Former HQ of Lehman Brothers, now owned
by Barclays, via

We should probably start with a bit of background. LIBOR stands for London Interbank Offered Rate; it’s how much banks charge when lending to other banks. London is a massive financial center, and the LIBOR rate was widely adopted by a variety of actors largely for reasons of convenience. As it turns out, though, big British banks (and probably others) have been illegally manipulating this rate—Barclays is going to pay at least $450 million to settle charges from several countries.

FT has been doing some great reporting on the underdiscussed LIBOR scandal in the UK and elsewhere; check out their investigation page and this Gillian Tett column.

But Matt Taibbi has for my money the best nickel summary:

This is unbelievable, shocking stuff. A sizable chunk of the world’s adjustable-rate investment vehicles are pegged to Libor, and here we have evidence that banks were tweaking the rate downward to massage their own derivatives positions. The consequences for this boggle the mind. For instance, almost every city and town in America has investment holdings tied to Libor. If banks were artificially lowering the rates to beef up their trading profiles, that means communities all over the world were cheated out of ungodly amounts of money.

(To get specific, according to Tett, we’re talking about $350 trillion in derivatives contracts and 90 percent of US commercial and mortgage loans linked to this sucker.) The next up looks to be the Royal Bank of Scotland. As Taibbi says, this is just straight-up fraud of the kind usually associated with the Mafia, and it’s one more exhibit in the case that the financial industry has evolved into an enormous tick buried in the jugular of the economy. Let’s hope someone famous goes to jail over this one.

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Ryan Cooper

Follow Ryan on Twitter @ryanlcooper. Ryan Cooper is a national correspondent at The Week. His work has appeared in The Washington Post, The New Republic, and The Nation.