In the flurry of commentary and news reports about the economy this week, here is one point that I hope you didn't miss, from the Big Picture on Thursday:

As we learn this morning via Julie Satow of the NY Sun, special exemptions from the SEC are in large part responsible for the huge build up in financial sector leverage over the past 4 years -- as well as the massive current unwind

Satow interviews the above quoted former SEC director, and he spits out the blunt truth: The current excess leverage now unwinding was the result of a purposeful SEC exemption given to five firms.

You read that right -- the events of the past year are not a mere accident, but are the results of a conscious and willful SEC decision to allow these firms to legally violate existing net capital rules that, in the past 30 years, had limited broker dealers debt-to-net capital ratio to 12-to-1.

Instead, the 2004 exemption -- given only to 5 firms -- allowed them to lever up 30 and even 40 to 1.

Who were the five that received this special exemption? You won't be surprised to learn that they were Goldman, Merrill, Lehman, Bear Stearns, and Morgan Stanley. 

As Mr. Pickard points out that "The proof is in the pudding — three of the five broker-dealers have blown up."

So while the SEC runs around reinstating short selling rules, and clueless pension fund managers mindlessly point to the wrong issue, we learn that it was the SEC who was in large part responsible for the reckless leverage that led to the current crisis. 

You couldn't make this stuff up if you tried.

This point may be lost on the average voter, but it is firmly grasped by millions of the pro-business Republicans that John McCain needs to win the White House.

Add to that their disgust at the reckless and seemingly random government intervention in the markets, and you have the makings for a major backlash among a critical segment of the Republicans base this November.

It's no wonder McCain's post-convention bounce this week plummeted faster than the Dow on Monday. Bush has bankrupted this country -- the Republicans have wrecked America -- and the end result for the GOP is a coalition in complete tatters and disarray.

Funny what eight years of plundering by the masters of the universe will do to a country, eh?

Via Gabriel, how to make money out of turmoil:

If you had purchased £1000 of Northern Rock shares one year ago it would now be worth £4.95, with HBOS, earlier this week your £1000 would have been worth £16.50, £1000 invested in XL Leisure would now be worth less than £5, but if you bought £1000 worth of Tennents Lager one year ago, drank it all, then took the empty cans to an aluminium re-cycling plant, you would get £214. So based on the above statistics the best current investment advice is to drink heavily and recycle.

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When I first read the bail-out proposal that Bernanke and Paulson are proposing I thought it was satire. To wit:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

This is, as others have pointed out, the Shock Doctrine in action. The bankers have put a loaded gun to Congress' collective head and asked for the taxpayer's wallets.

Atrios puts it succinctly:

Any member of Congress who looks at the plan to give Hank unchecked power to transfer $700 billion from the Treasury to his friends' companies and has any reaction other than "You've got to be fucking kidding me" does not deserve to hold office.

Is impeachment still off the table, Nancy?

Throw the bums out or you'll soon be a bum yourself.

I hope that you will vote AGAINST any bail-out of Wall Street, as proposed by Bernanke's and Paulson's efforts to get a $700 billion blank check to hand out without review to the banks.

I know that we are between a rock and a hard place with regards to our financial and banking system. There is no good way out of five years of easy credit, worthless debt, and bad bets on the part of America's banks. The complete abdication of the SEC, the Treasury Department, and the Fed of their duties has led directly to this crisis.

Yet that is precisely why giving more power to Paulson is not the answer, and why giving him a $700 billion blank check is simply foolishness.

Voting for such a proposal would be the grossest malfeasance. The end result will be hyperinflation for the American people, and the complete destruction of the American middle class.

Someone has to take the loss of six years of the credit bubble. It should not be the American taxpayer -- directly or indirectly, through the inevitable inflation that will haunt a "yes" vote for this bailout plan. If anyone is to take a loss on the great gamble that has been the Bush administration's economic policies these past 8 years, it should be the bankers who made the bad bet -- but who have benefited enormously from their wager for the past several years-- in the first place.

I urge you: Don't submit to the extortion that Paulson et al are attempting right now on the U.S. Congress and the American taxpayer.

Yes, we are looking at the complete remaking of the American financial system. We are staring catastrophe in the face. But that is inevitable.

The question you must ask yourself is, who are you going to stand up for in this time of crisis and transformation? The taxpayer, or the banks?

And you must also ask yourself: are you really going to grant more power and trust to the executive in the waning days of an administration that has relentlessly abused the Congress' and the American people's trust on matters of war, civil liberties, energy, and the economy?

Granting more lee-way to the very foxes that have ransacked the hen house is asking for a greater calamity than we are already facing.

Stand against this. Stand up and say "no" to the attempts of Wall Street bankers and the Bush administration for one last looting of our bankrupted treasury.

One thing seems clear to me, and I hope you sense the gravitas of the situation, and see it as well.

You are standing in the breech of history, at a moment of crisis that this country has not seen since the Great Depression.

If you don't stand up for us now, there will be nothing worth standing up for later.

Technorati Tags: politics, economy, Wall Street, housing bubble, Paulson, bail out.

“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”

- Thomas Jefferson, in a letter to Treasury Secretary Albert Gallatin, 1802. Jefferson added: "The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."