As reported widely, a dozen big banks shared information with each other on the LIBOR rate, which is set by banks in London (actually, in the City, a separate legal jurisdiction in the middle of London, where the banks operate).
The rigging was illegal. Barclays Bank has paid fines of almost $500 million. The other 11 have not.
The British government promises to take action. Effective action. Real Soon Now.
This of course assumes that the Bank of England did not know of the rate-rigging. This also assumes that the government will pursue this even if it finds out that the Bank of England’s highest officials did know.
American lawyers do not look gift horses in the mouth. So, they have put together a class action suit of Americans who they say were harmed by this rigging. Why? Because they paid more for mortgage expenses: adjustable-rate mortgages.
This could turn out to be fun if it goes to a jury, which it probably won’t. The lawyers will have to find out how the rate-rigging took place. Those not involved either do not know or are keeping quiet.
It is not clear how banks can set rates much above the rate that would have prevailed without the collusion. Second, why is collusion wrong? It requires the sharing of information. This information is about market rates, i.e., prices. If banks set rates too high, the demand for loans will decline.
The economists hired by the lawyers on both sides will do battle in front of the jury. The advantage here for the rest of us is that the economists will have to explain things so that a jury member can understand what really happened and who, if anyone, got hurt. This means no formulas or jargon. Economists are not used to communicating in English. No one gets tenure for having written an article in English.
This will make for more cogent articles in the financial press. This is always a good thing.
If the banks settle out of court, we can assume that the bankers are concerned more about letting the public know what was done and how than about the cost of buying off lawyers.