LIBOR for fun and profit

Barclay's Bank is in hot water over attempts to manipulate the "London Interbank Offered Rate" (LIBOR) to their advantage.  US and Brit regulators got the goods on Barclay's strong enough to make them cough up nearly $500 million in fines, and have their three top officers resign.  Apparently the published LIBOR is put together by averaging reports from all the big banks on how much interest they had to pay to borrow money from other banks.  LIBOR is used to set interest rates on all sort of loans.
  L:IBOR is a new comer.  Back in the day we used the "prime rate", which was alleged to be the interest rate big banks charged their best customers.  Back then General Motors was considered a best customer, so we are talking about a long time ago.  Somehow the financial world stopped using (and reporting on the news) the prime rate in favor of LIBOR.  I have no idea how  that transition happened. 
  Of course you have to wonder about LIBOR.  It's an interest rate one bank charges another bank on a loan between two banks.
  Banks are supposed to raise money and make loans to finance business and construction.  That makes economies grow.  Making loans to other banks just swaps the money around but doesn't  do a thing for economic development.  At least the "prime rate" was a measure of how well banks were doing at their primary job.

Should Banks be allowed to Gamble?

Banks are supposed to finance business activity and economic growth.  Make loans to home buyers and car buyers.  Loan to businesses to purchase inventory, build new plants, purchase production equipment.  We all agree that this kind of lending makes the economy grow.
   But if you are a bank with a pile of money, there are other things you can do, things which to my way of thinking are just gambling.  If the bank bets right it makes money.  But no matter how it bets, it does nothing for the economy.  In the gambling department we have commodities trading, foreign exchange trading, playing the stock market, sub prime mortgages, credit default swaps, Greek bonds, mortgage backed securities, and whatever it was that JP Morgan lost $2 billion doing.  That deal was so opaque that even the Wall St Journal hasn't figured it out yet.
  Bankers love to gamble because the return can be very high.  And the risks always seem so small.  A bank can make more money gambling than it can doing 30 year fixed rate mortgages.
   Trouble is, when a big bet goes bad it can wreck the entire world economy.  The current Great Depression 2.0 was triggered by Fannie Mae and Freddy Mac (special purpose government run banks) and some of the stupider Wall St banks got to playing with mortgage backed securities, especially the securities backed with sub prime mortgages.  This bit of gambling caused the economic crash that we still haven't fixed.
   Maybe we should forbid banks from gambling?
Limit banks to doing mortgages and car loans and making loans to real businesses, i.e. businesses that make things, grow things, mine things, sell things, transport things, or furnish telecommunications, gas, and electric power.  No loans to "businesses" that just play the various markets.   No loans to hedge funds or stock brokers or other banks.