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(Alison Frankel writes the On the Case blog for Thomson ReutersNews & Insight http://newsandinsight.com. The views expressedare her own.) By Alison Frankel NEW YORK, Dec 19 (Reuters) - Everyone who has ever claimedthat the financial industry is overregulated should be forced toread the final notice on UBS's manipulation of the Londoninterbank offered rate issued Wednesday by Britain's FinancialServices Authority. UBS disclosed its cooperation with antitrustauthorities more than a year ago, so it's no surprise that thebank was penalized, though the size of the penalty -- a total of$1.5 billion to U.S., British and Swiss regulators -- wascertainly notable, particularly because UBS had been grantedleniency for some parts of the Libor probe. But what's moststriking about the FSA's filing on UBS, just like its previousnotice on Barclays, is the brazenness of the misconductthe report chronicles. According to the FSA, 17 different peopleat UBS, including four managers, were involved in almost 2,000requests to manipulate the reporting of interbank borrowingrates for Japanese yen. More than 1,000 of those requests weremade to brokers in an attempt to manipulate the rates reportedby other banks on the Libor panel. (Libor rates, which arereported for a variety of currencies, average the borrowingrates reported by global banks; 13 banks are on the yen panel.) The corruption was breathtakingly widespread. According tothe FSA, UBS took good care of the brokers who helped the bankin its rate-rigging campaign: Two UBS traders whose positionsdepended on Libor rates, for instance, engaged in wash trades togin up "corrupt brokerage payments ... as reward for (brokers')efforts to manipulate the submissions." In one notorious 2008phone conversation recounted in the FSA filing, a UBS tradertold a brokerage pal, "If you keep (the six-month Libor rate)unchanged today ... I will fucking do one h umongous deal withyou.... Like a 50,000 buck deal, whatever. I need you to keep itas low as possible ... if you do that ... I'll pay you, youknow, 50,000 dollars, 100,000 dollars ... whatever you want ...I'm a man of my word." According to the FSA, the bank's rate manipulation, whetherto improve UBS's trading positions or to protect the bank'simage, was so endemic that one flummoxed rate submittercomplained in 2007 of being caught between demands by twodifferent traders who wanted two different fake submissions. "Igot to say this is majorly frustrating that those guys can giveus shit as mu c h as they like.... One guy wants us to do onething and (the other) wants us to do another," he told a UBSmanager, according to the FSA. Even after The Wall StreetJournal first broke news of suspected Libor manipulation in2008, UBS managers discussed continuing their rate-rigging, thistime with the goal of staying in the middle of the pack of ratereports so it would look as though they weren't engaged inrigging. UBS and Barclays, moreover, weren't outliers, according tothe FSA. Since Libor rates are averaged, the banks had tocollude with other panel banks to affect the reported rates. TheFSA filings indicate that they did. The same UBS trader whorewarded brokers with fees for wash trades, for instance,supposedly entered into trades with the specific purpose ofaligning his position with those of traders at other panel banksso that they could all share in the benefits of rate-rigging."UBS's misconduct," the FSA said Wednesday, "extended beyondUBS's own internal submission processes to sustained andrepeated attempts to influence the submissions of other banks,acting in collusion with panel banks and brokers at a number ofdifferent broker firms." The victims of the manipulation, of course, were all of thepeople who assumed the legitimacy of Libor benchmarks, which areused to set interest rates on trillions of dollars of loansaround the world. I'm not even talking about the money damagessought by antitrust plaintiffs in the United States, who haveclaimed that Libor and Euribor price-fixing conspiraciesresulted in interest-rate overpayments. Their actual damages, ifthere are any, will be hashed out in litigation. I'm speakingmore broadly about the borrowing public that took out loanspegged to Libor rates because they believed those rates were sethonestly. How many small businesses and homeowners had any ideathat traders from UBS and Barclays were promising rewards tocolleagues who agreed to lie about borrowing rates to benefitthe banks' trading positions? And how many of those cheatingbankers ever thought about the borrowers who would be affectedby their rate-rigging? In that regard, the Libor cases share a theme with the othergreat scandals exposed in the years since the financial crisis:Insiders will blithely compromise market integrity for their ownprofit, and we, the uninformed public, are their dupes. ConsiderCitigroup and Goldman Sachs, which both agreed tosettlements with the Securities and Exchange Commission fordeceiving investors about collateralized debt obligations. Theycreated complex financial instruments to rid themselves ofexposure to toxic mortgage-backed securities, then dumped thoseCDOs on investors who weren't as shrewd. Sure, the banks (andsome judges) have noted the relative sophistication of investorsin those CDOs, but if you contributed to a pension fund thatbought CDOs from a bank secretly betting on the failure of thoseinstruments, you're a victim. So too are MBS investors who counted on issuers'representations and warranties. We now know the securitizationbusiness was fundamentally flawed, with legions of homeownersapproved for mortgages they couldn't possibly pay and untoldthousands of investors fed lies about who those borrowers were.You can argue that borrowers share the blame for agreeing totake out unaffordable loans, but that doesn't excuse issuersfrom responsibility for misrepresenting facts about the loanswhen they bundled up mortgages and created MBS trusts. As we'veseen in case after case, banks knew the loans were deficient yettold investors otherwise. In some instances, they even receivedcompensation from mortgage originators for deficient loans, butkept the money for themselves instead of passing it on toinvestors. If we've learned nothing else in the last four years, weshould at least acknowledge that some people within financialinstitutions, if left to their own devices, will behavedishonorably and even illegally. The drive for profits in peoplelike the UBS traders and their brokerage conspirators, asdescribed in the FSA filing, is obviously more powerful than anyqualms about morality or fear of being found out. That's why moaning about Dodd-Frank whistle-blowers orduplicative actions against the banks rings hollow. Insiderswill abuse the power of asymmetry: They know about their ownsecret conduct and we don't. We're playing by their house rules,and regulators armed with subpoenas are the only hope we've got. (Reporting by Alison Frankel; Editing by Ted Botha)