More happy news from the economic front:  it is possible that the perpetrators of the mortgage mess, the stock market nose dive, and a whole bunch of other peripheral crimes might just get away with it.

The New York Times and the Associated Press are both reporting that the Federal Bureau of Investigation is overwhelmed by reports of possible criminal activity arising out of recent events, and, unless they can increase staffing in some of its divisions, might have to raise its own hands in surrender.

At the root of the problem is a recent refocusing of Bureau resources on international terrorism rather than white collar crime.  After 9/11 it shifted more than 1,800 agents from various criminal investigative activities to its terrorism and intelligence departments.  This is nearly one-third of those agents previously working in the criminal divisions.  Now the FBI is confronted with the need to investigate the collapse of Fannie Mae and Freddie Mac, possible misbehavior leading to the demise of Lehman Brothers and the near-death of AIG, various suspected incidents of security fraud, and an ongoing concentration on homegrown mortgage fraud and the subprime market.  

In response, according to the NYT, the Bureau is planning to double the number of agents working financial crimes by another shuffle of personnel.

The prosecution of non-terrorist related crime was already suffering before the recent problems emerged.  The Times says that the F.B.I. has disclosed that the number of crimes they have turned over to prosecutors in areas such as drug trafficking and violent crimes has dropped from an annual rate of 11,029 to 8,187 in the last seven years, a decrease of 26 percent.

Justice Department prosecutions (including cases referred from other agencies such as the Postal Service) dropped 48 percent from 2000 to 2007; insurance fraud cases were down 75 percent and securities fraud 17 percent. 

Statistics from a research group at Syracuse University, the Transactional Records Access Clearinghouse, using somewhat different methodology and looking only at the F.B.I., show an even steeper decline of nearly 50 percent in overall white-collar crime prosecutions in the same period.

The article quoted John Miller, an assistant director at the F.B.I as saying, "In white-collar crime, while we initiated fewer cases over all, we targeted the areas where we could have the biggest impact.  We focused on multimillion-dollar corporate fraud, where we could make arrests but also recover money for the fraud victims."

According to the F.B.I.'s website, corporate fraud remains the highest priority of the Financial Crimes Section and, as of the end of Fiscal Year 2007, 529 corporate fraud cases were being pursued by FBI field offices throughout the U.S., several of which involve losses to public investors that individually exceed $1 billion.

Even before the extent of the subprime situation became apparent, the FBI was concerned about it and other forms of mortgage fraud and, according to the Times, "repeatedly" requested the Bush administration to provide it with more money to hire additional agents.  The Bureau says it currently has 42 mortgage fraud task forces and working groups in operation and, as of August, 1,569 pending mortgage fraud investigations.  There were 523 indictments or "informations" in Fiscal 2008 with 282 convictions.    The Bureau estimates that $4 bill to $6 billion is lost every year to mortgage fraud and the states with the most fraud activity in 2008 were Florida, Nevada, Michigan, California, and Utah.

The Bureau also states as publicly traded subprime lenders have suffered financial difficulties due to rising defaults investigations have determined that many of these bankrupt subprime lenders manipulated their reported loan portfolio risks and used various accounting schemes to inflate their financial reports. In addition, before these sub prime lenders' stocks rapidly declined in value, executives with insider information sold their stocks and profited illegally.

A legal consultant and former prosecutor working for MSNBC said that any delay in investigating some of the alleged financial misdeeds can only work in favor of the dishonest and the criminally greedy as they will have the time to destroy such evidence as emails and otherwise cover their tracks. 

The Bureau, according to the NYT, is also concerned that its current shortage of personnel will make it possible for crooks to turn the $700 billion rescue package into another opportunity for profiteering.