Paul Crudele asks: "What did Hank know and when did he know it?"

If Bernanke gave Paulson the slightest hint of what he was thinking, Paulson would have been in possession of very valuable information. If Paulson passed any of those thoughts on to people who could (and did) profit from it, then that would have been very illegal inside information.

I've written before that Paulson had lunch on Aug. 16, 2007, with Federal Reserve Chairman Ben Bernanke. The two men met from noon to 12:40 p.m. in the "small conference room," according to Paulson's records.

......

So Paulson's admission that he spoke with people on Wall Street regularly is fraught with inherent danger. That's especially a valid question after Paulson meets with the Fed chief, as he did on Aug. 16, 2007, when a crucial decision needed to be made.

The Fed indeed did surprise the markets by cutting interest rates by half a percentage point the next morning -- Aug. 17. And since it was the first of what turned out to be a long series of rate cuts, knowledge of what was about to occur did turn out to be extremely valuable.

No, really?

I have often raised hell about this little charade.  It was blatantly obvious that "certain inside people" had knowledge of what was to come the next morning - Options Expiration morning.

A huge number of people who were (correctly, based on the economic fundamentals) short, myself included, got literally corn-holed that morning - to the benefit of those certain "favored few" who were clearly told in advance and traded in front of it.

This sort of "very illegal" inside information trading has been part and parcel of this entire mess.  It is part and parcel of how we have a couple of firms, one in particular (cough-Goldman-cough!) who manage to make money on their "proprietary trading" virtually every day in a quarter, a statistically-improbable outcome akin to that of getting hit in the head by a meteorite when one goes to get their mail.

This, of course, is not the only example.  We had a similar event occur when the SEC announced the ban on short-selling of certain financial names.  Indeed, these "magical" reversals in the market (in both directions) have happened over the last two years more times than I can count.

The trading patterns make crystal clear that certain market participants knew in front of the announcement what was to come in each and every case.  The bets placed were enormous and one-sided - that is, the bet was not "something is going to be announced" (which might be good or bad) but "XXX is going to happen and it will cause YYY" with sufficient specificity for those "favored sons" to pile in on one side of a trade to their benefit (and everyone else's loss.)

What is also crystal-clear is that nobody in the government gives a good damn about the laws that are broken by this insider-trading; these are not small, random people that were making illegal profits, it is some of the biggest and best-connected names on Wall Street.

It is trivially-simple to trace these trades - if anyone cares to do so - and bring charges.

Paul is to be commended for running this down, but the obvious questions that arise are "why now" and "what took you so damn long?"

All one has to do is watch the trading patterns. Government official call logs can be - and if we had any hint of an honest government would have been - subpoenaed, along with the trading records.  Phone call + trading record = a nice long stint in the greybar motel.

But when the law only applies to "the little people" we indict Martha Stewart while some of the biggest firms on Wall Street do the same sort of thing literally every day - with impunity.