Shit(s) hitting fan

The front page of the New York Times at this moment has two "revelations" about Bush administration criminal behaviors.  One report by the seasoned revelation guy, James Risen, tells of a cover-up of mass murder (surprise! the CIA was involved!):

After a mass killing of hundreds, perhaps thousands, of Taliban prisoners of war by the forces of an American-backed warlord during the 2001 invasion of Afghanistan, Bush administration officials repeatedly discouraged efforts to investigate the episode, according to government officials and human rights organizations.

American officials had been reluctant to pursue an investigation — sought by officials from the Federal Bureau of Investigation, the State Department, the Red Cross and other human rights groups — because the warlord, Gen. Abdul Rashid Dostum, was on the payroll of the Central Intelligence Agency and his militia worked closely with United States Special Forces in 2001, several officials said....read on

The other is by Scott Shane, an up-and-coming investigative reporter at the Times, demonstrates that the Bush administration's zealous and over-the-line wiretapping "got too little legal review" and produced little that was useful in FBI "counter-terrorism" investigations.  You can get the picture here.  Generally speaking, it sheds a little light on the Bush administration and leaves, yet again, a nasty taste in the mouth -- as does the knowledge that Obama supported the policy as a senator and continues the policy to this day.*

But the big fun is yet to come.  We first got a glimpse of it in late 2004 when the FBI began to investigate fraud in mortgage-backed securities -- the securities which did much to bring our financial system to its knees in September of '08 and which the Treasure Department wants to unload now as toxic assets Legacy Securities. Here's what the LA Times wrote about this a year ago:

Long before the mortgage crisis began rocking Main Street and Wall Street, a top FBI official made a chilling, if little-noticed, prediction: The booming mortgage business, fueled by low interest rates and soaring home values, was starting to attract shady operators and billions in losses were possible.

"It has the potential to be an epidemic," Chris Swecker, the FBI official in charge of criminal investigations, told reporters in September 2004. But, he added reassuringly, the FBI was on the case. "We think we can prevent a problem that could have as much impact as the S&L crisis," he said.

Today, the damage from the global mortgage meltdown has more than matched that of the savings-and-loan bailouts of the 1980s and early 1990s. By some estimates, it has made that costly debacle look like chump change. But it's also clear that the FBI failed to avert a problem it had accurately forecast.

Banks and brokerages have written down more than $300 billion of mortgage-backed securities and other risky investments in the last year or so as homeowner defaults leaped and weakness in the real estate market spread.

One of George Kenney's interviews at Electric Politics the other day was with economist James Galbraith.  They discussed the history and current state of these, um, "securities."  What follows is an excerpt from a 40-minute interview. The paragraph breaks are arbitrary and indicate moments where Kenney made brief comments (not transcribed). 

That's a major issue ... The Treasury actually committed to Congressman Lloyd Doggett in a Budget Committee hearing in March that it would respond to his question about investigating the condition of the balance sheets and looking at the underlying records -- the mortgages that backed up the mortgage-backed securities -- and make some determination as to the extent of fraud and misrepresentation in those files.  So far as I know -- until very recently -- the Treasury has failed to respond to Congressman Doggett on that issue.  So this remains a very open question as to how much they know and what the state of their confidence is that these "assets" are ever to recover value. ... 

What I'm saying is that the allegation that these assets were massively fraudulent is a serious and credible allegation that deserves to be fully investigated.  Because if it turns out to be true, the prevalence of fraud and misrepresentation is very high -- as high as it appears to be in limited surveys that have been done.  Then I think it's extremely unlikely that any independent investor will be interested in these assets -- these securities. It's likely that they never should have been issued in the first place and only were issued because the ratings agencies were complicit in bringing them to market without looking at the quality of the underlying paper. ...

It's hard to know why people don't talk about this.  It is a huge story.  We did have public warnings from the FBI beginning, I think, in September of 2004, that there was an epidemic of mortage fraud underway.  There was a systematic understaffing of the FBI and investigative and prosecuting forces required to deal with this.  I don't know what may be going on in the Justice Department now, but this is clearly something which deserves to be discussed and which deserves to have the resources that are required to actually bring people to account.  Given that the public -- and the investing public in particular --is broadly aware of this, it's only by dealing with it effectively that one can hope to restore the kinds of markets in securities and mortgage-backed securities in the future that one would like to have. ...

I don't want to speculate on the motives of the Justice Department.  It is possible that the Treasury Department would prefer to have this dealt with basically as a market-pricing and economic issue rather than as a criminal justice issue.  I can understand their preference that the issue should be resolved in that way. But if it is in fact, as many people believe, a serious question of financial fraud, then wishing won't make it so!  It will have to be resolved as a matter of the justice system or it won't be resolved. ...

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*Probably the most interesting summary of the newly released report on the wiretapping program came on NPR this afternoon.