Larry Kudlow

Top generals John P. Abizaid, the head of military operations in Iraq, and Peter Pace, chairman of the Joint Chiefs of Staff, are strongly suggesting that Iraq may be sinking from a state of violent sectarian unrest into a true civil war.

But if that weren't bad enough, Stuart Bowen, the special inspector general for Iraq reconstruction, now estimates that corruption costs in Iraq have reached a startling $4 billion per year. This is vital taxpayer war money -- money you'd think would be safeguarded by the GOP Congress. But nothing, it seems, could be further from the truth.

A Wall Street Journal story on the subject states that "the Bush administration continues to wind down its ambitious Iraq reconstruction program, which has spent tens of billions of dollars on rebuilding efforts that have largely failed to restore basic services such as water or electricity to pre-war levels."

And why has this spending failed?

Sen. Susan Collins, R-Maine, chair of the Homeland Security and Governmental Affairs Committee that overseas the war money, says this is a story of "mistakes made, plans poorly conceived or overwhelmed by ongoing violence, and of waste, greed and corruption that drained dollars that should have been used to build schools, improve the electrical grid and repair the oil infrastructure."

True enough, corruption is a big part of this problem, in particular the oil smuggling that continues to siphon off what could be precious oil revenues for Iraq. U.S. Comptroller General David Walker says 10 percent of Iraq's refined fuels and 30 percent of its imported fuels are being stolen.

But Bowen says this is a problem that began at home: "[T]he Bush administration's overall handling of Iraq contracting -- from relying on no-bid contracts even when major fighting had ended, to failing to standardize contracting regulations to help prevent fraud -- was deeply flawed." He goes on to say that the U.S. has not provided the proper contracting and procurement support necessary to manage reconstruction efforts that were begun three years ago, and also cites widespread mismanagement among competing U.S. government agencies.

The Bush administration will take its share of the heat for the widening corruption problems endemic to the Iraq War. But the Republican Congress, which hardly needs another nail in its election-year coffin, appears not to be properly exercising its oversight authority when it comes to war spending.

Larry Kudlow

Lawrence Kudlow is host of CNBC’s “The Kudlow Report,” which airs nightly from 7 p.m. to 8 p.m.