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The newspaper identified 16 child-care centers with recent connections to drug operations, and the number is likely much higher. Those 16 alone have collected more than $8.5?million in public subsidies since 2006.

Records show many of those centers have been used to stash and transport drugs, launder dirty cash and provide fake employment for criminals – at taxpayers’ expense.

In an ongoing investigation that has spanned more than a year, the Journal Sentinel has revealed rampant fraud within Wisconsin Shares, the state’s $350?million child-care subsidy program. The investigation has spurred sweeping reforms by lawmakers and regulators, led to more than 130 child-care centers losing public funding and resulted in criminal charges against several providers.

But the problems don’t end with unscrupulous parents and providers teaming up to scam subsidies. In June, the Journal Sentinel reported nearly 500 child-care providers had criminal records – some including felony convictions. This investigation went further. It found the tentacles of some child-care centers also extend into dangerous criminal operations.

In one case, a gunman burst through the door of a home-based child-care business, stuck a gun in the face of an 8-year-old girl and demanded money from the provider. Police believe the invasion was drug-related.

In another instance, police found cocaine, marijuana and cash in a home where children were being cared for by a Sheboygan Falls day care provider whose husband was a suspected drug dealer.

And in yet another, a Milwaukee child-care provider gave $10,000 to her live-in boyfriend, a convicted drug dealer, who used the money to buy 2 kilos of cocaine from an undercover cop in 2007. It is unclear whether the money used for the drug purchase came from Wisconsin Shares. But the woman was paid $39,621 that year by the state through the program.

She was on pace to collect $50,000 this year and remained in business until Friday, when the state yanked her license in anticipation of this story.

“This is astounding – and the government is fostering this,” said state Rep. Mark Gundrum (R-New Berlin), who has introduced legislation to reform the troubled Wisconsin Shares program.

To tell this story, the Journal Sentinel cross-referenced databases containing search warrants and court records with child-care providers. It also reviewed hundreds of pages of police reports, federal indictments, state child-care records, criminal complaints, property records and other public documents. In addition, the newspaper interviewed police officers and prosecutors and relied on tips from child-care center employees and parents.

There is no way to know how widespread the corrupt connections are.

Child-care providers are seldom criminally charged for involvement in drug crimes. Search warrants aimed at drug dealers often make no mention that the dealer’s wife or live-in girlfriend is a child-care provider – even when the day care is the site of the search.

And nobody – not regulators nor law enforcement officials – tracks the overlap.

Yet, cops and prosecutors say they see links between day care providers and drug dealers all the time.

“Probably in 25% of the cases I deal with, there is a wife or girlfriend in the day care business,” said Mario Gonzales, a veteran gang and drug prosecutor with the U.S. attorney’s office.

Regulators, too, see the connections. State records show parents and employees commonly file drug-related complaints about child-care centers. But inspectors rarely substantiate the allegations.

Officials from the Department of Children and Families said Friday they were unaware of the specific drug ties until questioned last week by the Journal Sentinel. On Friday, they revoked the licenses of two of the providers and launched investigations into others.

“We will not accept providers who place children in harm’s way, and if we find out they have, we will shut them down,” said Reggie Bicha, secretary of the department.

The move has anxious moderate Democrats maneuvering to win new deficit-cutting tools as the price for their votes, igniting battles between the House and the Senate and with powerful interest groups on both the right and the left.

The record increase in the so-called debt limit — the legal cap on the amount of money the government can borrow — is likely to be in the neighborhood of $1.8 trillion to $1.9 trillion, House Majority Leader Steny Hoyer, D-Md., said Friday.

That eye-popping figure is making Democrats woozy but is what is needed to make sure they don’t have to vote again before next year’s midterm elections. The government’s total debt has nearly doubled in the past seven years and is expected to exceed the current ceiling of $12.1 trillion before Jan. 1.

Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were “the only liquid investment capital” available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.

This will raise questions about crime’s influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. “In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system’s main problem and hence liquid capital became an important factor,” he said.

Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.

“Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities… There were signs that some banks were rescued that way.” Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.

“That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was,” he said.

The IMF estimated that large US and European banks lost more than $1tn on toxic assets and from bad loans from January 2007 to September 2009 and more than 200 mortgage lenders went bankrupt. Many major institutions either failed, were acquired under duress, or were subject to government takeover.

Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth £352bn, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US.

Those findings, by a team from Rutgers and Columbia, are almost certain to add fuel to a long-running debate. Do too many children from poor families receive powerful psychiatric drugs not because they actually need them — but because it is deemed the most efficient and cost-effective way to control problems that may be handled much differently for middle-class children?

The questions go beyond the psychological impact on Medicaid children, serious as that may be. Antipsychotic drugs can also have severe physical side effects, causing drastic weight gain and metabolic changes resulting in lifelong physical problems.

On Tuesday, a pediatric advisory committee to the Food and Drug Administration met to discuss the health risks for all children who take antipsychotics. The panel will consider recommending new label warnings for the drugs, which are now used by an estimated 300,000 people under age 18 in this country, counting both Medicaid patients and those with private insurance.

Meanwhile, a group of Medicaid medical directors from 16 states, under a project they call Too Many, Too Much, Too Young, has been experimenting with ways to reduce prescriptions of antipsychotic drugs among Medicaid children.

In a sweeping investigation that could impact Miami’s public projects for years, the U.S. Securities and Exchange Commission is probing the city’s major bond offerings between 2006 and 2009 and questionable financial transfers used to balance the budget.

A confidential SEC letter, FedExed to the city Friday and obtained by The Miami Herald, demands that Miami turn over reams of e-mails and internal documents showing how it was moving money around to shore up its bottom line — as well as how it represented its financial picture to bondholders.

The investigation represents the most significant scrutiny of the inner workings of Miami’s financial operations since a budget crisis a decade ago led the state to take control of its checkbooks.

“It would be extremely disappointing if the city had engaged in that kind of behavior again,” said Mitch Herr, the senior trial counsel for the SEC who prosecuted the earlier case against the city. That crisis “should have been a wake-up call and should have resulted in stronger controls.”

Now, the city has been ordered to “preserve all computer resources utilized by Miami, or any other persons working on or involved in any of Miami’s activities, included but not limited to hard drives, floppy disks, servers, and all other means of storage.”