If you fancy a free market economy, or a society based on such an economy, best take care that your markets are not rigged.

If politics is the game, it helps if you can name a market that is – or ever has been – truly open, honest and free. Anything else is a fraud.

Britain has been drifting away from the old, comfortable compromise of a mixed economy for the best part of 40 years. It has been the casualty – or the beneficiary, if that's your taste – of a global ideological war. The state, the unfettered market, or some halfway house between the two? The scorecard says the neo-liberal version of the so-called Washington consensus emerged victorious, time and again.

So here we are. The prospectus offered was personal liberty, wealth creation, rising global prosperity and the rolling back of the oppressive state. In practice, it meant privatisation, labour "flexibility", minimal regulation, market fundamentalism and the toleration of inequality. Those, said mainstream politicians of every stripe on every continent, would do the trick.

Nobody mentioned a bunch of crooks running riot, time and again. Nobody said they would abuse power and wealth at every turn in what amounted to a vast conspiracy to defraud. Nobody said that rigging the game for the sake of personal enrichment would become the point and purpose of the system. They preferred the old lecture explaining that vile Marxism "failed to understand human nature".

So who still believes that the cost of petrol, food or credit, for nations or individuals, rises or falls because of the pure, dispassionate action of market forces? Speculative attacks, such as "aggressive tax avoidance", are hardly in the spirit of the thing; the fiddling of interest rates is another malignity entirely. It strikes at the heart of capitalism. When prices cannot be trusted – for such is the effect – there is no free market.

In the case of Barclays, and perhaps 20 other household names trading on the public trust, that was the whole idea. The London interbank offered rate (Libor) and its European equivalent were supposed to act as guarantees that bankers' claims matched reality, that they described accurately commerce between banks and, by extension, the wider world. For the sake of their bonuses and their bank, traders at Barclays decided to dispense with annoying, unhelpful reality. Time and again, for years, under the alleged instruction of "senior management", they lied.

You don't need to understand how Libor is constructed as a global benchmark, with highest and lowest figures discarded and averages compiled, to grasp what was done. Bankers were taken at their word. Instead of regarding this as a solemn responsibility, they took it as an opportunity, offered by suckers. The simple analogy is discovering, after a day at the races, that every nag was doped. Forget the casino economy: these characters were controlling the roulette wheel.

Financial journalists have been struggling to describe the fundamental nature of the fraud. In essence, it destroys their world. When Lehman Brothers went down in 2008 a few speculated, nervously, that capitalism itself was in deep trouble. Then the euphemisms began to flow: an excess of risk, recklessness, "complexity", systemic failure, unpredicted consequences. Some could make it sound like just one of those things. Evidence that individuals were personally, knowingly culpable was soon overlooked.

The Barclays affair nails every myth, every protective lie. At Westminster, Labour and Tories alike have regarded it as their duty to remove or avert financial sector regulation. They have taken the bankers at their word in claiming that the City is too big and too important to be governed by meaningful rules. Even when forced to rescue banks, these politicians have refused to recognise the logic of their actions. No rivals to the institutions, least of all in the shape of a state bank, could be tolerated. The bankers were very clear about that.

The list of misdemeanours – crime is such an ugly word – has been growing since banks started to go bust and demand, with menaces, public money. State support to Britain's financial sector, in cash real, printed or borrowed, now tops £1 trillion and the heart is being ripped from the welfare state to foot the bill. Earnings and employment for the commonality disappear while rewards for the oligarchy increase. Yet still they forge on, mendacious or incompetent by turn, serene in their self-regard, secure in their self-awarded wealth.

First they are obliged to own up, though apologies are few, for the PPI scam. Then RBS fails to fulfil its basic function for days on end because, it is alleged, of a failure to invest in computer systems. Then Barclays is exposed for systematic tax avoidance worth half a billion pounds. Then the banks, the entire tribe which claims an essential role in British enterprise, are revealed by this newspaper to have been mis-selling – the euphemisms never end – protection against fluctuations in interest rates.

The last of these, as we have reported and as the Financial Services Authority now accepts, was no mishap. Interest rate swaps were sold ruthlessly, knowingly, to thousands of small businesses who neither needed nor understood "the product". The cost has put a lot of hard-working people out of business. Compensation, another billion or two, will follow in time, no doubt, supplied in the end by the customers who are never allowed to wonder about which "market forces" set the rate for a credit card or a home loan.

In the case of Barclays, the forces described by Adam Smith – who knew greed when he saw it – were impersonated by a few flash traders calling in favours, and by the bank's participation, so it is further alleged, in an industry-wide ring. Mervyn King, governor of the Bank of England, the institution that will shortly resume control of this circus, summons up the full force of his rhetoric and calls such behaviour "shoddy".

Barclays prefers to say its "standards" – it doesn't say what those might be – have not been met. Bob Diamond, chief executive and former head of Barclays Capital, chief fixers of Libor, turns down one of his bonuses and counts that as an apology. He sees no reason to resign, cash in shares worth £22 million, or demand a year's worth of salary and benefits just to leave the bank. Diamond's total "package" of rewards for alleged success last year was £17.5m. The price of failure on his watch? Even after his bank is fined £290m, the CEO considers himself too important to quit.

This is not the tale of a few rogue traders pushing their luck. That excuse has worn paper thin. Plainly, the system is rotten, but so too is the ideology that underpins it, the belief that markets cannot – and must not – be controlled, the idea that every political choice must be subordinated to market imperatives, the blind faith in economic theory, if it deserves the name theory, first and last.

But let's not complicate matters. We have been ripped off royally, whether as simple customers and taxpayers in the northern hemisphere, or as struggling nations in the developing world. The arguments for rational alternatives will go on. Meantime, don't start believing a word about reform unless and until arrests are made.