Did you think prix fixe was just for restaurants? Think again, because the Justice Department has now dragged some very large names into a conspiracy to fix rates paid to state + local govermnents:

JPMorgan Chase & Co., Lehman Brothers Holdings Inc. and UBS AG were among more than a dozen Wall Street firms involved in a conspiracy to pay below-market interest rates to U.S. state and local governments on investments, according to documents filed in a U.S. Justice Department criminal antitrust case.

A government list of previously unidentified “co- conspirators” contains more than two dozen bankers at firms also including Bank of America Corp., Bear Stearns Cos., Societe Generale, two of General Electric Co.’s financial businesses and Salomon Smith Barney, the former unit of Citigroup Inc., according to documents filed in U.S. District Court in Manhattan on March 24. The papers were filed by attorneys for a former employee of CDR Financial Products Inc., an advisory firm indicted in October. The attorneys, as part of their legal filing, identified the roster as being provided by the government. The document is labeled “list of co-conspirators.”

OMG SCANDAL. Naturally, anyone asked to comment at any of these institutions declined to comment, though we heard there might have been a pouty lip or a shifty glance here or there.

For those uninitiated in the muni market, here’s how this allegedly worked:

• A US state or city issues a bunch of muni bonds because they know they are going to need to build roads, fund schools, redecorate their offices, what have you.
• Usually they issue more bonds and collect more funds than they need immediately – construction projects have multiple phases, schools need funding for an entire year, etc. (You’d like to think they aren’t blowing all your money at a casino in one fell swoop, right?)
• The states/cities put the money they don’t need immediately into “guaranteed investment contracts” (kind of like us proles would put money into a CD or something, where there is a low rate, but we know the money will be there in a few months if/when we need it). These are usually awarded at an auction, which is supposed to guarantee the states/cities get the best interest rate possible on their cash. Except when the auction is fixed, it doesn’t work that way.
• The lower an interest rate the issuer of that short-term guaranteed investment contract has to pay the states – the more money the banks keep in their coffers. Banker: “Yay!” And, of course, the less money the state is recouping to cover the costs of borrowing all that money. Taxpayer: “Boo!”

CDR, mentioned above, was indicted for running these scam auctions back in October and a couple of their employees (who weren’t initially charted) have started snitchin’, thus the new info. I’ve bolded the names of the bad guys above for your convenience, though the list contains almost all of the usual suspects. (Also, O HAI Bear Stearns and Lehman! I guess all the dirty business in the world in the realm of real money isn’t enough to save you when your derivatives business crashes and burns. It’s like that ‘cheaters never prosper’ thing they’ve been telling us since we were like 5 years old.)

So anyway. That’s how the banksters have been taking money out of your pocket today, I guess. Stay tuned, who knows what we’ll hear about tomorrow.

(h/t FTAlphaville)