Treasury Secretary Hank Paulson used a classic bait-and-switch trick to con Congress out of that $700 billion bailout package – which is already half gone, nobody knows exactly where. The Bush treasury secretary said the money would be used to buy those mystifying (and mostly worthless) mortgage “assets” that the financial community had cut-and-pasted together. The idea was that by buying the mortgage assets, the government would shore up the housing industry and possibly save millions of Americans from losing their homes to foreclosure. But once the bill became law on Oct. 3, Paulson channeled the bailout money to a few favored banks as loans, gifts and share purchases – no strings attached.

It is now mid-January, and reporters are finally sniffing at the fishy trail of the vanished billions. CBS News investigative reporter Sharyl Attkisson (photo at right) has come up with some information and promises to keep digging. Here’s what she found:

Paulson and his confederates planned all along to give the bailout money to lucky banks on their list to help them buy competitors. It was largely under the public radar, with only anonymous government officials acknowledging the strategy.

Attkisson lists these transactions:

Bank of America received $15 billion dollars and bought Merrill Lynch, which got $10 billion even as it was up for sale.

(Update: Hours after it obtained $20 billion in new capital from the government’s $700 billion Troubled Asset Relief Program, the bank today reported a quarterly loss of $1.79 billion, its first quarterly loss in 17 years. Merrill Lynch lost a record $15.31 billion in the quarter.)

Morgan Stanley, the recipient of $10 billion, bought Chinatrust Bank.

A half dozen more – including M&T, Capitol One, U.S. Bancorp, Hampton Roads Bankshares and PNC – got bailout money and are buying other banks.

After PNC Bank used its bailout money to buy National City Bank, this enlightening conversation took place (at a Nov. 14 Congressional hearing) between Rep. Dennis Kucinich and Neel Kashkari, the Treasury official in charge of the bailout:

Kucinich: “You picked a winner, PNC, and you picked a loser, National City Bank.” (Kucininch is from Cleveland, where National City was based.)

Kashkari: “With deep respect, it is not appropriate for me to speak about an individual institution, but I can talk generally about …”

Kucinich: “Well, with deep respect, you know, you put 4,000 people out of work in the city of Cleveland… are you taking a Fifth Amendment here?”

(I’m sure my blog readers know the Fifth Amendment to the U.S. Constitution gives accused persons the right to refuse to answer questions that might incriminate them.)

Kashkari: “No, sir. I don’t think it’s a good use of taxpayer money to put taxpayer capital into a financial institution that’s going to fail.”

Kucinich: “Boy, you know that statement that you just made you will hear about for the rest of your career.

Now, Congress is giving President-elect Obama the $350 billion remaining in the bailout package – this time with all kinds of strings attached. But, in my view, that’s locking the stable doors after the horses have escaped – with a bunch of bandits riding them.