Agency’s ’04 Rule Let Banks Pile Up New Debt

[groovedaddy]

As rumors swirled that Bear Stearns faced imminent collapse in early March, Christopher Cox was told by his staff that Bear Stearns had $17 billion in cash and other assets — more than enough to weather the storm.

Drained of most of its cash three days later, Bear Stearns was forced into a hastily arranged marriage with JPMorgan Chase — backed by a $29 billion taxpayer dowry.

Within six months, other lions of Wall Street would also either disappear or transform themselves to survive the financial maelstrom — Merrill Lynch sold itself to Bank of America, Lehman Brothers filed for bankruptcy protection, and Goldman Sachs and Morgan Stanley converted to commercial banks.

How could Mr. Cox have been so wrong?

Many events in Washington, on Wall Street and elsewhere around the country have led to what has been called the most serious financial crisis since the 1930s. But decisions made at a brief meeting on April 28, 2004, explain why the problems could spin out of control. The agency’s failure to follow through on those decisions also explains why Washington regulators did not see what was coming.

http://www.nytimes.com/2008/10/03/business/03sec.html?_r=1&th&emc=th&oref=slogin

[ProgressiveEconomist]

1. Amazingly, the SEC linked comments from all the lobbyists for the leverage rule change

to one webpage, still up at http://www.sec.gov/rules/proposed/s72103.shtml . Information was public, but so cloaked in cryptic hypertechnical language that apparently nobody understood the enormity of what was being permitted. In one "swell foop", the SEC gave away the store to GS, MS, LEH, BSC, and MER.