As regulators and law enforcement officials around the world begin to dig into the Libor scandal, the 15 or so banks who know they’re responsible for the massive rate-rigging are trying to limit the damage. That’s right, it’s time for another round of: let’s have a global settlement!

A group of banks being investigated in an interest rate rigging scandal are looking to pursue a group settlement with regulators rather than face a Barclays-style backlash by going it alone, people familiar with the banks’ thinking said [...]

Barclays Plc was the first to settle with U.S. and British regulators, paying a $453 million penalty and admitting to its role in a deal announced June 27. Its chief executive, Bob Diamond, abruptly quit the next week, bowing to public pressure and erosion of the bank’s reputation.

The sources told Reuters that none of the banks involved now want to be second in line for fear that they will get similarly hostile treatment from politicians and the public. Bank discussions about a group settlement initially took place before the Barclays agreement, and picked back up in the aftermath.

Importantly, Reuters did not confirm that regulators were party to these talks, so this could just be a case of the masters of the universe talking amongst themselves, strategizing on how to get themselves out of this pickle. But Reuters did add that regulators would like the idea of a global settlement because they would get to have a big press conference and announce a headline number, and I think that’s right. We saw the appeal of that in the foreclosure fraud settlement. However, that negotiation dragged on for over a year, and I really don’t think the financial industry wants this hanging over their heads for that long a time period.

As for the damages:

Analysts have estimated that the scandal could cost the industry between $20 billion to $40 billion, further damaging a sector that is struggling to work its way through the aftermath of the 2007-2009 financial crisis, economic downturns in Europe and the United States, and increased regulatory demands.

That probably doesn’t add in the reputational risk of a financial system based mostly on fraud. Regulators and analysts are wondering why Libor exists, given that interbank lending isn’t really a going concern anymore in the wake of Lehman Brothers. Banks are really phoning in their Libor submissions now; JPMorgan Chase gave the same number for the entire month of June.

A system this exposed should in no way be allowed to get off with a group settlement. I think Elizabeth Warren put it best today.

With a rotten financial system once again laid bare to the world, the only question remaining is whether Wall Street has so many friends in Washington that meaningful reform is impossible.

Real accountability would mean prosecuting the traders and bank officials who violated federal laws and prosecuting the executives who knew what they were up to. It would mean forcing executives to pay back any inflated compensation that was based on padded profits.

Going forward, the rules would be changed so that Libor is calculated on actual borrowing costs, not estimated or claimed costs. And enforcement agencies would have the resources they need to launch investigations, to fight the armies of private lawyers the banks hire and to prosecute the law-breakers.

But the heart of accountability lies deeper. It rests on acknowledging that we cannot trust Wall Street to regulate itself — not in New York, London or anywhere else. The club is corrupt. When Mitt Romney says he will move to repeal all of the new financial regulations, he supports a corrupt system. When members of Congress grill regulators for being too tough on Wall Street and slash the budgets of the regulators charged with overseeing Wall Street, they prop up a corrupt system.

Well said.

UPDATE: The prospect of Wall Street suing Wall Street over Libor is kind of delicious.