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Why the Libor scandal matters to everyone

Let me ask you a risky question: Does the Libor scandal really matter?

Libor is one of those magical words with the potential to instantly confuse and bore — reactions I wouldn’t normally chance. It tempts you to turn the page or click onto a different story. Please hang in for a couple of minutes.

The fact is the unfolding story about Libor interest rates and their manipulation really does matter a great deal. It speaks to big issues like the corruption of global markets and the persistent ethical failure of big institutions. It affects everyone and everything — from big companies to governments to homeowners and students. It matters to you.

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Libor is an interest rate — actually a series of rates — intended to measure how much it costs big global banks to borrow money from each other. Over time, it became a benchmark for trillions of dollars worth of variable rate loans, credit, and financial instruments around the world.

Most borrowers pay Libor, plus some added interest to reflect their risk. But all those rates move up and down in tandem with changes in Libor.

The daily Libor rate is determined by a poll of banks, which report their interest rates. The problem: At least some of the big banks contributing the information may have rigged the process. Barclays PLC has admitted to it, paid a big fine, and told regulators it wasn’t alone. Other banks are under investigation by regulators who have not accused anyone else yet.

A class action lawsuit in New York alleges the banks manipulated the Libor during the financial crisis and earlier than that. Rates may have been manipulated higher earlier on, but were allegedly pushed artificially lower during the crisis.

Lower Libor rates would have made banks appear more financially stable than they really were during the crisis. Higher rates earlier might have profited bank investment portfolios. In either scenario, bankers allegedly acted in their own interests and created collateral damage on a global scale.

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Here’s where it gets murky: Who actually got hurt and by how much? After spending just a brief time looking into the local implications at state agencies, universities, and investment firms, I can say with great certainty that I have no idea.

For starters, no one can say how much rates were actually manipulated and when. Small shifts over time would not create very big individual damages.

In addition, the manipulation of Libor would have created both winners and losers.

State agencies that entered into contracts intended to limit interest risk on their bonds could have been damaged if rates were manipulated lower. But homeowners with adjustable rate mortgages may have ended up with artificially lower payments at the same time

All this is irrelevant in the big picture. The power of Libor — and the cost of its corruption — lies in the rate’s financial ubiquity. It affects nearly every big company and, at least indirectly, every person. Libor is in the clothes you wear and the food you eat. Its presence is felt everywhere.

That’s what makes the manipulation of Libor rates such a scandal and why it matters a great deal. The corruption of something so central to daily life is one more grim statement about the world’s leading financial institutions.

A standard the entire world relied upon to make decisions about money may have been manipulated by a small group for their own purposes. As corruption scandals go, that’s about as corrosive as it gets.

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Steven Syre is a Globe columnist. He can be reached at syre@globe.com.