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Libor Scandal (2012)

The world's biggest banks rigged the number that set interest rates for everyone.

LIBOR — the London Interbank Offered Rate — was supposed to be the most trustworthy number in global finance. It determined interest rates on roughly $350 trillion worth of financial products: mortgages, student loans, credit cards, derivatives. Every day, major banks reported what it cost them to borrow money, and the average became LIBOR. The problem was that the banks were lying about their numbers.

Starting as early as 2003, traders at Barclays, Deutsche Bank, UBS, and other institutions manipulated their LIBOR submissions to boost trading profits or make their banks look healthier during the financial crisis. They did this casually — internal messages showed traders requesting specific rate changes the way you'd ask a colleague to grab you a coffee. The manipulation affected the borrowing costs of millions of people who had no idea the rate on their mortgage was being nudged by someone trying to win a bet.

When it was finally exposed in 2012, the result was billions in fines and a handful of criminal prosecutions. But the deeper lesson is structural: the most important number in global finance was based on the honour system, and the people in charge of it cheated.

When trillions of dollars rest on self-reported numbers, the question isn't whether someone will manipulate them. It's how long it takes before anyone notices.

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