S.E.C. Sat On Its Hands

Lehman Examiner to Testify That S.E.C. Sat on Its Hands

The court-appointed examiner who dissected the Lehman Brothers bankruptcy is expected to criticize the Securities and Exchange Commission on Tuesday for its decision to “stand by idly” as the investment bank veered toward collapse.

The S.E.C. knew that Lehman did not have adequate liquidity but in essence did nothing, the examiner, Anton R. Valukas, says in prepared testimony released in advance by the House Financial Services Committee.

One of the most damning findings in Mr. Valukas’s 2,209-page report last month — that Lehman used accounting gimmicks to hide the extent of its indebtedness — was not known to the S.E.C. But Mr. Valukas wrote: “I saw nothing in my investigation to suggest that the S.E.C. asked even the most fundamental questions that might have uncovered this practice early on, before Lehman escalated it to a $50 billion issue.”

So, The Bush S.E.C. allowed a failed business to fail? or... he sat by munching pretzels so that Goldman could take out some competition? I guess your perception of conspiracy theories and hatred of Bush will matter on how you see this development. Perhaps the S.E.C. is just completely incompetent or to blame? Hard to tell the distinction between gross negligence and willful participation in failure.

There's plenty of blame to spread around. Both parties are culpable, and they all know it. Hell, half the Fed either has best friends in Wall Street, or they just left to run the Fed. Just ask Timmy Geithner and Hank Paulson.

They've made their grab at as much loot as they can get away with, and the second the game collapsed, there were dire warnings of Martial Law and tanks in the streets.

Here's an idea (One of my famous 'stop bitching, give us a solution' moments!)... We need to demand a forensic audit of the Federal Reserve and all large banks and investment houses; any evidence of wrongdoing found as a result of such audit to be immediately turned over to a grand jury for indictment and prosecution.

Firms which broke the law to have their banking and securities licenses revoked. People who broke the law to do some hard prison time with real criminals such as pederasts and hard core gangstas. Bank executives and government officials. And do some television specials to pop in and see how they're doing. Put it on HBO. That's reality TV worth watching. Might actually be a deterrent for those other folks who think that they'll get away with their schemes.

Let's Reinstate Glass-Steagall; firms speculating on the markets may be allowed to do so but not with the safety net of the taxpayer, and no firm propped up by the tax payer will be allowed to speculate. Any companies which do both to be broken up... and at their own expense.

Disallow all off-balance-sheet games. Require fancy derivatives to be traded on open markets.

Return to sane mortgage lending standards: 20% cash down, 24% front-end debt load, 36% back-end debt load. If house prices don't support sane mortgage underwriting, they'll just need to float down until they do.

Require unsecured lending to be backed by one dollar of excess capital for each dollar of unsecured lending. Karl Denninger is a good source to read more.