During the volatile first quarter of 2011, Bank of America and JPMorgan said they made money every trading day. Goldman Sachs reported one losing day. Morgan Stanley had three.

How'd they do that? "Maybe they have the most focused and disciplined traders," economist Ed Yardeni told his investment-advisory clients last week. Or maybe the gambling table is tilted in their favor: "I think there should be an investigation so the rest of us can learn the secret."

There's been a bunch of investigations. The most convincing is last month's bipartisan report by Sen. Carl Levin (D., Mich.), Tom Coburn (R., Okla.) and their Senate investigations subcommittee, which found too many banks made stupid loans, then sold them to greedy investors, with no warning and no conscience.

Those same Wall Street banks, and some of their European rivals, also made bets against taxpayers in Philadelphia and other cities. They didn't just sell city bonds. Modern-day investment bankers make more money selling investment contracts. Like interest-rate swaps.

Bond lawyer Frederic Ballard Jr. explains the complex deals: Bankers told town treasurers "they could issue bonds at a floating rate," which would rise and fall with market rates, "then purchase a swap," which would give them a low, fixed rate, and the likelihood of cheap financing, thanks to "anomalies in the market."

There was, Ballard told me, "a great appetite" for the low finance costs that swaps promised. But swaps are often a bet that interest rates will fall or rise, and the agencies gambled that the low interest rates of the early 2000s would rise to normal levels. They didn't. So, under terms of the swap deals, towns had to pay the banks extra...

The Philadelphia School District, which is facing layoffs and school closings, last winter paid $63 million to Morgan Stanley, Goldman Sachs, and Wells Fargo to end interest-rate swap contracts that were costing it millions a year. The Delaware River Port Authority paid $47 million to UBS and Lehman Bros. (now JPMorgan) to get out of two of its interest-rate swaps, in 2008 and 2010. The cash-strapped Philadelphia Gas Works agreed to pay $12 million, over the last two years, to avoid what would otherwise have been larger losses on swaps...

"Wall Street bankers never do anything, except to make money," Ballard told me. That's capitalism, which "makes America great," he added. But there can be "an overmatching between the bankers, and the borrowers, sometimes."

The Philadelphia office of the Securities and Exchange Commission, led by Daniel Hawke, Elaine Greenberg, and Mark Zehner, and joined by U.S. Justice Department criminal investigators, has forced Bank of America and UBS to repay millions pocketed illegally in what Greenberg calls "bid-rigging" by bankers who invested bond proceeds at rates unfavorable to the issuers. So, BofA had to give $2 million back to Montgomery County; UBS agreed to repay more than $600,000 shaved from a New Jersey Transit bond deal, and $1 million stolen from the Sisters of Mercy in a hospital financing, among many others.

But those payments are a fraction of what issuers lost in swap deals. Yet agencies don't seem to be trying too hard to blame the banks, or get their money back.

Mark D. Schwartz, a Bryn Mawr lawyer and former investment banker, says he knows why: Municipal finance deals "are all about patronage, and patronage comes from investment banks, lawyers, and accountants involved with the transactions," he told me. "Do you really think that politicians are going to bite the hand that feeds them by bringing lawsuits against their highly paid pals?"

-- From  my Sunday Inquirer column here.