GREED begets greed and bankers have been caught with their grubby fingers in the till. I'm talking about international bankers, for goodness' sake - stalwarts of society, in whom we trust and have to trust. They're being found out. They're being undressed.

This latest saga of Barclays fiddling with the London interbank offered rate (Libor) is going to be big. Libor is at the very centre of the financial universe - there is no bigger game you can play.

There has been a culture change and no amount of regulation will stamp it out. We need a revolution, we need blood. It's the worst of times in the streets and yet, at the top, where Bob Diamond lives, times seem better than ever. That divide has limits.

How does Libor work? All the major players are asked at what rate they think they could raise money (in size) from their peers by 11am today. These answers (which are perceptions not requiring any underlying transaction or proof) are collated, outliers are dismissed, and the aggregate of these perceptions results in the Libor unsecured interbank lending rate for the day. Just like that. This rate is calculated over 15 maturities (overnight to 12 months) and 10 currencies - 150 rates are produced every day. We have our very own local version, Jibar.

This published rate is then used to price financial transactions around the world, affecting daily trade of about $350-trillion. A small change can make a huge difference.

This all works just fine in a normal world, but the banking world hasn't been normal for some time.

The first abnormality is that most money nowadays goes around in circles, from governments to banks and back to governments. This cosy arrangement has no real end user to price the true appetite and cost, at the margin, for money. I mean money that's going to be used by people to purchase real goods and services in the economy, rather than support government policy or the cost of sovereign debt.

So, the real rate at which money will clear is not tested.

The next problem is that there are all kinds of troubles about in the real economy, which are not reflected in the markets - each of these is another reason to keep up appearances. How else have we dealt with the European sovereign crisis or the US fiscal cliff? We print money and raise debt.

If you are the Bank of England, the last thing you need is for your bankers to be running around telling the world you're in trouble by raising the perceived borrowing rate. I'm not for a minute suggesting the bank is complicit in any of this, but you can understand that a central bank needing to raise funds would prefer to do so at a lower rate. So, maybe, it would pay more attention if it thought the rate was too high?

The third problem, the real problem I'm afraid, is that bankers have got used to a good life. Too good, and not sustainable by or shared with participants in the real economy. That would be us, the borrowers. In fact, it's getting so obvious that they're out of line that even shareholders are starting to complain. God forbid, who would have expected such a thing in our lifetime? At a bank!

So, people started cheating - because the alternative (austerity measures for nations, no bonuses for executives) is too ghastly to contemplate. It begins at the highest level. Sovereign leaders encourage their central banks to agree to lower funding rates - to mitigate the cost of funding but also to pretend to the world that money is cheap and in abundance and that they should go out and spend with gay abandon, which would cure the sluggish growth in the world.

The trouble is, as I have already said, this money never got to the people. "Look, I don't want to influence you in any way," said the president to the governor, "but it would be really useful if our lending rates were to come down a bit, don't you think? Surely it can do no harm, and it is an election year."

Capital finds its way to the right return and the result of all of this finally reflects in exchange rates (unless you're Greece, protected under the European umbrella, regardless). Some governments simply fix or openly manipulate exchange rates - at least that's a bit more overt - and you can trade with or against it.

Bankers have used the very integrity with which we have entrusted them to manipulate Libor, because they can, because we ordinary folk would regard such an action as unthinkable for a banker, and because they think we don't understand.

Let's sink down into the next level in the mud. Bob Agate, a derivatives trader hoping one day to become Bob Diamond, needs to make a good profit, so his boss can show a good profit for the division, so the bank can show a good profit, so the stock can price up, so bonuses can kick in, so the CEO can earn £25m. Shareholders are becoming so unreasonable nowadays, expecting the bank to make money before the CEO takes it all, don't you think?

Our derivatives trader presides over a massive (I mean truly massive) dollar-euro swaps book with various repricing and maturity dates. Next Tuesday, it would really suit Bob (both Bobs in fact) if Libor was down a couple of basis points - it would make a difference of $10m to his bottom-line profit.

Instead of waiting for when he'll see Bill at squash later, he sends him an e-mail to suggest that a lower input to the Libor rate process would be really cool for his book next Tuesday. Bill is a suit who works with the team that determines every day what Barclays is going to input to the Libor process. What harm can it do to indicate dollar Libor at 0,3510% when you really think it is 0,4658% - a lot on a big enough base. I can only imagine the fun these guys must have had when the dollar Libor dropped from 4,85% in mid-October 2008 to 1,1% in mid-January 2009 - only three months! Get out your records, regulators .

What harm can be done? Such a little thing. We all make money. They could never find out and nobody will get bust. The trouble is that there are two sides to every deal, every mark-to-market. The guy on the other side of Bob's trade wasn't going to get a bonus, so he told the teacher.

I made this all up. Names and trades have been changed to protect the guys we haven't needed to cut in yet.

Of course, Barclays won't be alone in this. At the rate things are going, there will be no more banks as we know them within a generation. Settlement mechanisms maybe, clearing houses maybe, but no banks.

. Barnes is chairman of Purple Capital and has spent 30 years in finance and markets.