Maybe that's why the government hasn't nailed Lehman Brothers and its CEO, Richard Fuld, for securities fraud. He puffed the stock to investors while the firm was on the brink of bankruptcy a year ago. It's well known the Fed and SEC had camped at Lehman with full access to books and financial records after Bear Stearns had burned down six months before. So Fuld might draw a pass too.

The Fed's obsession with secrecy is another major problem. Take Congressman Ron Paul's popular bill to subject the central bank to audits like every other federal financial agency. The Fed vindictively pushed back, warning the bill could cause the Fed to raise interest rates.

In August, a federal judge granted a Freedom of Information Act request by Bloomberg News to reveal the identities of banks that borrowed from ten Federal Reserve programs during the peak of the financial crisis last fall, the dollar amounts, and the collateral pledged. The Fed claimed the material was confidential and would hurt the banks' competitive position. U.S. Rep. Alan Grayson, a Democrat from Orlando, says, "One way or another, the Fed is going to have to come clean."

Tim Geithner claims the government was blindsided last year but now can see. Critics say he needs new glasses.
Carl de Souza/AFP/Newscom
Tim Geithner claims the government was blindsided last year but now can see. Critics say he needs new glasses.
After specializing in defending rogues, Obama appointee Lanny Breuer will now prosecute them?
Kevin Dietsch/UPI/Newscom
After specializing in defending rogues, Obama appointee Lanny Breuer will now prosecute them?

Derivatives are the costliest, riskiest form of gambling on Earth. They work like this: As soon as hedge funds, investment banks, and big-time short sellers sense a bond is flailing, they pile on derivatives to make millions in what are, in effect, side bets on the failure. As we learned the hard way in 2008, just about everyone, including the system itself, loses when these side bets win.

Geithner told Congress the government was "blindsided" last year by the explosive risk of the derivatives market but can regulate it now. That's wrong on both counts. Everyone in Washington knew or should have known the risks in 2000, when the government stopped regarding these complicated bets as felonies and started calling them "investments."

But all hope is not lost. The administration has an 80-plus-page proposal called the Consumer Financial Regulatory Agency (CFRA), and it has support from congressional Democrats. The CFRA would wrest consumer-protection powers away from the Fed, assuring that the insurance industry, retirement plans, and financial consultants and planners would fall under government oversight. Critically, CFRA could allow scammed consumers to go to court against the securities industry. Any claimant who has been through the securities industry's kangaroo court might prefer the courts of Iran.

Of course, the financial industry's lobby, the most powerful in recent American history, has won every major legislative battle in the past 20 years. Wall Street's lobbyists and their congressional allies can be expected to fight hard. They'll call in all of their markers to ensure that securities fraud and other financial crimes won't be heard in front of hometown juries.

But the money lobby will have more trouble beating down this reform because of the Supreme Court's Cuomo v. Clearing House Association decision. The 5-4 opinion this past summer appears to give the go-ahead to states to pursue big-time financial criminals even if the federal government won't.

Washington's soft-core approach to the epic financial fraud that caused the crash remains difficult to understand. As Bill Black says: "When you don't prosecute, things don't get better."

They're not getting better — or safer. Credit is tight as a tick, especially for consumers. And people want justice. They've lost savings, homes, jobs, and retirements. Foreclosures continue to rise. But it almost seems as if Bernie Madoff's 150-year sentence for a scheme that had nothing to do with Wall Street's meltdown is supposed to cover all the crooks, and that we're supposed to be satisfied.

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