Yes, Wikileaks, the gift that keeps on giving,^™ has yet more beneath the rocks information on just how f%$#ed up Wall Street was.

It turns out that the French were desperately warning the US Treasury Department that a crash was inevitable, because of endemic fraud in our financial system:

In 2007 top US and France officials knew rampant fraud being committed by regulators, rating agencies and Wall Street Banks would soon cause a global financial collapse.

While investors and nations around the world were happily giving trillions of dollars away to crooked Wall Street bankers top officials in the United States and France knew the market would soon collapse and people would be robbed of millions.

While raising the issue that the role of government regulators and rating agencies needed to be reviewed in the wake of the upcoming crisis, US officials ignored calls from the French government to enact necessary regulation to stop the rampant fraud that would soon result in investors losing tens of trillions of dollars they had invested into the markets.

The cable reveals that while discussing the ability of the French banks to survive the crisis, French President Sarkozy was pushing the US to enact regulations to forestall the crisis. Instead, Henry Paulson responded by telling Sarkozy not to overreacted because the” it would take months, not weeks, for credit to be re-priced” telling France this is “not a major crisis.”

Paulson went on to warn that the major problem was with the German banks and which would require a bailout from the taxpayer while warning that the assets held by banks but covered up from investors by being held off-balance sheet presented systematic risk to banks and to sovereign wealth.

The cable clearly reveals that taxpayer bailouts would be needed. Paulson further up sticks up for the Wall Street hedge fund saying they were not to blame for the crisis while acknowledging there were major Wall Street transparency issues.

To summarize, the cable reveals that top government officials in France and the US knew Wall street banks were committing fraud in the origination and packaging of sub-prime mortgage and lying to investors about the resulting securities they were creating and selling. Officials knew banks were also lying about their own liabilities and hiding them from investors by keeping the assets off their balance sheets. The government also knew that both regulators and ratings agencies were participating in the scheme.

So our regulatory apparatus was aware of deep and systemic control fraud on the part of our largest financial institutions over a year before the house of cards collapsed, but decided to do nothing.

This was no Black Swan.  This was a blatant and systemic looting of the system, with implicit taxpayer backstop.

Where are the prosecutions?

As an aside, the most tightly held secrets held by our state security apparatus are not about protecting the nation and its citizens, but rather about protecting the most powerful amongst us from embarrassment and ridicule.

We really need to embed the Swedish concept of Offentlighetsprincipen (openness) into our constitution.

H/t DC on the Stellar Parthenon BBS.