If you blinked, you probably missed this. The SEC announced Friday that GE Funding would pay a mere $70.4 million (chump change to these people) to settle charges of bid-rigging.

When I was a reporter, the scale of fraud involved in this kind of thing drove me crazy, because no matter how carefully I'd report it, it was too complicated for most readers (and some politicians) to grasp. Yet it costs them real money.

I remember that during the Carter administration, the Department of Justice published a report called "Corruption: The Hidden Tax". They estimated that government spending on all levels - federal, state, municipal - was inflated by 30 percent due to fraud. (That was in the 70s. Imagine how bad it is now.)

Now, think about that. Your tax bills are much higher than they need to be, because so many people are taking a cut off the top. Municipal bonds are a particularly scummy pond of corruption, and the practice that's described here is widespread. There are "safeguards" built into the bidding system that requires the issuing company to get their bid certified by another "competing" bank - but as we've all learned over the past few years, there's no real competition. They're all in bed together. It's common practice for them to rubber stamp each other's deals, safe in the knowledge that soon they'll have their own turn at the trough:

Dec. 23 (Bloomberg) -- General Electric Co. agreed to pay $70.4 million to settle a criminal probe and civil claims for conspiring to rig bids on U.S. municipal-bond deals, overcharging state and local governments on investments.

GE Funding Capital Market Services, a former unit, is the fifth company to settle in a more than five-year federal investigation. The deal will resolve probes by the Justice Department, the Securities and Exchange Commission and the Internal Revenue Service as well as attorneys general in 25 states, the Justice Department said today in a statement.

“GE Funding's former traders entered into illegal agreements to manipulate the bidding process on municipal investment contracts,” said Sharis A. Pozen, acting assistant attorney general in charge of the Justice Department's antitrust division. “This anticompetitive conduct harmed municipalities as well as taxpayers.”

The settlement will bring to $743 million the amount that banks have paid to end the case, some of which is being returned to localities that were overcharged, the SEC said in a news release. Bank of America Corp., JPMorgan Chase & Co., UBS AG and Wells Fargo & Co. previously settled similar cases.

As long as there are no consequences that fit their crimes, the crimes will continue.

No financial executives have gone to jail, despite an overwhelming body of evidence indicating that a group of organized "banker gangs" conducted a widespread Wall Street crime wave that made them rich and while throwing millions into poverty. The Justice Department's failure to act against these bankers is matched only by its declining credibility -- a problem it only makes worse whenever it tries to defend itself.

An interview with an outgoing Justice official in today's Wall Street Journal is merely the latest in a sad parade of weak excuses and implausible arguments, and it comes on the heels of Justice Department official Lanny Breuer's poor 60 Minutes showing this week on the same topic.

Stop. Just stop. If nobody at Justice can get the job done, it's time for the Administration to bring in a whole new team and start again. Did everybody in the banking business break the law? No. Very few did. But some of the ones that did appear to be very well-placed, and if they're not punished they'll do it again and again.

Broken Trust

The credibility problem with Holder's (and Obama's) Justice Department doesn't just stem from its failure to act, or even from its inability to offer a plausible explanation for its inaction. The real problem comes from its history of misleading, misdirecting, and deceiving the public about its efforts.

Its "Interagency Task Force" against lending fraud with a lot of fanfare, for example, turned out to be vaporware, a small-time operation that targeted two-bit grifters and petty crime rings but avoided any investigation of big-bank systemic fraud. Not that the operation was a total failure: The SEC charged a psychic with fraud! (I say the psychic shoulda seen it coming.)

The Justice Department boasted about another operation, too, one with the all-too-ironic name "Operation Broken Trust." As with the "Interagency Task Force," we were told that "Broken Trust" was a coordinated Justice Department effort to track down bad guys. And like the Task Force, "Trust" ignored the real crimes on Wall Street while triumphantly listing enough colorful small-time crooks to mount a summer-stock production of Oliver.

But, while both operations were deceptively packaged, Broken Trust was worse. How much worse? The fair-minded Columbia Journalism Review called its roundup of articles on the topic "Obama Administration's Financial Fraud Stunt Backfires." The laundry list of cases named as "Broken Trust" successes included some that were initiated before it was even created. Some were underway before Barack Obama even became President.

"Trust" was a brazen attempt to hoodwink the public -- nothing more.

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Although when it comes to the specific date of our mass death, Harold Camping might as well be talking Chinese nuclear development with Herman Cain, it seems a little bit harder to doubt his general prognostication of doom in the weeks after 56 exotic animals were released into the countryside by the owner of a "private zoo" in Ohio.

Just before he shot himself to death.

If you don't know the whole story by now, to quickly summarize: In a scene that Director Emeritus of the Columbus, Ohio Zoo and television personality Jack Hanna compared to "Noah's Ark", endangered Bengal tigers, grizzly bears, monkeys, and a variety of other animals - 49 in all - were killed en masse by law enforcement.

Make no mistake - this happened because Ohio is one of a handful of states that does not regulate the sale and ownership of exotic animals, and it has been purposefully made that way. Tea Party-sympathiser-cum-Governor John Kasich, upon his election to that office, began his assault on government by letting an executive order expire that had provided actual restrictions concerning who could own and sell these animals in the Buckeye State.

To Kasich, this kind of crazy Hobbesianism would "hurt small business", which presumably includes the particular lunatic who had done jail time for illegal possession of firearms and was cited multiple times for animal abuse - but still had his Animal Farm up and running in Ohio - until he granted his boarders amnesty. Because of the anti-regulation zealots who have taken control of our political culture and institutions, this was the profile of someone still fit to continue to lord over a coterie of dangerous and endangered species, in his own little Jurassic Park.

As Darth Vader would say, "Impressive. Most impressive."

Now if you were to ask the Don King of pizza, Herman Cain, I'm sure he'd have a simple plan to solve this problem, which would probably include a number of 9s and the assumption that Zanesville, Ohio is somewhere in the vicinity of Chiang Mai. But for those of us with a beyond-Perry intellect, the story is as simple as it is sadly quotidian. What led to the death of these exotic animals is the same insanity that crashed Wall Street and allows drug companies to lie to people while killing them: the mass deregulation of America.

If you think the animals have run wild in eastern Ohio, then take a look at what a-not-quite-as-evolved species did on Wall Street, resulting in thousands of zookeepers finally showing up to occupy this land those on "The Street" thought was theirs to defile and despoil.

From the 1980s onward, when we started to "get government of our backs", as Ronnie liked to say, we created a mess that now has awoken 99 per cent of the people who generally can't spare the pocket change for a $10,000 Tiffany towel rod. The apogee of this idiocy was the Gramm-Leach-Bliley Act, which in 1999 repealed one of the great accomplishments of the New Deal, the Glass-Steagall legislation separating commercial and investment banks.

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So $150 million of our money is going to a government facility in lower Manhattan where representatives of Wall Street firms get to sit alongside the New York Police Department and spy on your basic law-abiding citizens. Written by Pam Martens on Counter Punch:

According to newly unearthed documents, the planning for this high tech facility on lower Broadway dates back six years. In correspondence from 2005 that rests quietly in the Securities and Exchange Commission’s archives, NYPD Commissioner Raymond Kelly promised Edward Forst, a Goldman Sachs’ Executive Vice President at the time, that the NYPD “is committed to the development and implementation of a comprehensive security plan for Lower Manhattan . . . One component of the plan will be a centralized coordination center that will provide space for full-time, on-site representation from Goldman Sachs and other stakeholders.”

At the time, Goldman Sachs was in the process of extracting concessions from New York City just short of the Mayor’s firstborn in exchange for constructing its new headquarters building at 200 West Street, adjacent to the World Financial Center and in the general area of where the new World Trade Center complex would be built. According to the 2005 documents, Goldman’s deal included $1.65 billion in Liberty Bonds, up to $160 million in sales tax abatements for construction materials and tenant furnishings, and the deal-breaker requirement that a security plan that gave it a seat at the NYPD’s Coordination Center would be in place by no later than December 31, 2009.

The surveillance plan became known as the Lower Manhattan Security Initiative and the facility was eventually dubbed the Lower Manhattan Security Coordination Center. It operates round-the-clock. Under the imprimatur of the largest police department in the United States, 2,000 private spy cameras owned by Wall Street firms, together with approximately 1,000 more owned by the NYPD, are relaying live video feeds of people on the streets in lower Manhattan to the center. Once at the center, they can be integrated for analysis. At least 700 cameras scour the midtown area and also relay their live feeds into the downtown center where low-wage NYPD, MTA and Port Authority crime stoppers sit alongside high-wage personnel from Wall Street firms that are currently under at least 51 Federal and state corruption probes for mortgage securitization fraud and other matters.

In addition to video analytics which can, for example, track a person based on the color of their hat or jacket, insiders say the NYPD either has or is working on face recognition software which could track individuals based on facial features. The center is also equipped with live feeds from license plate readers...read on

I can think of few things that have been more toxic to our democracy than the realization that no laws apply to Wall Street, and they will never, ever, ever have to face actual consequences for their crimes. Matt Taibbi on how the SEC covered up potential criminal acts on Wall St.:

Imagine a world in which a man who is repeatedly investigated for a string of serious crimes, but never prosecuted, has his slate wiped clean every time the cops fail to make a case. No more Lifetime channel specials where the murderer is unveiled after police stumble upon past intrigues in some old file – "Hey, chief, didja know this guy had two wives die falling down the stairs?" No more burglary sprees cracked when some sharp cop sees the same name pop up in one too many witness statements. This is a different world, one far friendlier to lawbreakers, where even the suspicion of wrongdoing gets wiped from the record.

That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – have apparently disappeared forever into the wormhole of history.

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UPDATE: Two Connecticut hedge fund offices were raided today by the FBI. Another raided in San Francisco.

I'm not in love with the capitalist system, especially the steroid-bloated version of the past 30 years. But if we're going to have capitalism, the only way it can work for small investors is if we have access to accurate information about the risks. In a system rife with insider-trading, small investors don't have a ghost of a chance, so I hope this investigation ends with some high-profile indictments and convictions:

Federal authorities, capping a three-year investigation, are preparing insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders, and analysts across the nation, according to people familiar with the matter.

The criminal and civil probes, which authorities say could eclipse the impact on the financial industry of any previous such investigation, are examining whether multiple insider-trading rings reaped illegal profits totaling tens of millions of dollars, the people say. Some charges could be brought before year-end, they say.

The investigations, if they bear fruit, have the potential to expose a culture of pervasive insider trading in U.S. financial markets, including new ways non-public information is passed to traders through experts tied to specific industries or companies, federal authorities say.

One focus of the criminal investigation is examining whether nonpublic information was passed along by independent analysts and consultants who work for companies that provide "expert network" services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge.

Among the expert networks whose consultants are being examined, the people say, is Primary Global Research LLC, a Mountain View, Calif., firm that connects experts with investors seeking information in the technology, health-care and other industries.

"I have no comment on that," said Phani Kumar Saripella, Primary Global's chief operating officer.

Primary's chief executive and chief operating officers previously worked at Intel Corp., according to its website.

In another aspect of the probes, prosecutors and regulators are examining whether Goldman Sachs Group Inc. bankers leaked information about transactions, including health-care mergers, in ways that benefited certain investors, the people say. Goldman declined to comment.

Our leaders have framed the problem as a “crisis of confidence” but what they actually seem to mean is “please pay no attention to the problems we are failing to address.” - Michael Lewis

In today's New York Times, Michael Lewis, author of "Liar's Poker" and "Panic: The Story of Modern Financial Insanity", looks at the systemic intertwined interests (like the don't-rock-the-boat SEC) that kept Wall St. embroiled in such questionable and risky practices. As just one example among many, he points to the man who tried to stop Bernie Madoff for years:

... Consider the strange story of Harry Markopolos. Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. Mr. Madoff’s investment performance, given his stated strategy, was not merely improbable but mathematically impossible. And so, Mr. Markopolos reasoned, Bernard Madoff must be doing something other than what he said he was doing.

In his devastatingly persuasive 17-page letter to the S.E.C., Mr. Markopolos saw two possible scenarios. In the “Unlikely” scenario: Mr. Madoff, who acted as a broker as well as an investor, was “front-running” his brokerage customers. A customer might submit an order to Madoff Securities to buy shares in I.B.M. at a certain price, for example, and Madoff Securities instantly would buy I.B.M. shares for its own portfolio ahead of the customer order. If I.B.M.’s shares rose, Mr. Madoff kept them; if they fell he fobbed them off onto the poor customer.

In the “Highly Likely” scenario, wrote Mr. Markopolos, “Madoff Securities is the world’s largest Ponzi Scheme.” Which, as we now know, it was.

Harry Markopolos sent his report to the S.E.C. on Nov. 7, 2005 — more than three years before Mr. Madoff was finally exposed — but he had been trying to explain the fraud to them since 1999. He had no direct financial interest in exposing Mr. Madoff — he wasn’t an unhappy investor or a disgruntled employee. There was no way to short shares in Madoff Securities, and so Mr. Markopolos could not have made money directly from Mr. Madoff’s failure. To judge from his letter, Harry Markopolos anticipated mainly downsides for himself: he declined to put his name on it for fear of what might happen to him and his family if anyone found out he had written it. And yet the S.E.C.’s cursory investigation of Mr. Madoff pronounced him free of fraud.

Of course, Madoff was a relatively small part of the culture:

The American International Group, Fannie Mae, Freddie Mac, General Electric and the municipal bond guarantors Ambac Financial and MBIA all had triple-A ratings. (G.E. still does!) Large investment banks like Lehman and Merrill Lynch all had solid investment grade ratings. It’s almost as if the higher the rating of a financial institution, the more likely it was to contribute to financial catastrophe. But of course all these big financial companies fueled the creation of the credit products that in turn fueled the revenues of Moody’s and Standard & Poor’s.

These oligopolies, which are actually sanctioned by the S.E.C., didn’t merely do their jobs badly. They didn’t simply miss a few calls here and there. In pursuit of their own short-term earnings, they did exactly the opposite of what they were meant to do: rather than expose financial risk they systematically disguised it.

This is a fascinating piece, with lots of advice about what needs to be fixed to restore confidence in the financial system. (As you may have guessed, nothing substantive has been done yet.) Go read the rest.

As Lloyd Blankfein prepares to testify today that Goldman Sachs is innocent of allegations that the company knowingly sold bad products to clients, Senate investigators are saying that Abacus was just the tip of the iceberg. Stay tuned for fireworks:

In a statement prepared for the hearing and released on Monday, Mr. Blankfein said the news 10 days ago that the S.E.C. had filed a civil fraud suit against Goldman had shaken the bank’s employees.

“It was one of the worst days of my professional life, as I know it was for every person at our firm,” Mr. Blankfein said. “We have been a client-centered firm for 140 years, and if our clients believe that we don’t deserve their trust we cannot survive.”

Mr. Blankfein will also testify that Goldman did not have a substantial, consistent short position in the mortgage market.

But at the press briefing in Washington, Carl Levin, the Democrat of Michigan who heads the Senate committee, insisted that Goldman had bet against its clients repeatedly. He held up a binder the size of two breadboxes that he said contained copies of e-mail messages and other documents that showed Goldman had put its own interests first.

“The evidence shows that Goldman repeatedly put its own interests and profits ahead of the interests of its clients,” Mr. Levin said.

Mr. Levin’s investigative staff released a summary of those documents, which are to be released in full on Tuesday. The summary included information on Abacus as well as new details about other complex mortgage deals.

On a page titled “The Goldman Sachs Conveyor Belt,” the subcommittee described five other transactions beyond the Abacus investment.

One, called Hudson Mezzanine, was put together in the fall of 2006 expressly as a way to create more short positions for Goldman, the subcommittee claims. The $2 billion deal was one of the first for which Goldman sales staff began to face dubious clients, according to former Goldman employees.

“Here we are selling this, but we think the market is going the other way,” a former Goldman salesman told The New York Times in December.

Let me tell you a story about a story that isn't a story but became a story because it was broadcast from major news sources with an air of breathless indignation, laced with a tiny bit of naughtiness intended to disguise the true story because the Republicans aren't thrilled with the SEC right now.

Here's the juicy tidbit:

Senior staffers at the Securities and Exchange Commission spent hours surfing pornographic websites on government-issued computers while they were being paid to police the financial system, an agency watchdog says.

Rep. Darrell Issa (R-CA) is shocked -- SHOCKED -- that such a thing would happen while the market is in meltdown mode.

Rep. Darrell Issa (R-Calif.), ranking Republican on the House Oversight and Government Reform Committee, said it was “nothing short of disturbing that high-ranking officials within the SEC were spending more time looking at pornography than taking action to help stave off the events that brought our nation's economy to the brink of collapse."

"This stunning report should make everyone question the wisdom of moving forward with plans to give regulators like the SEC even more widespread authority," Issa said in a subtle jab at ongoing financial reform efforts.

In the clip at the top of this post, Rep. Barney Frank patiently explains the "culture of the SEC" in response to Andrea Mitchell's question about whether the Madoff scandal might have been caught sooner if SEC officials weren't surfing porn instead of doing their jobs. He walks Mrs. Greenspan through the fallacies of her husband's philosophy of "let markets be king" and resulting underregulation that led to rampant fraud in the system.

Everything old is new again

The only problem with all this fuss? This story is all about a story already reported in November, 2008. ProPublica gave us the full scoop on it in November, 2008. November, 2008. That would be when the SEC was run by a Republican administration with George Dubya Bush as its leader, wouldn't it?

You can read the entire Inspector General's 94-page report for yourself, right here. The pornography allegations are only a very small part of a much more disturbing picture, actually. It's interesting to me to see the fuss around pornography when other, more serious and chilling allegations are contained within it. Here are a few of the interesting ones:

• Investigation of Conflict of Interest, Improper Solicitation and

  Receipt of Gifts from a Prohibited Source, and Misuse of Official Position

• Follow-up Investigation of Disruptive and Intimidating Behavior by a Senior Manager
• Investigation of Failure to Maintain Active Bar Status

The report also has details about the investigation into reasons for Bear Stearns' collapse. The conclusions there are far more interesting than anything to do with SEC employees accessing pornography.

On a weekend where negotiations are moving ahead to get to a vote on financial regulation Monday, Issa's latest effort to manufacture scandal is just a cynical ploy to manipulate public opinion. It's a little like the "death panel" controversy, or the "Goldman Sachs gave more money to Obama than anyone else" controversy. The goal is to turn public opinion away from efforts to rein in what is completely out of control, water it down more than it is already, and pay off the Republican paymasters of Wall Street.

Nothing to see here, move along.

My goodness. Who would have guessed that Republicans would try to protect the firm whose leaders helped crash the economy? Mitch McConnell told me on the teevee that Republicans are trying to reform Wall Street. Now I'm really confused!

The Securities and Exchange Commission decided to sue Goldman Sachs Group Inc. over the objections of two Republican commissioners, suggesting an unusual split at the agency that could politicize one of its most prominent cases in years.

People familiar with the matter said the five-member commission held a lengthy meeting Wednesday to debate the civil-fraud charges against Goldman, and ultimately voted 3-2 in favor of pushing forward. The charges were filed Friday.

Normally the agency prefers to have unanimous support when bringing enforcement actions against the firms it regulates. Word of the SEC split could exacerbate partisan tensions in Washington over the Obama administration's proposed financial-regulatory overhaul.

John Nester, an SEC spokesman, declined to comment.

The SEC alleges that in a 2007 deal, Goldman deceived clients by selling mortgage securities secretly designed by hedge-fund king John Paulson to profit on a plunge in housing prices. That deal was quickly approved by a panel of about a dozen senior Goldman executives, including people who helped to manage the firm's mortgage, credit and legal operations, people familiar with the situation told The Wall Street Journal.