New York politics looked relatively subdued and dignified last week, as Illinois governor Rod Blagojevich was allegedly caught on tape by the FBI plotting to auction off Barack Obama’s vacant Senate seat. (The president-elect passed this first major ethics test, but ambitious congressman Jesse Jackson Jr. found himself having to explain a few things to Brooklyn-accented federal prosecutor Patrick Fitzgerald.) City Comptroller Bill Thompson officially launched his campaign to occupy Gracie Mansion, while State Senator Malcolm Smith broke off negotiations with rebel Dems.

Mayor Bloomberg and Council Speaker Christine Quinn wrestled over disbursing $400 property-tax rebates. Former Staten Island congressman Vito Fossella was sentenced to five days in jail for his career-ending drunk-driving arrest. Police Commissioner Ray Kelly made New Year’s plans to arm 1,000 rookie cops with M4 machine guns. Alleged September 11 mastermind Khalid Shaikh Mohammed offered to plead guilty to organizing the attacks. New census data showed that the number of whites in Harlem has tripled since 2000. Police wondered why a missing Brooklyn woman was spotted leaving Marquee with a convicted sex offender. NBC, awaiting Conan O’Brien’s move west to host the Tonight Show, gave Jay Leno a new ten o’clock time slot.

Yankees G.M. Brian Cashman persuaded lefty ace CC Sabathia to accept $160 million over seven years. The Mets closed on the best bullpen in baseball by signing J. J. Putz and Francisco Rodriguez. The ailing Times planned to take out a home-equity loan on its new Eighth Avenue headquarters. Citigroup CEO Vikram Pandit canceled the annual holiday train display. Merrill Lynch’s John Thain and Morgan Stanley’s John Mack volunteered to forgo year-end bonuses. Former nasdaq chief Bernard Madoff admitted to running a $50 billion Ponzi scheme. And the Treasury Department calculated that recent bailouts will help push the annual federal-budget deficit above $1 trillion for the first time.