LIBOR, the London InterBank Offered Rate, has been in the news lately as heads begin to roll in London and soon New York now that it’s clear LIBOR was manipulated by big banks, affecting the value of hundreds of trillions worth of financial instruments. This is a complex topic and it will be awhile — perhaps years — before it is clear how or even if you and I were damaged by these shenanigans, but everyone seems to agree that it can’t be allowed to happen again. But how? To make this happen I think we need a new understanding of what “transparency” means in financial transactions in the 21st century.

Transparency is supposed to mean that all parties in a financial transaction share the same information so nobody is blindsided. In practical terms transparency has usually meant something less: 1) that all parties can have the same information if they are willing to do the work to find it, and; 2) that all parties are held legally responsible as though they had the appropriate information. These latter statements mean generally that true transparency isn’t viewed as practical so all parties are on their honor to act transparently.

Yeah, right.

LIBOR, which is worked out on a daily basis through phone calls between banks, is anything but transparent, which is why Barclays and other banks were able to squeeze it in one direction or another. But that doesn’t mean LIBOR can’t be made transparent. In the Internet Age, in fact, I think this would be trivial to accomplish.

True transparency, real transparency, is for the first time ever well within practical reach. And therefore it should be demanded.

All that’s required to make setting LIBOR rates truly transparent is to direct all communication through a recorded channel. There are many of these but I’m most familiar with Yahoo Groups, where almost every day I share information with other owners of DA-2A aircraft.

If there was a Yahoo Group called LIBOR and it was declared the exclusive channel through which banks would communicate to set LIBOR rates, then it would preserve forever a minute-by-minute record of who said what to whom. Better still, that record would be accessible to banks, academics, and crackpots worldwide.

And while banks and academics occasionally collude, we crackpots never do, which is what makes us so valuable to society.