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Why Barclays coughed up so much for Lie-bor

WASHINGTON (MarketWatch) -- Even by Wall Street standards, the decision by Barclays to pay nearly a half billion dollars to make American and British regulators end lawsuits was a steep one.

But a reading of the evidence stacked against the firm, now cleverly dubbed "Lie-bor," explains why.

The emails and phone calls regulators uncovered tell the whole -- if grammatically challenged -- story of how the bank manipulated a key interest rate, called LIBOR, so that derivatives traders could maximize the value of their positions and so senior managers could lie about the bank's financial health in the midst of the crisis.Read MarketWatch's full coverage of Barclays settlement.

Here's one exchange:

Trader C: "The big day [has] arrived… My NYK are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you'll go for 3m?"

Submitter: "I am going 90 altho 91 is what I should be posting".

Trader C: "[…] when I retire and write a book about this business your name will be written in golden letters […]".

Submitter: "I would prefer this [to] not be in any book!"

And another:

Trader C (again): "If it's not too late low 1m and 3m would be nice, but please feel free to say "no"... Coffees will be coming your way either way, just to say thank you for your help in the past few weeks".

A Submitter responded "Done…for you big boy".

And a final one for good measure.

Manager D, in a phone call with another manager after meeting with the U.K. Financial Services Authority: "Touched on topic" of LIBOR. "We didn't say anything along the lines of, you know, we're not posting where we think we should […] because of. I just talked about dislocations, LIBORs […] and kept it […] simple, shall we say."

Can't get more cooked than that. In response, Barclays (BCS) (BARC) Chief Executive Bob Diamond and three other senior executives decided to give up their bonus for the year.

It's easy to say that is the least that they can and should do, but in a system where not a single financial-sector executive has gone to jail for the financial crisis, it's probably the most.

Wall Street, and the London equivalent of the City, hasn't changed much from the financial crisis. But after Barclays' actions Wednesday, and J.P. Morgan Chase's decision to pursue clawbacks after the trading loss of at least $2 billion, there is a perceptible change.

Traders and other Wall Street professionals still overwhelmingly get the upside if their risky and at times illegal behavior pay off. But at the very least, they are starting to lose when the down side materializes as well.

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