The Seattle Post-Intelligencer’s days may be numbered, but it’s still got some scrap.

It put out a nice story the other day reporting how the FBI for years was very aware of the pervasive mortgage fraud going on across the country but did nothing to stop it, in large part because it didn’t have the resources for white-collar crime after 9/11. After the attacks, the Bush administration reallocated resources into counterterrorism rather than giving the G-men more resources to do both.

“There were two hurdles,” said the second retired FBI official, “not enough agents working in the criminal area and not enough (federal prosecutors) to prosecute these complex cases. You have to have investigators to follow the money, you have to follow the decision making to take it up to the corporate suites. And we didn’t have it.”

But the feds knew it was going on:

“We knew that the mortgage-brokerage industry was corrupt,” the first of the retired FBI officials told the Seattle P-I. “Where we would have gotten a sense of what was really going on was the point where the mortgage was sold knowing that it was a piece of dung and it would be turned into a security. But the agents with the expertise had been diverted to counterterrorism.”

This is very interesting:

Further complicating efforts to detect and prosecute mortgage fraud, banks and other mortgage lenders were making so much money from the constant churn of transactions and the continually escalating price of homes that the fraud that did arise simply didn’t cost the industry enough money to raise their concerns.

“You had victim banks that would not acknowledge that they were victims,” said the first retired FBI official. ” ‘We’re not out any money,’ they would say. Nothing has been foreclosed. The banks weren’t reporting, the regulators weren’t regulating and the FBI was concentrating on external mortgage fraud as opposed to the underlying internal problem.”

Let’s all hope the P-I gets a reprieve. We need papers that continue to push this story.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.