And the New York Fed chief calls the lie (or self-delusion) on Schwartz: “We only allow sound institutions to borrow against collateral,” he said. “I would have been very uncomfortable lending to Bear given what we knew at that time.”

The NYT’s Floyd Norris writes in his C1 column that Bear met the Securities and Exchange Commission’s definition of “well capitalized” even as it was collapsing that weekend.

Could that indicate there is something wrong with the Fed’s rules? Does it sound a little like a doctor emerging from a funeral to proclaim that he did an excellent job of treating the late patient? The S.E.C. does not see it that way. It its view, this was a case of an old-fashioned bank run, and no capital standards can stop such a run when confidence is lost.

Norris goes on to say:

It is no coincidence that the crisis of 2007 and 2008 had its origin in unregulated financial products traded in unregulated markets. Ever since the Great Depression, the government has tried to limit the leverage available to the public in the American stock market. But regulators, led by Alan Greenspan, the former chairman of the Federal Reserve, thought innovation would be hampered, and financial activity driven overseas, if there were any attempts to impose limits on leverage in the unregulated markets.

And not to fluff Dana Milbank of The Washington Post too much, but he has another good piece this morning, which gives those involved in the proceedings yesterday one of his trademark acid baths.

After repeatedly calling Schwartz a “corporate-welfare recipient”, Milbank writes:

No moral hazard, however, would interfere with the lawmakers’ compassion for the beleaguered Schwartz and his fellow witness, J.P. Morgan Chase’s Jamie Dimon, who had given a combined $260,000 in political contributions in recent years—a small part of the $1.7 million their co-workers contributed in this election cycle alone. That’s a sizable handout—but a good investment compared with the $30 billion federal hand-up.

States rights

The WSJ reports on its page two that the states are getting more aggressive in their bids to help homeowners stay out of foreclosure, and the moves are putting the governments “at odds with mortgage lenders.” The plans are coming about in large part because of frustration with the federal government’s activity. The paper notes that the new Congressional plan doesn’t do much for individual homeowners (hey, it’s gotta help out Big Business!)

Illinois and Maryland are each proposing a moratorium on foreclosures of sixty to 150 days, while Ohio is enlisting an armada of lawyers to help homeowners block banks from foreclosing on them.

The Minnesota legislation would require a mortgage lender attempting to foreclose on a home to honor a borrower’s request for a 12-month deferment. During that time, the borrower would have to continue paying either the monthly payment due on the loan at the time it was made, or 65% of the monthly payment at the time of default, whichever was less, though the borrower would eventually have to make up the deferred payments. The bill has passed committees in the Minnesota House and Senate, but the governor has said he probably will veto it. Wednesday, the bill’s sponsors sent to the governor a letter suggesting that lawmakers work with him to craft a compromise.

The legislation faces strong industry opposition. “It would significantly erode the confidence lenders and borrowers have about the stability of contracts in Minnesota,” said Tom Deutsch, deputy executive director of the American Securitization Forum, an industry group.

Back in Ohio, lawyers are finding lots of ways to prevent foreclosure:

“There are defenses to many more of these proceedings than we ever thought,” said Ohio Attorney General Marc Dann. For instance, the party bringing the foreclosure action may not own the mortgage, he said, or attorneys may be able to show that the mortgage was “fraudulently induced.”

ATA’s wings clipped

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at