One can imagine Bob Diamond pacing his office, crying out for someone to rid him of a troublesome media that keep saying his bank is in serious trouble. It's September 2007 and Northern Rock has just been bailed out. Journalists keep checking the interest rate at which banks are lending to each other for signs of distress. An increase in the rate shows the banks are nervous and the credit crunch is getting worse.

Diamond's minions hatch a solution. They discover they can manipulate the interest rate. Emails go back and forth within the bank and to some of their rivals. The idea is to pitch the interest rate they say they will need to pay the next day at a lower rate. They tell the British Bankers' Association, which collates all the submissions from banks that use the London interbank rate, or Libor.

The BBA reproduces the artificially lower rate and Barclays, and all the other banks playing the game, are off the hook. The media are assuaged and turn to look in other directions for signs of distress in the banking system.

And not only that, manipulating Libor and its continental cousin, Euribor, revealed itself very quickly to be very profitable. Documents show traders calling their colleagues and counterparts in other firms to buy and sell derivatives at rates that were unobtainable in any other way.

Diamond is in the frame not just because he is the Barclays chief executive today, but because at the time he ran Barclays Capital, the investment trading arm of Barclays bank. It was his boys and girls in the trading rooms that embarked on a prolonged and extensive manipulation of a market we all thought was free and fair and now discover was rigged.

The City regulator, the Financial Services Authority, says in its verdict that the antics of traders, which on occasions were flamboyantly communicated in the dealing rooms, were known to many people in the bank. Reports found their way to compliance officers on several occasions. We don't learn what happened next, other than compliance officers "failed to address and assess the issues effectively". They then failed to communicate the problem to the regulator, it says.

Senior management knew, but we don't know which senior management and how much they knew. The FSA judgment indicates that Diamond and his closest aides were ignorant.

But is this possible? Gillian Tett of the Financial Times has written about the "silo mentality" of investment bank staff that sees them inhabit tiny specialist areas that few people understand, let alone their senior managers. A bank made up of silos is virtually unmanageable given the complexity of the deal-making and esoteric nature of the products that banks use to make money.

Diamond is betting the authorities will again accept that only he has a hope of grasping the different areas of the business and that he will do better next time.

This plays to a fatal flaw in most people's thinking since the banking crash, that bankers are the same as the banks, and vice versa. We have resented saving the banks because they still employ the people who brought about the crash. We have hesitated to prosecute bankers because we think they are the only ones who understand how to run the banks.

Bob Diamond shows this isn't true. He is a serial offender. He misunderstood how the credit crunch was caused by the banks and would bring them all tumbling down. Now he confesses to not understanding how many of his staff conducted their businesses over a period of years in a key area that possibly made hundreds of millions of pounds. Add this to the multibillion-pound payment protection swindle and you have a set of bankers who need to be shown the door.

And the first place the authorities should take them is the police station, in handcuffs. Maybe they have avoided criminal behaviour. But the public should see them arrested and taken for questioning.

The Treasury select committee chairman, Andrew Tyrie, was quick to say that parliament needed to look further into this "shocking affair", which he described as the worst he had seen. He will be calling the regulator and Diamond to his committee room for reassurance that all has been done to make good the problem and that the punishments fit the crime.

That's fine, but before that happens we need to see Diamond humbled. Maybe we should adopt the orange jumpsuits favoured by the FBI when they arrest suspected felons. It would be a start.

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