Well we have noticed for years that the SEC folks look the other way to avoid seeing industry misconduct. But we didn’t know where they were looking to find those small insiders who are responsible for the market’s woes. Now, thanks to the Washington Times, we do:

The inspector general for the Securities and Exchange Commission noted in a report last fall that it had recently conducted three investigations into employees who misused government computers to view pornography.

From the FWIW department; John Hussman agrees with my view that the US is repeating the mistakes that Japan made in the 1990s. Ironically, the U.S. administration at the time publicly and repeatedly advised the Japanese to liquidate and clean up its banking system.

Historically and across countries, according to the IMF, 86% of systemic banking crises have ultimately required government restructuring plans that included closing, nationalizing and merging banks. Yet the policy response of the U.S. has been akin to putting a band-aid on an untreated infection. Worse, not only has the underlying infection been overlooked, but thanks to the easing of FASB mark-to-market rules early this year, we have at least temporarily stopped reporting on the status of that infection.

After the bubble burst in Japan in 1990, Japanese banks were not compelled to properly disclose their losses either. The predictable result is that the problems resurfaced later, but worse, because they had not been addressed.

Also, there is a good piece from Ron Paul on the reasons for the Fed’s unwillingness to disclose its operations. If Ron’s bill passes into law, it will be a miracle. Some compromise will make it go away, I’m sure – either some “sleeves out of its vest” disclosure from the Fed, or just a watering-down of the legislation. Bureaucrats like secrecy – it conceals corruption, and enables them to claim credit when things go well and avoid blame when they don’t

It has been argued that full disclosure of details of funding facilities like TALF and PDCF that enabled massive bailouts of Wall Street would damage the financial position of those firms and destabilize the economy. In other words, if the American people knew how rotten the books were at those banks and how terribly they messed up, they would never willingly invest in them, and they would fail. Failure is not an option for friends of the Fed. Therefore, the funds must be stolen from the people in the dark of night. This is not how a free country works. This is not how free markets work.

That is crony corporatism and instead of being a force for economic stabilization, it totally undermines it.If the Fed gave its actual arguments against a full audit, they would not have mentioned anything about political independence or economic stability. Instead they would admit they don’t want to be audited because they enjoy their current situation too much. Under the guise of currency control, they are able to help out powerful allies on Wall Street, in exchange for lucrative jobs or who-knows-what favors later on.

Now this last one is a bit scary. Because Bill Gross is way too cozy with the administration for my liking. Maybe in his position he has to be, but it’s hard to imagine that you can snuggle up to these guys without getting some of the corruption on you. Anyway, he now claims to be worried about deflation, or more accurately, recently to have been positioning his portfolio for deflation.

As far as I can tell, even the dullest of market participants understand that CNBC is primarily a propaganda machine, and secondarily entertainment. It is therefore more than a little interesting that Rick Santelli, a Chicago floor trader become CNBC presenter, is becoming something of a folk hero. He is credited with kicking off the “Tea Party” movement, whose huge demonstration in Washington was ludicrously downplayed by the propaganda media. I’m sure CNBC loves the ratings, but how long will the administration tolerate this kind of deviation from the party line? Anyway, he hasn’t been muzzled yet.

This article in Bloomberg talks about the chronic unemployment problem that the economy faces. I’d never heard of the Beveridge curve, but I think that, given the failing education system, it will become more important in the future.

A shift in the Beveridge curve is also signaling an increase in the natural, or non-accelerating inflation, rate of unemployment to between 6 percent and 7 percent, said JPMorgan Chase’s Kasman.

Worker Skills

Unlike the more popular Phillips curve, which compares unemployment to inflation, the Beveridge curve looks at job openings in relation to employment. A high level of both vacancies and unemployment suggests that workers lack the skills to fill the jobs available and that the natural rate, or NAIRU, is higher.

Probably one of the worst examples of corruption I’ve seen recently, not large from a financial point of view, but this kind of corruption could potentially kill me in the future.

The agency’s scientific reviewers repeatedly and unanimously over many years decided that the device, known as Menaflex and manufactured by ReGen Biologics Inc., was unsafe because the device often failed, forcing patients to get another operation.

But after receiving what an F.D.A. report described as “extreme,” “unusual” and persistent pressure from four Democrats from New Jersey — Senators Robert Menendez and Frank R. Lautenberg and Representatives Frank Pallone Jr. and Steven R. Rothman — agency managers overruled the scientists and approved the device for sale in December.

All four legislators made their inquiries within a few months of receiving significant campaign contributions from ReGen, which is based in New Jersey, but all said they had acted appropriately and were not influenced by the money.

If they weren’t influenced by the money, just exactly what prompted them to take the time to hassle the FDA over a relatively obscure medical device? Inquiring minds want to know. These people should all be criminally prosecuted. But they won’t be. Just business as usual in Washington.