I've been wondering when we'd get a thread on this but since no one else has done it yet, here we are.
The gist of what happened is this: various large banks and now perhaps even the British government colluded to manipulate a key overnight interest rate known as the LIBOR (London Inter-Bank Offered Rate). In some cases, the rate was moved either up or down in order to assist traders in LIBOR related instruments, while it appears that in others it was moved to satisfy government demands for lower interest rates.
The scale of this is hard to grasp. LIBOR is used to set rates in a huge swath of the derivatives market - how much seems impossible to say because a lot of it is not well regulated. I've seen hundreds of trillions thrown around, even quadrillions of dollars worth of notional contracts. When you diddle an interest rate by .5% on hundreds of trillions of dollars of contracts, you're having a gigantic impact. This could well be the largest financial scandal in history in terms of "dollars affected". Maybe a couple more banks would have gone down in 2008 if it weren't for favorable borrowing conditions set up by manipulated rates.
Barclays CEO Robert Diamond has already stepped down over this, and the Rolling Stone article implies that he's going to try to take some other people down with him. I wonder what you lot over the pond are hearing about this, since right now at least its all hitting close to London.