March 28, 2100--"I first heard of LIBOR when I started working at Telerate (later part of Dow Jones) in the early 1990's. I was on the energy desk and our reporting counterparts on the finance desk would take the LIBOR calls. The participating banks would call in, tell them their prices and the finance desk would average them and post them online for the British Bankers Association. That's it. Just taking the calls, averaging the prices - throwing out the top and bottom five - and posting them online. Then gazillions of dollars were priced using that figure. When I heard how important it was I said (about the methodology): "You are kidding." But no, they weren't."The LIBOR system was designed in the good old days of 'my word is my bond' where a handshake would suffice for a contract. Those days have changed into today's 'anything for a buck' and 'screw thy neighbor' mentality. I'm pretty sure LIBOR has been manipulated subtly for decades; it took the credit crisis and scrutiny of banks' behavior to "out" it. Any pricing system that relies on interested parties contributing to the end result are bound to be corruptible.
UK politicians are already crowing about Diamond's departure. Labour leader Ed Miliband said it was "necessary and right" that Bob Diamond stepped down, according to the BBC. "But this is about much more than one individual, it's about the culture and practices of the banking industry," Miliband said.
He is correct. Diamond as CEO of Barclays should, of course, have been aware of the banks' LIBOR practices. But I do fear that Diamond will be the sacrificial lamb for the rest of the banking CEO's. Like Homer Simpson the rest of them will be saying "It was like that when I got here." And that's not good enough.