In one of my recent rants I blamed the Bush administration for some of what ails us (The George W. Bush economic plan?) and now an Ex-SEC Official Blames Agency for Blow-up of Broker-Dealers, as reported by Julie Satow, staff reporter of the New York Sun, September 18, 2008.

In my post I simply tried to make the point that government policy and leadership does affect how laws are written, rules are enforced, and the sentiments of leadership affects things even when those leaders are not holding the smoking gun. I am not giving the legislature a free pass on this either, but policy is set by the President.

During the current administration, policies that were put in place in 1975 to prevent the kinds of transgressions we are witnessing now by financial institutions were shredded by the current SEC management.

Allegations are being made by a former SEC official, Lee Pickard, who says a rule change in 2004 are what led to the failure of Lehman Brothers (NYSE: LEH, not trading) , Bear Stearns (NYSE: BSC, not trading), and Merrill Lynch (NYSE: MER).

Now we learn that rules put in place regarding capital reserves, leverage limits, and basic accounting principals were removed, eased, and modified as reported: "allowing the broker dealers to increase their debt-to-net-capital ratios, sometimes, as in the case of Merrill Lynch, to as high as 40-to-1. It also removed the method for applying haircuts, relying instead on another math-based model for calculating risk that led to a much smaller discount."

As an example, up until 2004 the net capital rule required that broker dealers limit their debt-to-net capital ratio to 12-to-1. To make matters worse the SEC is not admitting the ERROR of THEIR WAYS, but are making excuses for the failings and considering even further liberalization of the rules governing lenders and investment houses.

It is an ironic twist and one that has many conservatives in an uproar that the current administration has been so liberal with fiscal policy and fiscal restraint that Federal spending has grown out of control and the controllers have turned a blind eye to their responsibility.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. DISCLOSURE: I owned BSC and now own shares in its acquirer JPM.