The defense is quite simple. They were willing to overlook criminal conduct out of concern that exposing this conduct would make the financial crisis worst.
Of course, this defense does not address the question of why the financial regulators did not bring up the manipulation of Libor interest rates prior to the debate over the Dodd-Frank Act or to the UK's Independent Commission on Banking.
It is this cover-up that has and is destroying trust in the financial system.
Who do you trust?
You cannot trust the banks. Barclays has already admitted to lying both for profit and to present itself as financially healthier than it was. Deutsche Bank has negotiated a deal to get off lightly in return for turning over evidence.
You cannot trust the financial regulators. The failure to bring up the manipulation as the policy response to the financial crisis was being discussed is explicitly condoning banks manipulating Libor.
The problem that we know face is how do we restore trust in the financial system.
As your humble blogger has been saying since the beginning of the financial crisis, the solution is transparency.
- For banks, this means they must be required to disclose on an ongoing basis their current asset, liability and off-balance sheet exposure details.
- For structured finance securities, this mean they must be required to report on an observable event basis any activity, like a payment or default, occurring with the underlying collateral before the beginning of the next business day.