The ever-widening LIBOR scandal now engulfs one major bank, Barclays, threatens to implicate other banks, and perhaps even the British government itself.

"It is the largest rigging of prices in the history of the world by many orders of magnitude," says Professor of Economics and former bank regulator Bill Black

The London Interbank Offered Rate (LIBOR) is an interest rate set every day by major banks in London determining the rate they borrow from each other. But the LIBOR also has international significance. It is used as a benchmark rate and determines a multitude of other rates worldwide, such as those for credit cards, variable rate mortgages, and interest rate swaps. The LIBOR lies at the heart of international finance. It is now certain that the LIBOR rate has been rigged by a cartel of banks.

Barclays Bank in Britain was recently fined $450 million for manipulating the LIBOR by making “inappropriate submissions” of rates. Their CEO Robert Diamond has been forced to resign. He was grilled by an open skeptical Parliament and as is typical with financial corporation CEOs whose companies are embroiled in possible criminal behavior, he professes to have just no clue whatsoever those shenanigans were going on. But then, it’s always better to appear incompetent than culpable.

Ex-rogue trader Nick Leeson says everyone involved with the LIBOR scandal at Barclays should go to prison. Nobel Laureate in Economics Joseph Stiglitz agrees, saying the only way to end these market abuses is to put bankers in prison.

It is probable that other banks including those in the US are involved. Even worse, Barclays has released documents that implicate the Bank of England and Whitehall itself, as a deputy governor of the Bank of England appears to have encouraged Barclays to lower their LIBOR rate.

The Big Picture comments. Emphasis added.

It is almost impossible to overstate the seriousness of these events or the potential they have to destabilize the financial system. The private sector breaking the law is always serious business, but at least the public sector is supposed to be standing ready to impose punishment and restore order. In this case, however, the global financial markets were subjected to an alleged private-public partnership in an alleged crime. Moreover, the activity involved a benchmark interest rate on which literally the entire world depends.

Rigging a key rate like LIBOR means our financial system is rotten and corrupt at the core.

The UK financial sector is now under siege from politicians, as it should be – but that begs the question of who should besiege the politicians and central bankers who were integral to this mess.