It is Paulson’s fault that it came to this for AIG, LEH, MER, and others, but the management teams had an opportunity to protect itself from his recklessness and the rating agencies’ foolishness. They chose not to take it.

Meanwhile, the maligned monolines, having learned their lesson the hard way much earlier this year, spent the last 3 or 4 months in a frenzy of activity to wind down the one part of their business (asset management) that still was exposed to rating agency irrationality. Unthinkable as it was several months ago, the monolines seem pretty smart compared to the dopes at LEH, AIG, MER, WM, and lord knows who’s next.

We are going to see much more assertive ratings agencies now. I’m reminded of how accounting firms always used to sign off on corporate statements that they never should have.

Enron changed all that, together with the public dismemberment of Arthur Andersen orchestrated by the fearless Paul Volcker.

Nobody thought Andersen could fail. There was blood everywhere after the public execution of Andersen by Volcker and EVERY accountant who went to a good school knows more than a few of their friends who lost their jobs there.

After the lynching of Arthur Andersen, the large accounting firms changed their tune. Look what their AUDITED statements did to corporate earnings last January. (Remember that only ANNUAL reports are audited.)

Wait to see what happens come January 2009 when they AUDIT all this trash posing as quarterly earnings reports.

Oooo weee.

Similarly, the ratings agencies, all of them were corrupt and complacent.

Now, armies of brilliant commando plaintiff’s lawyers have descended on Federal courtroooms throughout the country armed with hundreds of reams of smoking guns about the liability of the ratings firms in all of this. Their stock price reflects this.

The ratings agencies have now been ordered by their in-house corporate counsel that competence and diligence are more important than chance encounters with gorgeous women facilitated by unnamed third parties in deciding whether and when to downgrade.

Matt Dubuque

Seems rather cavalier — “What, we worry?”

Maybe they know something we don’t.

First off, to Mr. Ashooh…i say “Gazoontite.”

Second off, who is this “third-party” that keeps signing off on these obviously ridiculous marks, simultaneously facillitating the total annhilation of our modern financial system while maintaining a smile?

Here’s an idea:

Is there a market for this security?

If the answer is “no,” you mark it zero, and move on to the next frame.

If the answer is “yes,” you sell a piece of it and mark the lot based upon the bid you get.

Now THAT would be competent risk management…in indeed there is such a thing.

It’s going to be a crazy week.