It’s really getting difficult to take the entire global financial regulatory apparatus seriously in the wake of the Libor scandal.

The British Bankers’ Association was given weekly warnings in 2008 that the process of setting the Libor interest rates was being distorted.

A former member of the Libor compilation team at Thomson Reuters says it regularly warned senior BBA staff about the problem.

Its reports regularly highlighted the implausible rate submissions of several banks involved in the Libor process.

The BBA denied these had amounted to warnings of wrong-doing.

Right, the Libor compilation team only said that the submissions were impossible, how could that ever be considered as wrongdoing on the part of those who submitted?

According to this report, the rate compilers would make calls every day to the banks, explaining that their Libor rates varied wildly from other member banks, and asking whether they wanted to revise. This was all a game. Everyone knew the rates were fictional. And this had a massive effect on trillions in structured finance products.

The Bank of England has repeatedly passed the buck to the other financial regulators in Britain, saying they were responsible for ferreting out the fraud. But the British Bankers’ Association has nowhere to turn. They collect the Libor submissions and were being told every single week that they were wrong. For that matter, the Financial Services Authority, in their regulatory oversight, should have learned that and acted on it.

The picture we can then make, given all this, is that the regulators wanted the Libor to be rigged. This is the theory that former Barclays CEO Bob Diamond stressed when he said that the Bank of England encouraged the rigging. The theory holds that such rigging, in terms of masking the ill financial health of the banks, was necessary to preserve the financial system. When you look at this in hindsight, several years on, you have to ask yourself why was this financial system worth preserving? Nationalization has become a taboo subject, but breaking up the banks hasn’t (heck, Sandy Weill agrees with it now), and both have the same basic point, to end this system of runaway finance and get the world back to something with a hair more sanity.

Why it’s desirable to sustain an industry based almost wholly on fraud escapes me.