The Worst Financial Scandal Yet?

If only one in four American adults can name his or her U.S. senators, we can assume that even fewer know what Libor is. Libor (pronounced lie-bor) is at the center of another major financial scandal, but that may not improve its name recognition much. This is summer, after all, and making sense of financial manipulation requires effort.

The public should understand that what they don't know can cost them. The illegal fixing of Libor, the interest rate to which much of the world's financial transactions are tied, took a ton of money out of ordinary folks' pockets and handed it to the select few. The beauty of such cons is that the little people don't even know they're being fleeced.    

Libor stands for the London Interbank Offered Rate. It's the interest rate banks charge each other for big loans. The British Banking Association is supposed to oversee it but apparently did not notice that Barclays was submitting falsely lower rates, probably to make its financial position look stronger. More than a dozen other banks are said to have been in on the fun.    

We've been subject to shocking financial scandals in recent years, but some experts are calling this one the worst. Still, what exactly does Libor have to do with you and me?    

If banks set the Libor rate artificially low, then they could pay the cities and states that entered financial contracts with them less than these governments were entitled to. Such shortfalls are traditionally made up by the taxpayers or through cuts in services. Hedge funds entering futures contracts tied to Libor rates were cheated, as well.    

Libor is also used to set the interest rates we pay on our credit cards and adjustable mortgages. The word "Libor" appears in the small print on the contracts that few of us read.    

If banks can manipulate Libor downward to make themselves look healthier, what's to stop them from manipulating that rate higher to extract more money from the little people with credit card balances and mortgages? Not much, it would seem.    

So here's another example why accusing financial con artists of greed, dishonesty or avarice is so fruitless. Let a higher power dwell on their character. The job for we earthlings is to regulate them without apology. This latest scandal should make that a done deal.    

But listen to the political conversation in which Republicans portray the financial industry as an outpost of muscular free enterprise shackled by Washington regulations. Clearly, it's the other way around. Wall Street is all over Washington. It extracts changes in the laws that let their billionaires pay taxes at lower rates than do their electricians and police. It often obtains lax rules that let the financiers gamble with money guaranteed by the taxpayers. The financial wizards' modern Gilded Age fortunes come courtesy of government, not despite it.    

And the way Wall Street makes government do its bidding is to buy the politicians. The new freedom to pour money into politics without being linked to the contributions gives cover for buying more of the same.    

Foes of campaign finance reform point to cases where a candidate that greatly outspent a competitor lost, and they do exist. But when you have a complex matter -- Libor isn't like gay marriage -- and a populace that has not engaged the mental gears into how such things really work, what's going to move their vote? The last political ad they heard?    

If the 2008 economic meltdown didn't make a compelling case for stiffening oversight of Wall Street and campaign finance, it's hard to know what would. One really does worry for the future of our democracy.

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