The Libor Scandal Is About to Hit Home

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Let the Bollinger flow.

Until now, Liborgate has been one of those financial scandals that just barely crawls onto the average American's radar. Despite revolving aroud a rate that benchmarks roughly $360 trillion in financial instruments, it's been largely ignored by network news programs, and esoteric enough in its details that it has remained mostly unexplored by Joe and Sue in Peoria (or, alternatively, my Aunt Deborah).

But that's about to change. Bloomberg reported yesterday that seven banks, including JPMorgan Chase and Citigroup, have now received subpoenas from attorneys general in New York and Connecticut for documents related to their roles in the rate-rigging scandal.

It's not at all shocking that seven Libor-submitting banks have received subpoenas — news-wise, it's a bit like reporting that police are questioning a guy who was found at a murder scene with a smoking gun in his hand. And the questions A.G.s Schneiderman and Jepsen are asking the Unlucky Seven are no doubt the same ones people asked Barclays in the wake of its settlement: How widespread were inaccurate Libor submissions? What signals had submitters been given by regulators and their own bosses about how accurate their numbers were supposed to be? Why is Bob Diamond's daughter so good at Instagramming? (OK, that last one may go unasked.)

But the fact that the Liborgate investigation is now homing in on two American banks (and specifically, on JPMorgan Chase, a bank that has recently proved it can rile Main Street with its misdeeds), means that the general public's outrage is likely to be significantly more intense than it was when Barclays — an important bank, but a British one — was under fire.

How much more intense? In a perfect world, the public's anger would be proportionate to the magnitude of Wall Street's wrongdoing — how many traders and Libor submitters were in cahoots, how flagrantly they lied about their reported rates, and whether senior management knew rate-rigging was happening under their watch.

Sadly, the degree to which Liborgate registers in the U.S. probably depends more on how bad JPMorgan and Citi's involvement looks — whether the documents turned up by investigators contain any lurid and quotable lines on the order of "Done ... for you big boy" or "Come over one day after work and I'm opening a bottle of Bollinger." or whether any movie-ready characters like the Li-Bros emerge from the probes.

A well-placed source at one of the U.S. banks involved in the Libor investigation told me several weeks ago that the bank had done its own internal investigation, preempting the inevitable subpoenas, and felt fairly confident it had no "bottle of Bollinger"-like skeletons in its closet.

If that's the case at both JPMorgan and Citigroup, then no number of A.G. probes will stoke Main Street's fury. But having seen Wall Street step on a rake time and time again when it comes to incriminating e-mails and villainous characters, you can be fairly confident that Liborgate is going to be just as big a hit in the U.S. as it was abroad.