There was clearly a systemic failure in our finance system, but it required people like Angelo Mizolo to fully exploit it in order to make it collapse. Hopefully this is only the beginning (I'd still like to see Phil Gramm go down):

Angelo R. Mozilo, the self-made man from the Bronx who built Countrywide Financial into the nation’s largest mortgage lender before the credit squeeze hit, has been charged with securities fraud and insider trading in a civil suit brought by the Securities and Exchange Commission.

Citing e-mail messages in which Mr. Mozilo referred to Countrywide loan products as “toxic” and “poison,” S.E.C. officials said that he had misled investors about growing risks in the company’s lending practices from 2005 through 2007. During this time he also generated $140 million in profits by selling stock in the company, the S.E.C. said.

“This is the tale of two companies,” said Robert Khuzami, enforcement director at the S.E.C. “Countrywide portrayed itself as underwriting mainly prime-quality mortgages, using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk.”

At a news conference announcing its filing of the suit, the most prominent against an executive involved in the mortgage crisis, Mr. Khuzami said the S.E.C. had made it a priority “to pursue cases at the root of the financial crisis.” As the nation’s largest mortgage lender, Countrywide helped fuel the housing boom by offering loans to high-risk borrowers.

So apparently George Bush could have done something to prevent the present economic crisis, but was so obsessed with terrorism, he couldn't see the forest for the proverbial trees. (Or, less kindly, he couldn't walk and chew gum at the same time.)

The FBI was aware for years of "pervasive and growing" fraud in the mortgage industry that eventually contributed to America's financial meltdown, but did not take definitive action to stop it.

"It is clear that we had good intelligence on the mortgage-fraud schemes, the corrupt attorneys, the corrupt appraisers, the insider schemes," said a recently retired, high FBI official. Another retired top FBI official confirmed that such intelligence went back to 2002.

The problem, according to the two FBI retirees and several other current and former bureau colleagues, is that the bureau was stretched so thin that no one noticed when those lenders began packaging bad mortgages into bad securities.

"We knew that the mortgage-brokerage industry was corrupt," the first of the retired FBI officials told the Seattle P-I. "Where we would have gotten a sense of what was really going on was the point where the mortgage was sold knowing that it was a piece of dung and it would be turned into a security. But the agents with the expertise had been diverted to counterterrorism."

The FBI not only lacked the resources, but also never got the tips it needed from the banking regulatory agencies. The Securities and Exchange Commission, the Office of Thrift Supervision and the Office of the Comptroller of the Currency also failed to detect the securities issue, said the first retired FBI official.

"These are very resource-intense cases that take a lot of work by very skilled people," said John Falvey Jr., a former federal prosecutor who currently does white-collar criminal defense work in Boston.

And Falvey said that financial executives who deliberately chose not to learn the facts about dicey mortgage-lending practices in their companies -- who chose to be "willfully blind" to such practices and the subsequent securitization of those mortgages -- could be vulnerable to prosecution for securities fraud.

Both retired FBI officials asserted that the Bush administration was thoroughly briefed on the mortgage fraud crisis and its potential to cascade out of control with devastating financial consequences, but made the decision not to give back to the FBI the agents it needed to address the problem. After the terrorist attacks of 2001, about 2,400 agents were reassigned to counterterrorism duties.

This mass reassignment was first chronicled by the Seattle P-I in the Terrorism Tradeoff, a series of investigative reports beginning in 2007 and stretching into 2008. That administration policy, the P-I reported, resulted in a dramatic plunge in FBI criminal investigations and referrals for prosecution. And recent data from Syracuse University researchers shows the problem has worsened.

Just think how much money and effort it would have saved if the Bush administration had only enforced the rules that were already in place!

Dec. 21 (Bloomberg) -- The FBI has had to shift agents from terror and other crime work to Wall Street investigations including the alleged Bernard Madoff Ponzi scheme, said David Cardona, head of the New York office’s criminal division.

The Federal Bureau of Investigation has had to engage in “triage” in responding to successive frauds involving subprime mortgages, auction-rate securities and Madoff, who prosecutors said confessed this month to bilking investors out of $50 billion, Cardona said in an interview yesterday.

“We have to work those cases which we think pose the greatest threat,” he said. “In this case, it’s a threat to the financial system and Wall Street. It’s the same with mortgage fraud. I’m ramping these squads up.”

Special Agent Rachel Rojas, who once worked on tracing terrorist financing and al-Qaeda, now oversees 15 agents investigating mortgage fraud, said Cardona, a career agent with 23 years at the bureau who once worked as a New York state accountant. He declined to say how many other agents he has reassigned from anti-terror work to financial-crimes.