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Bob Diamond Barclays resignation points to systemic rot

If the public's perception of big banks could get any lower, it did this week, with news that Barclays falsified reports and tried to manipulate interest rates to boost its bottom line.

The details may be new, but the storyline is essentially the same as the one that emerged during the financial crisis of 2008: Everyday customers are played for fools while the math whizzes overseeing the derivatives desk conjure up new ways to rig the system. The big difference this time is that the reckoning is coming much faster and hitting far harder.

Barclays has been hit by nearly half-a-billion dollars in fines, and its chairman Marcus Agius, chief executive Robert Diamond, and chief operating officer, Jerry del Missier, a Canadian who only just stepped into the role, have all been forced to resign.

A week ago, when news of Barclays' malfeasance first made headlines, Diamond hoped to contain the storm by saying that he and other top executives would agree to give up their bonuses this year.

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Given that he took home a $10 million bonus last year, part of an overall $26.6 million pay package, he clearly assumed that was contrition enough.

Before 2008, it may well have been. But the evidence put forward in the 45-page complaint tabled by regulators in the U.S. and Great Britain proved far too damning. This isn't a case of a rogue trader cooking the books in a bid to swindle a client or hide a loss. The rot here is systemic. According to the report, managers, traders and other bank employees in New York, London and Tokyo conspired to provide false data, with the goal being to fix interest rates.

Why you need to care about Libor manipulation

The details are involved here, but they work like this: Barclays is only one of a number of big banks that help set the daily London interbank offered rate (Libor) and the Euro interbank offered rate (Euribor).

Those rates reflect how much it costs banks to borrow from each other. Diamond allegedly told top executives to conceal Barclays true borrowing costs, in an effort to make the bank's financial position appear stronger. However, the repercussions extend far beyond Barclays.

The Libor and Euribor are used to determine the rates on some $10 trillion in mortgages, student loans and credit cards, among other financial products. In effect, Barclays was prepared to subvert a key pillar of the global economy so that its bottom line would look more impressive.

Of course, if 2008 taught us anything it's that if one bank is playing fast and loose with its books, chances are, so are many of its competitors. And that's where the focus has turned now. Regulators in the U.S., including the Justice Department, have agreed not to prosecute Barclays, in large part because of its ongoing assistance in this investigation. That cooperation means it's prepared to talk, about its own practices, and likely the efforts of its rivals.

If there's any consolation for Diamond and his peers, Barclays is surely not going to be the last name mentioned in this scandal.