Way back in September 2007, the Financial Times’s Gillian Tett started raising questions about the benchmark London Interbank Offered Rate—Libor—a critical benchmark gauge that measures how much banks charge to lend to each other.

Tett noted that:

In particular, the recent turmoil is prompting suggestions that Libor is no longer offering such an accurate benchmark of borrowing costs as before…

“The Libor rates are a bit of a fiction. The number on the screen doesn’t always match what we see now,” complains the treasurer of one of the largest City banks.

…some have been refusing to conduct trades at all at the official, “posted” rates, even when these rates have been displayed on Reuters.

In April 2008, after Bear Stearns collapsed, but before Lehman Brothers went broke, The Wall Street Journal’s Carrick Mollenkamp reported that the “growing suspicions about Libor’s veracity suggest that banks’ troubles could be worse than they’re willing to admit” and raised questions about whether they were deliberately manipulating the rate.

The next month, Mollenkamp and Mark Whitehouse (now at Reuters and Bloomberg, respectively) put out an excellent enterprise piece that used its own analysis to show that “Major banks are contributing to the erratic behavior of a crucial global lending benchmark” and were “reporting significantly lower borrowing costs for the London interbank offered rate, or Libor, than what another market measure suggests they should be.”

The Journal compared Libor to the cost of credit-default swaps and found that Libor suddenly diverged in January 2008 when before it had tracked it closely, and it scooped that UBS had underreported its borrowing costs by 12 basis points (0.12 percent).

Some half a decade on from Tett’s initial queries and four years after the Journal’s near-smoking gun, the British investment bank Barclays has admitted it misled investors and lender about its financial health by lowballing its borrowing costs. Worse, it manipulated Libor—the benchmark for three-quarters of a quadrillion dollars in financial instruments—for at least four years “on an almost daily basis” to help its own traders.

Barclays will pay nearly half a billion dollars to settle the charges and that will be a pittance compared to the shareholder lawsuits, which are now a shoo-in and surely a big reason why Barclays shares plunged 16 percent today. The settlement includes $160 million to the Department of Justice “as part of an agreement in which the bank escaped possible criminal prosecution,” in the WSJ’s words. I reckon you and I’ll have a much harder time paying off the DOJ if they ever come a-knockin’.

And it wasn’t just low-level traders inside Barclays who knew what it was up to:

Libor is calculated under the auspices of the British Bankers’ Association. In its filing, the CFTC alleged that a senior manager at Barclays warned the bankers’ association in a phone call in 2008 that the bank hadn’t been submitting accurate Libor rates, while claiming it was not the worst offender on the panel.

“We’re clean, but we’re dirty-clean, rather than clean-clean,” the CFTC said that the Barclays employee stated. It added that the bankers’ association representative responded: “No one’s clean-clean.”

Here’s The New York Times (emphasis mine):

Amid speculation that the bank was struggling to raise money, Barclays’ senior management asked employees to lower the rates submitted to the Libor committee, according to the regulatory filings. Management wanted the bank’s rates in line with rivals. Senior Barclays executives instructed employees not to put your “head above the parapet.”

Some employees resisted, but eventually followed orders from top executives, according to regulatory documents. One concerned employee called the rates “patently false.

“I will reluctantly, gradually and artificially get my libors in line,” another person said.

That sounds like an open-and-shut criminal case against top executives, no? Does Intrade have odds on that? Don’t bet on it if they do.

And Barclays is just the beginning. We know there are major consequences coming to UBS, which admitted in February that it conspired to Libor to profit on derivatives. It also blew the whistle on several other banks it says were in on the scheme, including press favorite Jamie Dimon’s JPMorgan Chase, Citigroup, HSBC, Deutsche Bank, RBS, and others.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.