$715 billion dwarf Belgium's $395 billion economy. This craziness started years ago when the community bank embarked on an acquisition spree that turned it into an outsized, overleveraged hedge fund—that paid out huge bonuses, and as we now know, lied to investors, regulators, and the public. At taxpayer's expense.

But the report shows that the regulators weren't stupid. Inspectors of the Authorité de Contrôle Prudentiel, the French banking regulator, investigated Dexia Crédit Local (DCL), the French part of Dexia, during the summer of 2010. By then, DCL had fallen below the required liquidity levels and had difficulty raising cash to cover its monthly expenses.

The report lists a number of infractions committed by both, DCL's pre-bailout management and post-bailout management. Among them:

- DCL gave false financial information to the public.

-DCL managed its portfolio of derivatives in a manner that violated regulatory provisions.

- DCL omitted or lied about important information concerning the acquisition of a portfolio of bonds and speculative holdings.

"From 2007 to 2008, financial communications of Dexia Crédit Local were evasive about the rising risks, though the CEO and other administrators knew about them. They covered the infractions and the consequent liquidity risks with silence."

The regulators also accused DCL's audit firms, Deloitte and Mazars, of closing their eyes.

The report was sent to DCL, along with a threat that the bank would be put "under special supervision." And then the hatchet was buried for some reason. It remains to be seen if the wrongdoing at the bank will ever lead to legal actions against the perpetrators.

And just how