The New York Times quotes anonymous government officials saying that the Justice Department is in the midst of building criminal cases in the Libor rate-rigging scandal.

As regulators ramp up their global investigation into the manipulation of interest rates, the Justice Department has identified potential criminal wrongdoing by big banks and individuals at the center of the scandal.

The department’s criminal division is building cases against several financial institutions and their employees, including traders at Barclays, the British bank, according to government officials close to the case who spoke on the condition of anonymity because the investigation is continuing. The authorities expect to file charges against at least one bank later this year, one of the officials said.

The prospect of criminal cases is expected to rattle the banking world and provide a new impetus for financial institutions to settle with the authorities. The Justice Department investigation comes on top of private investor lawsuits and a sweeping regulatory inquiry led by the Commodity Futures Trading Commission. Collectively, the civil and criminal actions could cost the banking industry tens of billions of dollars.

Atrios doesn’t buy this for a minute. But I could see this getting the Administration out of a box of their own making, just in time for the Presidential election.

The White House has suffered endless criticism for their unwillingness to prosecute anyone over the sins of the financial crisis. To be sure, Libor was more an effect than a cause. It reflected the sins of bank trading at a far lower level than the proximate causes before the crisis, and a host of illegal activity taken after the crisis to cover up for the damage caused by it. But because we have this surfeit of scandals out there, Libor can stand in for “prosecuting the banks,” long a rallying cry on the left. The likelihood would be, of course, that the employees who did the submissions, or a few traders who asked for riggings up or down to satisfy their derivative bets, would get ensnared by the prosecutions, rather than any of the executives who may have authorized everything.

What’s more, only three of the sixteen banks that submit rates for the Libor are based in the United States – JPMorgan Chase, Bank of America and Citi. Barclays may have settled with the Justice Department for $450 million, but that did not immunize them from criminal prosecution. And we have a Barclays employee admitting to a New York Fed official in April 2008 that they were not submitting an honest Libor, not to mention all the incriminating emails between traders and bank officials asking for, and receiving, a rigged rate submission. The article mentions that the next bank primed for regulatory action, perhaps from the Commodity Futures Trading Commission, is Swiss-based UBS.

Think about that time period. Regulators have known about fraudulent submissions on Libor for over four years. Why, all of a sudden, did the Barclays settlement come out just a month ago? It seems almost perfectly timed to lead to a prosecution of “at least one bank” within the calendar year, perhaps in the fall, right when everyone will tune into the Presidential election race.

And President Obama is hampered by the fact that, while he’s going all-out to cast Mitt Romney as an outsourcing specialist and creature of Wall Street, he has done nothing to check the criminality of those Wall Street actors. A prosecution on Libor, probably against a foreign bank (and in this sense, it could give US banks a leg up internationally), gives him a convenient out.

What’s more, it would relieve the pressure to come up with some action on the other lingering scandal, the fraud in the residential housing market. The task force set up to investigate securitization is moribund, held back by the Justice Department, according to housing groups. If DoJ pulls a prosecution on Libor, it becomes harder to criticize them for failing to prosecute on securitization fraud. That RMBS working group then melts away – in fact, the larger Financial Fraud Enforcement Task Force will doubtlessly take CREDIT for the Libor prosecution. The statutes of limitations will run out on the other fraud. The Administration will tout heavily their “bringing bankers to justice” in the Libor rigging, forget about the rest, and fill their self-contoured quota of accountability.

This isn’t just informed speculation – the sources are openly saying this to the NYT:

But the Libor case presents a potential opportunity for prosecutors. Given the scope of the problems and the number of institutions involved, the rate-rigging investigation could provide a signature moment to hold big banks accountable for their activities during the financial crisis.

“It’s hard to imagine a bigger case than Libor,” said one of the government officials involved in the case.

A former prosecutor did suggest to me last month that the Administration wouldn’t have thrown together a financial fraud task force, and revive it earlier this year, if they didn’t have some prosecutions waiting on the runway. Libor could be those prosecutions. It wouldn’t surprise me at all.