Matt Taibbi of Rolling Stone has an explosive look at how the SEC has been routinely destroying evidence of financial crimes by Wall Street.

Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency’s records – “including case files relating to preliminary investigations” – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term “Orwellian,” devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or “Matters Under Inquiry” – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission’s internal website. “After you have closed a MUI that has not become an investigation,” the site advised staffers, “you should dispose of any documents obtained in connection with the MUI.”Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.

The SEC hasn’t just done this a handful of times, Taibbi finds that over 18,000 separate MUIs were destroyed.

The Taibbi piece also provides an in-depth look at the revolving door between the SEC and top Wall Street banks and law firms. To make matters worse, the biggest participants in the revolving door come from the SEC’s Enforcement Division – the people whose day to day job is investigating Wall Street and stopping criminal behavior.

The whole story is absolutely a must-read. But here’s where this gets really important for the average American:

Forget about what might have been if the SEC had followed up in earnest on all of those lost MUIs. What if even a handful of them had turned into real cases? How many investors might have been saved from crushing losses if Lehman Brothers had been forced to reveal its shady accounting way back in 2002? Might the need for taxpayer bailouts have been lessened had fraud cases against Citigroup and Bank of America been pursued in 2005 and 2007? And would the U.S. government have doubled down on its bailout of AIG if it had known that some of the firm’s executives were suspected of insider trading in September 2008?

Taibbi points out that the answers to these questions are essentially unknowable. But there’s no doubt that the information that the SEC destroyed was important. Hell, there’s no doubt that the failure of a regulatory agency to actually investigate and conduct oversight of the industry it is tasked to oversee is a huge problem. The story of the financial collapse is largely a story of the ignorance of regulators, risk management officers and bank executives. Much of this ignorance was deliberate. Refusing to investigate complaints of bad behavior is a pretty clear example of how this willful ignorance was maintained.

Taibbi’s piece discusses how Senator Chuck Grassley’s office has attempted to get answers from the SEC about the destruction of MUIs. Not shockingly, the SEC has basically told him to bugger off. Hopefully a curmudgeon like Grassley will get pissed off enough about the SEC’s disrespect of his office to do something. Clearly there need to be meaningful congressional investigations into the SEC’s destruction of evidence in contravention to the law. In the mean time, I’d hope that Taibbi’s piece opens the eyes of administration officials to the massive problems at the SEC. This behavior cannot be allowed to continue if there’s any hope to rebuilding the US economy in a way that doesn’t put it at the perpetual mercy of banksters deciding to break the law to line their pockets.