"A cesspit." That's how the usually measured Paul Tucker, deputy governor of the Bank of England, described banks' attempts to manipulate the London interbank offered rate, or Libor.
Faced by a throng of sound-bite-hungry British Parlamentarians, on Monday Mr. Tucker did a convincing job of rebuffing allegations that the authorities had put pressure on Barclays PLC to manipulate Libor, the world's most important interest rate.
There's a hint in that last paragraph as to why you should be paying more attention to this story. LIBOR is the rate that is the basis of the interest rate you pay on everything, from your mortgage and credit cards to student and auto loans.
Not the Fed rate, LIBOR. LIBOR (London InterBank Offered Rate) is set by a panel of lenders each night, and therefore is removed from the political pressures of the Federal funds rate (the rate at which banks lend money overnight to other banks in America.) Ostensibly, it should be a fairer and truer benchmark of, to put it in layman's terms, the cost of borrowing money.
Which is fine. Free markets, no social structural rate, no incentive for a government to raise or lower, yadayadayada. It makes sense for the markets to use this rate to set all other rates.
The investigation found that Barclays's traders communicated with colleagues at some of the 16 banks involved in Libor setting. As one Barclays trader explained to another one at a rival lender, "the trick is you must not do this alone." This kind of evidence should help regulators prove that others were in on the fix.
Given [Barclay's CEO Robert] Diamond's resignation, the question is whether CEOs of other firms will follow suit once their companies settle. While some will argue they weren't there at the time, those with long tenure and an investment-banking past will come under pressure.
"CEOs of other banks should be worried, especially those who rose through the ranks of the fixed-income and rate businesses" says Michael Karp, managing partner of Options Group, an executive search and consulting firm.