I wondered where the SEC was while the FBI and the New York AG were pursuing various investigations related to mortgage-based securities. Well, thanks to Bloomberg (Subprime Lenders Get Big Accounting Break at SEC: Jonathan Weil), now I know. They were off taking care of the industry’s legal problems with the off-balance-sheet vehicles that are being used to hold mortgages after all the up-front fees and profits have been taken out. Of course they were taking care of them by waiving the rules, protecting the industry rather than any semblance of consistent or transparent accounting. Heaven forfend that any losses should offset all those nice profits. Mr Weil observes the possibilities of this strategy:

Perhaps the auto industry could be saved, for example, if only we devise new accounting “interpretations” of the rules governing their massive pension liabilities.

Hewitt couldn’t call his Jan. 8 letter an outright exemption, of course. Unlike the SEC itself, he doesn’t have the authority to overturn the FASB’s rules. Practically speaking, however, that’s what he did.

The SEC and the FASB at least should acknowledge this subterfuge for what it is. Don’t count on it, though.

It is so reassuring to know that the SEC is looking after Wall Street. We wouldn’t want bonuses or the Hamptons houses to be in jeopardy, would we?