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This Week in Scandals

 Every week, we take stock of how the week unfolded for the stories we're tracking in Scandal Watch (see the right sidebar). Here is how we do it. And, as always, feel free to suggest new scandals.

1. Market Crisis

Is it 2007? Must be, because subprime lenders are back in the hot seat. BusinessWeekexplored the seamy underworld of mortgage dealing, where bribes and sex for loans were a natural part of the world of mortgage wholesalers, brokers and underwriters. The magazine also reports the reckless subprime lenders who got us into this mess are still doling out loans, and this time they’re taking advantage of an expanded Federal Housing Administration program that insures those loans. Taxpayers will be on the hook if they default.

The OC Register debunked the myth that a 1977 law aimed at easing access to mortgages for poor people is to blame for the subprime mortgage mess. In fact, most subprime lenders weren’t even subject to the law. Meanwhile, the SEC and the Justice Department are investigating whether Golden West’s mortgage lending was tainted by fraud. (Golden West was controlled until 2006 by Herbert and Marion Sandler, whose Sandler Foundation is the principal founder of ProPublica.)

In other news, banking execs across the country are coming under fire for cashing out in the nick of time. Most recently, the CEO of a South Carolina bank pushed up his retirement ($18 million pay package included) to just weeks before his bank was awarded $347 million in bailout funds, which come with limits on executive compensation.

Back in Washington, battered pension funds and transit agencies are clamoring for help, the Senate is opening a probe into bond-rating firms and Sen. Chuck Grassley (R-IA) has called for an investigation into the revolving door between Goldman Sachs and the Treasury. But Goldman earned some points when it announced that its executives would forgo bonuses this year. UBS quickly followed suit, in a sign that other banks may do the same to avoid being dubbed the grinches of Wall Street.

2. Detainee Treatment

A U.S. judge ordered the release of five Algerian Gitmo detainees yesterday and urged the Justice Department not to appeal. Those same detainees had been cleared of terror charges years ago by a Bosnian court, but Bosnian officials say the Bush administration strong-armed them into turning over the suspects to the U.S., potentially to bolster Bush’s 2002 State of the Union address.

In other Gitmo news, the chief military judge retired, and new charges were filed against the alleged 20th 9/11 hijacker. The Pentagon dismissed charges against him in May, presumably because his abusive interrogations threatened to undermine the trial.

3. Military Contractor Abuse

Both McClatchy and USA Today refocused a spotlight on the U.S.’ often wasteful process of doling out contracts this week. The State Department awarded a Kuwaiti company the contract to build the U.S. Embassy in Gabon after the same company bungled the embassy in Baghdad. And the Pentagon isn’t doing much better: It awarded a contract to a company two days after it had been suspended for allegedly bribing Army officials.

An inspector’s general report says that cancelled Iraq reconstruction projects have cost taxpayers $600 million

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