 800 trillion dollars
:02:30. > :02:34.of trades are dependent on it. That is a lot of people with a grievance
:02:34. > :02:39.if it turns out that the rates were manipulated. Barclays has already
:02:39. > :02:43.been fined, but it has been known for months that that was just the
:02:43. > :02:50.start. RBS has already sacked people over the LIBOR scandal, and
:02:50. > :02:54.has said it expects to face a huge fine in the UK. In fact, listing
:02:54. > :02:58.major international banks are not involved in this would be quicker
:02:58. > :03:01.than listing ones which are. I am joined from Edinburgh by the
:03:01. > :03:04.financial journalist Ian Fraser, who is writing a book about the
:03:04. > :03:10.Royal Bank for publication next year, and by Ray Perman, whose book
:03:10. > :03:15.on the downfall of HBOS is out next month.
:03:15. > :03:20.Ian Fraser, on these latest investigations, it is interesting
:03:20. > :03:25.that they have been carried out by two of the states in America,
:03:25. > :03:29.Connecticut and New York. Presumably, if they claim they are
:03:29. > :03:34.acting on behalf of borrowers and investors in their state, then just
:03:34. > :03:40.about every other state could follow suit? That's right, this
:03:40. > :03:44.could be the tip of the iceberg for US investigations into LIBOR. There
:03:44. > :03:48.seem to have been many different investigations are under way in the
:03:48. > :03:53.US. There is also the Department of Justice and the Federal Bureau of
:03:53. > :03:58.Investigation. There are a number of other federal bodies which are
:03:58. > :04:03.looking into it. And the possibility of so-called class
:04:03. > :04:08.actions, where individuals take action? To come fern macro, there
:04:08. > :04:14.are about 280 lawsuits which are either under way or planned in the
:04:14. > :04:21.US against banks which manipulate the LIBOR rate. Ray Perman, if you
:04:21. > :04:29.are a bank, how do you react to this? It is starting to look as if
:04:29. > :04:32.there are almost unlimited potential penalties to this. Royal
:04:33. > :04:37.Bank, where Stephen Hester, the chief Executive, made a statement
:04:37. > :04:41.on this a couple of weeks ago, the banks have been trying to say it is
:04:41. > :04:47.a few individuals and it was never corporate policy at the back and
:04:47. > :04:54.they didn't know about it. It was rogue traders. The Royal Bank has
:04:54. > :05:02.fired four people. That will come unstuck if the prosecutors in New
:05:02. > :05:06.York and Connecticut can prove that somehow, the bank knew about this.
:05:06. > :05:09.In one of the cases of the executives far by the Royal Bank,
:05:10. > :05:15.he is taking action for unfair dismissal against the bank, saying
:05:15. > :05:20.everybody knew about it. It is fraught with problems for the banks.
:05:20. > :05:25.Ian Fraser, the fact that Barclays agreed to pay a penalty, presumably
:05:25. > :05:28.does not do them any favours when it comes to this any more than
:05:28. > :05:33.standard chartered agreeing to pay a penalty does their case much
:05:33. > :05:43.good? A think Barclays were hoping that if they collaborated with the
:05:43. > :05:46.authorities, like UBS is also doing, ie to provide evidence, it believed
:05:46. > :05:51.that by doing this, it would suffer less reputation of damage and
:05:51. > :05:56.possibly receive lighter fines. It also negotiated immunity from
:05:56. > :06:01.criminal prosecution in the US alongside that settlement. So
:06:01. > :06:11.Barclays may have played this, with the benefit of hindsight, quite
:06:11. > :06:12.
:06:12. > :06:14.cleverly. RBS is not collaborating to the same extent. It is in a
:06:14. > :06:19.dispute with the Canadian authorities about handing over
:06:19. > :06:23.evidence, including e-mails and text messages. What is your sense
:06:23. > :06:31.of how big this could be? Some are describing this as the tobacco
:06:31. > :06:36.moment for the banks. Damian that when proof was provided of the
:06:36. > :06:40.connection between lung cancer and cigarettes, tobacco companies were
:06:40. > :06:45.opened up to multi-billion-dollar lawsuits. Ian Fraser, do you think
:06:45. > :06:50.this could be a similar moment for the banks? It probably is. It is
:06:50. > :06:54.the end of an era for the banks when they were basically given
:06:54. > :07:02.carte blanche to do whatever they wanted by regulatory judicial
:07:02. > :07:06.authorities. 27th June 2012 will be a moment in history when that era
:07:06. > :07:14.of lax regulation, when banks believe they were above the law and
:07:14. > :07:19.could do what they wanted, came to to be seen whether that will be the
:07:19. > :07:25.case. Ray Perman, every other aspect of this financial crisis
:07:25. > :07:30.that has been rolling since 2007 has had bad implications for the
:07:30. > :07:34.economy. I wonder if this could, too. Many may not feel much
:07:34. > :07:39.sympathy for the bags having to pay fines, but when those fines run
:07:39. > :07:44.into billions of dollars, as they already are and could go much
:07:44. > :07:48.further, it will not make it any easier for the banks to lend money?
:07:48. > :07:52.No, and it will take the attention of the chief executives of banks
:07:52. > :07:57.away from what they are supposed to be doing, which is lending money to
:07:57. > :08:00.the economy. But the fines are only the tip of the iceberg. As you
:08:00. > :08:05.mentioned, there is a huge number of people who could have lost out
:08:05. > :08:10.from having the LIBOR manipulated. They could take action against the
:08:10. > :08:14.banks. There could be civil actions rolling on after the regulatory
:08:14. > :08:19.actions and after the judicial inquiries. So this is a Tobacco
:08:19. > :08:23.moment, you agree? It could be hugely disastrous for the banks and
:08:23. > :08:28.go on for a long time. In the short term, Ian Fraser, something will
:08:28. > :08:36.have to be done about LIBOR, given that 800 trillion dollars' worth of
:08:36. > :08:39.investments rely on it. The whole system, it seems, was based on the
:08:39. > :08:49.possibility of trust, and it is no longer possible to trust the people
:08:49. > :08:50.
:08:50. > :08:55.LIBOR will have to be replaced, and an alternative system is being
:08:55. > :08:58.sought out and one of those looking for it gave an announcement and
:08:58. > :09:05.said it should be based on actual trains rather than imaginary ones.
:09:05. > :09:09.That in itself would be a positive step. The trouble is that there are
:09:09. > :09:14.a lot of legacy issues relating to LIBOR and Ray Perman has raised
:09:14. > :09:18.those, possibly 800 trillion - a vast amount of derivatives and
:09:18. > :09:22.contracts which depend on that rate. A lot of people who took out those
:09:22. > :09:28.contracts believe they have been cheated and conned by the banks.
:09:28. > :09:31.will have to leave it there. The UK Government is currently
:09:31. > :09:35.overseeing the largest overhaul the welfare system for a generation.
:09:35. > :09:38.One of the biggest target for the Department of Work and Pensions is
:09:39. > :09:47.they amount they pay out in housing benefit. They are bringing in a new
:09:47. > :09:52.system which will give new tenants some tough choices.
:09:52. > :09:57.# I light the fire, you place the flowers in the bars.
:09:57. > :10:02.Having a roof over our head is seen as a basic human right but what if
:10:02. > :10:12.we cannot afford the rent for that room?
:10:12. > :10:17.
:10:17. > :10:20.# Our house is a very, very fine William that Salonen is probably
:10:20. > :10:27.warranted one-bedroom flat and for the last decade, he has been his
:10:27. > :10:30.mother's main carer when he moved into this flat. He is on
:10:30. > :10:34.jobseeker's allowance so housing benefit paid his rent but he is
:10:35. > :10:38.having no luck finding a job. received full housing benefit which
:10:38. > :10:43.means I can afford the property at the moment but because I will not
:10:43. > :10:48.have that for rent and housing benefit and will not be able to
:10:48. > :10:52.afford it so I will have to find somewhere pretty sharp. So if you
:10:52. > :10:58.cannot afford to stay here, that is just tough. What would you say to
:10:58. > :11:06.that? I have just as much right as everybody else. It is not those
:11:06. > :11:09.people's fault, it is just circumstantial. It is life, people
:11:09. > :11:14.did put in these situations but it is not necessarily their choice.
:11:14. > :11:19.Because of new housing rules being extended to those under 35 than in
:11:19. > :11:24.private accommodation, by Christmas he will have to move or find an
:11:24. > :11:29.extra �90 per month in rent. terms of young single person's for
:11:29. > :11:35.example, previously under 25 he was access in another allowance, that
:11:35. > :11:39.has been increased to under 35s so people in that ten-year age bracket
:11:39. > :11:43.who have been quite used to having a one-bedroom property and being
:11:43. > :11:47.able to access housing benefit for a one-bedroom property and now
:11:47. > :11:51.suddenly they will only be able to access housing benefit for a shared
:11:51. > :11:54.room property so they will have to move. It is not just those who are
:11:54. > :12:01.renting privately on housing benefit to have got decisions to
:12:01. > :12:07.make. For those renting from the council or housing association,
:12:07. > :12:13.they may have to pay more. It has been nicknamed the bedroom tax and
:12:13. > :12:18.if it is deemed to have a house larger than you need. If households
:12:18. > :12:22.are deemed to be living in a property of one more urgent than
:12:22. > :12:28.the DWP thinks they need, then the benefit will be cut. If they have
:12:28. > :12:33.two more rooms, it will be cut by 25%. Because a large number of
:12:33. > :12:35.tenant households will have no choice but remain where they are
:12:35. > :12:40.because of the shortage of smaller properties, this means they will
:12:40. > :12:44.have to find the short ball themselves in order to pay the rent.
:12:44. > :12:53.First, this is not a bedroom tax. It is a tax against under occupancy.
:12:53. > :12:56.And with a shortage housing for people desperately in need, I think
:12:57. > :13:04.it is useful bat under occupancy is penalised. I do not think it will
:13:04. > :13:11.frost people into dangerous areas. These are part of the Government's
:13:11. > :13:19.welfare reforms, and they do not want any household earning any more
:13:19. > :13:23.than �25,000 more in benefit. 30% by a work either for part time.
:13:23. > :13:27.have the criticisms of the welfare systems were that quite a lot of
:13:27. > :13:30.people, even if they were to go out and get work perhaps on minimum
:13:30. > :13:35.wage, would not be much better off than they are in benefits.
:13:35. > :13:40.Sometimes even worse. It is the kind of situation we have had. The
:13:40. > :13:44.argument for the welfare reform that Iain Duncan-Smith is proposing
:13:44. > :13:48.is that you would be more certain that he would be better off in work.
:13:49. > :13:52.For everybody, they would get at least 20p in the pound more from
:13:52. > :13:58.their earnings that they would be better off and to that extent,
:13:58. > :14:03.nobody worse off. Under the new rules, tenants would received their
:14:03. > :14:06.housing costs directly rather than cash go to the landlord. It is hard
:14:06. > :14:11.for housing associations to raise cash and it is the housing benefit
:14:11. > :14:17.they receive that gives the lender a sense of security. Consequently,
:14:17. > :14:22.they have deep concerns. lenders see our sector as a good
:14:22. > :14:26.risk because the revenue stream is likely stickier. Bringing
:14:26. > :14:29.insecurity into that framework means the lenders will be worried,
:14:29. > :14:36.it will affect the terms of availability of private finance and
:14:36. > :14:40.traditional lenders... We think universal credit will worsen the
:14:41. > :14:45.situation. Supporters of these changes say it is all about the
:14:45. > :14:48.choices we make. I know that there are difficulties here but I know
:14:48. > :14:52.that there are many, many people within the public and voluntary
:14:52. > :14:56.sector who would like those who are on benefits to keep quiet and stop
:14:56. > :14:59.interfering with the way that their benefits are administered. I think
:14:59. > :15:05.we should take a more responsible attitude and trust people. That is
:15:05. > :15:08.why I support the idea of paying benefits directly to the claimant
:15:08. > :15:11.so it would encourage people to be more responsible about how they
:15:11. > :15:14.lead their lives. I think we should protect that there should be a
:15:14. > :15:19.proportion of people that get into serious difficulty and lots of
:15:19. > :15:25.people who are a bit worse off and a bit more miserable. And I think
:15:25. > :15:28.that we clearly have a housing system at the moment that is quite
:15:28. > :15:33.dysfunctional, not investing in a way it should be, that is not doing
:15:33. > :15:36.the economy any good at all. These will their reforms will not do
:15:36. > :15:41.anything to help kick-start that side of things. The UK Government
:15:41. > :15:46.says that the housing benefit costs have been spiralling upwards out of
:15:46. > :15:49.control. They say like those in the private sector, those on housing
:15:49. > :15:55.benefit will have to be far more realistic about where they can
:15:55. > :16:05.afford to live. But critics believe the changes will damage the rented
:16:05. > :16:05.
:16:05. > :16:09.housing sector, closing the door on Tomorrow's front pages, starting