Earlier this month, I did a blog entry looking at how the TARP cop Neil Barofsky bemoaning the lack of accountability for the bailout funds being put up by US taxpayers.

Clearly, the system is open to fraud and now we have the Los Angeles Times telling us of criminal probes into possible securities fraud, tax violations, insider trading and other crimes related to the $750 billion bailout. And that's just the first wave of investigations. Doubtlessly, there will be more to come. And while the culprits have not yet been identified, you can bet it's only a matter of time before people are dragged before the courts.

Barofsky says you don't need widespread corruption for these sorts of frauds to emerge. "You only need a few corrupt managers whose compensation may be tied to the performance of these assets in order to effectively pull off a collusion or a kickback scheme." But what's more alarming is that the likelihood of this happening increases as the schemes become more complex and difficult to decipher. Which is one reason why Barofksy's report recommends the US Treasury abandon its planned structure for buying the toxic securities, which include intricate bundles of bad mortgages and loans. That's unlikely to happen which means we will get more fraud investigations.

The appalling part is that these people are breaking the law even while they are being bailed out. And the problem is that the US Government is making it worse with its lack of oversight and not even knowing all the parties involved. Even more alarming is that this follows reports that the bailout money might convert to equity stakes in the banks, resulting in the nationalization of banks via the back-door.