by Sunny Hundal

It wasn’t a conspiracy that no bankers went to prison after the 2008 crash; it was simply that their high-risk activity was almost entirely legal. But the lack of prosecutions also meant the anger kept bubbling and building like a pressure cooker.

People felt more cheated every year as bankers’ bonuses increased while their paychecks decreased. So it shouldn’t come as any surprise that a scandal most people don’t really understand still generates palpable public anger.

But it is important to understand why the Libor scandal matters and how it affected ordinary people.



The definition gives you a clue: the London Inter-bank Offered Rate (LIBOR) is a daily borrowing rate set by a group of banks for ten currencies and for different financial instruments.

That interest rate determines the prices we pay in car loans, credit card loans, savings and even mortgages. The Economist estimates it sets the rate for about $800 trillion worth of financial products – about ten times the size of the world economy. The smallest change in the Libor rate is worth millions, perhaps billions, of dollars.

They took us for a ride

Barclays has already admitted it manipulated the Libor rate hundreds of times. In fact they emailed each other like teenagers bragging about it.

But there’s a key point to remember. When manipulating the rate, Barclays pretended to have a higher rate (making them more money) before the 2008 crash, and then pretended to have a lower rate after the crash to look like they were able to borrow money cheaply.

It meant that before the crash Barclays ripped us off by charging a higher rate on financial products that went through their hands. That affected almost anything we borrowed, including 100% of sub-prime mortgages in the US.

In other words, financial products were priced at a higher rate than they should have been. And Barclays pocketed the difference to line their own pockets.

This helped kill proper banking regulation

Barclays is only the tip of the iceberg, which admitted its mistake first for a lesser sentence. Included in the 20 or so being investigated are the biggest banks around: Citigroup, JPMorgan Chase, UBS, Deutsche Bank and HSBC

Once the crisis hit – the likes of Barclays, (allegedly) HSBC and others pretended they could borrow at a lower Libor rate. This made them look stronger than they were and helped avoid a collapse. But then they went on to argue against proper banking break-up and regulation by using their rude health as proof it wasn’t necessary.

As Ezra Klein points out:

If the LIBOR games prevented governments from pursuing policies that could have made the financial system more stable, the main victims, again, are ordinary consumers.

Even on the right, those who believe in free markets should be outraged at what happened. But the likes of the Adam Smith Institute have become corporate shills churning out pathetic excuses.

Barclays not only vociferously lobbied against stronger regulation of banks, it justified huge bonuses on the premise it didn’t need a bailout. It survived by lying. It lied to the markets and it lied to ordinary people on a vast scale.

I’ve said before that banks are the biggest corporate welfare scroungers in the history of industrialisation. This scandal is proof for that claim.