One of the largest financial scandals in history is playing out right now in London, but most Americans haven't even heard about it thanks to the story's near total absence from U.S. television news. But now, a collection of the Democratic Party's most influential elected officials are pushing for a serious investigation of the Libor rate manipulation scandal, with the possibility of the nation's top bankers being frog-marched from their offices and locked away.

According to The Financial Times, at least 900,000 home mortgages in the U.S. were pegged to the Libor, an interest rate index that governs how much banks charge to lend money to each other. The effect of manipulating that rate can hardly be overstated.

In other words, more than $275 billion in outstanding U.S. housing debt could be called in question if it is proven that major banks were actively manipulating the Libor rate to rip off customers. So far, Bank of America, JPMorgan Chase and Citigroup have been roped into an ongoing global investigation of Libor rate manipulation, which recently saw British bank Barclays admit that it was part of the scheme.

And it could be even bigger once additional Libor-pegged interest rates for loans and investments held by schools, hospitals, cities and even whole states are factored in, not to mention credit card debt and student loans. The whole world over, Libor-pegged interest rates have been applied to more than $800 trillion in financial instruments.

Led by Sens. Jack Reed (D-RI) and Sherrod Brown (D-OH), both of whom sit on the Senate banking committee, 12 Senate Democrats wrote a letter to Attorney General Eric Holder on Thursday asking for an investigation. Reed and Brown were joined by Sens. Carl Levin (D-MI), Dianne Feinstein (D-CA), Tom Harkin (D-IA), Patrick Leahy (D-VT), Robert Menendez (D-NJ), Sherrod Brown (D-OH), Jeff Merkley (D-OR), Sheldon Whitehouse (D-RI), Frank Lautenberg (D-NJ), Daniel Akaka (D-HI), and Jeanne Shaheen (D-NH).

"Restoring integrity to our financial system is critical to restoring confidence in our economy," they wrote. "This scandal calls into further question the integrity of many Wall Street banks and whether our prosecutors and regulators are up to the task of regulating them. We urge you to help restore some of that confidence by conducting prompt and thorough investigations, evaluating the facts, taking appropriate actions against any wrongdoers, and fixing this process so that breaches of confidence like this do not happen again."

Sen. Mark Warner (D-VA), who did not join the letter, similarly told The Financial Times that manipulation of the Libor "undermines the entire credibility of financial markets."

In the House, Rep. Peter Welch (D-VT) has also pounced on the Libor scandal, sending his own letter to Holder and telling The Huffington Post's Nate Willis that the ripoff "goes to the heart of the integrity of the financial system."

"To the extent that people who overpay as a result of the Libor manipulation, they should be able to get their money back," he said. "Individuals who have mortgages, pension funds who had pensioner investments -- whoever was ripped off is entitled to get their money back."

And there could be literally millions of people -- if not billions -- who were ripped off by Libor manipulation, according to banking analyst Glenn Schorr, who spoke to Forbes reporter Halah Touryalai on Thursday. "Anyone with a floating rate [may have been ripped off]," he said. "The suits are building with some class actions forming already."

"Any illicit profits should be clawed back from the banks and from the individual participants," Welch told Willis. "The folks who participated in this violation of the law should spend some time behind bars."


Photo:, all rights reserved.