British and American regulators imposed fines of nearly half a billion dollars on Barclay’s bank on June 27 as the bank settled a massive corruption case with bank regulators. Its share price has fallen 15 percent since the scandal broke, knocking $5.6 billion off.

The Royal Bank of Scotland has also been implicated in the scandal, according to leaked documents, and “most of the world’s other largest financial institutions” are under investigation, according to Reuters. They are accused of lying and manipulating the interest rates that consumers pay on just about everything.

Interest rates on things like mortgages, credit cards and savings accounts are often set by examining the interest rates that banks charge each other. In London this rate is called the London Interbank Offered Rate, or libor.

A selection of big banks tells Thomson Reuters how much interest they had to pay to borrow money. Reuters, acting on behalf of the British Bankers Association, uses this data to publish the London Interbank Offered Rate.

This creates a huge conflict of interest. In one part of Barclays a group of people are trusted to accurately report how much interest the bank pays on the money it borrows. In another part, traders speculate with billions of pounds and make huge profits or losses based on, among other things, the London Interbank Offered Rate—which is partially determined by the data Barclays reports.

To boost their profits, Barclays lied.

Faced with massive losses, one trader e-mailed a submitter asking him to “fix” the interest rate so it was lower than it should have been. On other occasions they’d ask for it to be raised. Then they’d invite the submitters over for Champagne after work.

The scam changed slightly once the financial crisis hit. Lenders feared Barclays was becoming a risk and started demanding high interest rates when loaning it money. Senior management didn’t want to admit that other banks saw it as risky, so it told the submitters to lie and pretend they were being charged a lower interest rate.

This cheating meant that Barclays traders got bigger bonuses than they should have at the expense of mortgage holders, savers and the general public, who had their interest rates tampered with. An independent analysis shown to American courts says the cheating could have cost $45 billion during the financial crisis alone, with most of this cost being borne by pension funds and investors.

Industry insiders say this type of behavior was common. It was “common practice” among senior employees, a former Royal Bank of Scotland trader said. At least 20 other banks are being investigated—Barclays just owned up first to get a lower fine and to try to avoid criminal charges.

The scandal is destroying the trust in Britain’s entire banking system. The assistant editor of the Daily Telegraph, Jeremy Warner, writes:

Many have already said it, but it is one of those observations that bears constant repetition: In all my years as a financial journalist, it’s hard to recall a case quite as shameful as this—and I’ve certainly seen a few.There is no industry in all commerce that relies as much on public trust and reputation for probity as banking. We have seen what happens when trust is lost: We get the legion of banking runs that lie at the heart of the financial crisis; people run for the hills and the economy grinds to a halt.To have American regulators accuse Barclays of lies, deception and manipulation is an appalling indictment of one of the oldest and most respected names in British banking. It is like discovering that your local branch manager has routinely raided your hard-earned savings to finance his champagne lifestyle.

He warns the crisis could mean the end of Britain’s banking system, and with it Britain’s position as a powerful economy:

When the history books are written, this may be seen as a defining moment, the point at which public anger with the banks bubbled over into something much more seismic in its consequences than the general atmosphere of bank bashing we have seen to date. Despite the crisis, there has been a sense of back to business as normal for the City these past three years. There have been few signs of behavioral change. But this may be the straw that breaks the camel’s back ….Finance’s golden age may be drawing to a close; with no new industry or manufacturing renaissance coming up in the wings, it is not entirely clear what’s going to take its place as a source of British wealth, jobs and tax revenues. It is not just finance for which hard times lie ahead.

The founder of the Plain Truth magazine, Herbert W. Armstrong, once recounted an encounter with entrepreneur Roger Babson. Babson, who went on to forecast the 1929 stock market crash, described his way of predicting the economic future:

It is now mid-winter. If I want to know what the temperature is, now, in this room, I go to the wall and look at the thermometer …. But if I want to know what the temperature in this room is going to be, an hour from now, I go to the source which determines future temperatures—I go down to the boiler-room and see what is happening down there. You gentlemen looked at bank clearings, indexes of business activity, stock car loadings, stock market quotations—you looked at the thermometers on the wall; I looked at the way people as a whole were dealing with one another. I looked to the source which determines future conditions. I have found that that source may be defined in terms of “righteousness.” When 51 percent or more of the whole people are reasonably “righteous” in their dealings with one another, we are heading into increasing prosperity. When 51 percent of the people become “unrighteous” in their business dealings with their fellows, then we are headed for bad times economically!

In Britain’s banks, it’s not a case of 51 percent being “unrighteous”—it is much higher than that. And that “unrighteousness” is killing the whole industry. As we wrote back in 2008, the root cause of the financial crisis was “greed and its associated sins. Lying. Stealing. Coveting.” Those causes have not been addressed.

This immorality is the root cause of Britain’s financial problems, and through this crisis this immorality is dealing a huge blow to Britain’s whole economy.

For more information on morality’s effect on the economy, see our article “The Cause of the Crisis People Won’t Face.”