"...people kind of looked at us regulators as old-fashioned."

The above quote from Mr. Jeffrey Brown a former top official at the Office of the Comptroller of the Currency excerpted from an excellent story in the Washington Post this morning on the history of the mortgage meltdown.

Back in 2005 several federal agencies issued draft regulations to tighten mortgage lending practices - especially for adjustable rate loans and other exotic (now toxic) mortgage products.

The proposed rules were subsequently watered-down and many provisions dropped at the insistence of the banking industry. Exemplia gratia:

"These mortgages have been considered more safe and sound for portfolio lenders than many fixed-rate mortgages," David Schneider, home loan president of Washington Mutual, told federal regulators in early 2006.

"An open market will mean that different institutions will develop different methodologies for achieving this goal," Joseph Polizzotto, counsel to now-bankrupt Lehman Brothers, told U.S. regulators in March 2006. The goal in question was to verify that borrowers actually had jobs, assets or other income.

Countrywide Financial Corp., at the time the nation's largest mortgage lender, agreed. The proposal "appears excessive and will inhibit future innovation in the marketplace," said Mary Jane Seebach, managing director of public affairs.

The proposal that banks should independently verify information provided by brokers was met with much indignation. "It is not our role to be the regulator for the third-party lenders," wrote Ruthann Melbourne, chief risk officer of IndyMac Bank.

The Chief Credit Officer of (now defunct) Downey Savings Bank stated that "To conclude that 'nontraditional' equates to higher risk does not appropriately balance risk and compensating factors of these products."

Diane Casey-Landry, of the American Bankers Association, said the industry feared a two-tiered system in which banks had to follow rules that mortgage brokers did not. She said opposition was based on the banks' best information.

"You're looking at a decline in real estate values that was never contemplated," she said.

Such was the reasoning of America's Titan's of Finance as recently as 2006. Many of these individuals are now out-of-a-job which I suppose should bring us some satisfaction. And while criminal investigations are ongoing, the Wall Street view that stupidity, incompetence, and greed are not - in and of themselves - criminal offenses, may at the end of the day prove correct. It was all just a big misunderstanding...sorry about that America. Oh yeah, and thanks for the 700 billion - which, by the way, may not be quite enough to tide us over...