The story is a damning picture of a system in which “the government outsourced its regulatory function” to companies, and it ought to be a roadmap for new oversight by regulators attempting to prevent this from recurring.

Not so Smart

A Debit to Smart Money for a column that tries to usher in an economic recovery that doesn’t actually exist.

Donald Luskin, chief investment officer for an economic consulting firm, sounds like warmed-over Larry Kudlow.

Everyone was already saying that the U.S. economy had fallen into recession. The Bear catastrophe could only make matters far worse.

And yet now, a month later, the economy has not gotten worse. Compared to the bleak expectations then, even just hanging in there would have been an upside surprise. But it’s more than that. Things actually are getting better.

Luskin begins with earnings. Sure, he admits, GE had a bit of a disaster this quarter. But besides that little hiccup, “the news has been terrific.”

Tell that to Capital One. Or Ambac Financial , or any of the airlines .

Better than expected, maybe. Terrific? Hardly.

Luskin goes on to tell us:

The worst is over. It’s more than over.

Apparently The New York Times, and just about everyone else, didn’t get the memo. In a Tuesday piece on the scramble for capital, the paper says:

The pain is far from over. Even the most optimistic forecasters say banks will suffer billions of dollars in additional write-downs on mortgage investments and other debt in the months ahead.

If the pain isn’t over at the banks, then it isn’t over in a lot of other places, either.

And how about those out-of-control home foreclosures and falling-off-the-chart home sales? Skyrocketing energy prices? Out-of-control food costs here and everywhere? Rising unemployment? Believe us, the list could go on. Architectural billings, anyone?

So what if there was some excess home building and home buying? So what if some stupid banks made some stupid loans, and some stupid home buyers took those stupid loans and now can’t pay them back? It’s a problem, I suppose. But in the end it’s a side show.

We understand the value of the contrarian argument, but this one is poorly supported.

Strong work from Sidel

A Credit to the WSJ for a page-one piece that shows the paper, at least for now, gives space to some stories.

Robin Sidel reported last Monday that small and midsize banks are starting to feel the impact of their imprudent lending, an under-examined side of the credit crisis.

Why are many smaller banks in a bind?

Some, feeling squeezed by competition from mortgage companies or brokerage firms, expanded into new lines of business or tried to undercut big banks’ rates. Others were seduced to expand across state lines after interstate-banking restrictions were lifted a decade ago. Credit unions revved up real-estate lending, in part as some states relaxed laws that limited their operations to a single community or employee group.

A clear, concise explanation, including both misguided strategies and weaker regulations.

Where’s Robert?

Credit to The New York Times for its smart story on Robert Rubin’s ambiguous role at Citigroup. He was chairman of the executive committee, whatever that means, and held enormous sway at the bank even as it led the economy into the credit crisis. Still, he apparently believes he was in charge of, and responsible for, nothing. His attempts to shore up his reputation remind us of Alan Greenspan’s.

“I don’t feel responsible, in light of the facts as I knew them in my role,” he adds.

Got it. Thanks.

Elinore Longobardi is a Fellow and staff writer of The Audit, the business-press section of Columbia Journalism Review.