One of the worst things about thecrisis management in Hurricane Katrina was that when the levee actually broke, that meant that all aspects of our policy response SHOULD have changed and that a very bad situation had become a dire emergency.

Instead, it was not treated as a “different type of a difference” event and a catastrophe occurred.

Similarly, when Condolezza Rice received a comprehensive warning from the NIE in August 2001 that al Qaeda was clearly and actively planning attacks INSIDE the US, that should have been a game changer in terms of policy response.

It was not.

Our moderator Yves made a one-hour video one week ago that is a must see for all. You need to sit through the entire discussion.

One of her key points that she made is that the appearance of these “covenant light” provisions a few years ago should have been a screaming red siren to ANYONE that something was SERIOUSLY wrong with the entire intermediation process.

This HAS to be regarded as a turning point in the development of this entire catastrophe.

No rational person could have concluded that the proliferation of covenant light loan provisions was anything other than a critical symptom of an entire system run absolutely amok.

In this post, Yves raises that essential point again. Why are the chatterboxes in the blogosphere, Congress and the corporate media silent about it?

Any competent history of this debacle needs to treat the lack of regulatory response to covenant light loans front and center in the etiology of this crisis.

Matt Dubuque

”These portfolios are cyclical in nature and do track the general economy,” said Joseph Evers, deputy comptroller at the Office of the Comptroller of the Currency,

Yup, leading economic indicator is heading south. Not good, but expected, and expecting to see more of this.