Faithful readers, I know the blog has become more polemic in tone over the last few months. We are in the stage of the cycle, as Warren Buffet put it, the tide has gone out and we are seeing who isn’t wearing a swimming suit.

Worse, as the powers that be are desperately throwing funds at banks and investors in a doomed effort to return to the status quo ante, the money is certain to enrich industry incumbents (even if they think they are being treated badly by suffering a lifestyle hit) and much less likely to restore the financial system to a semblance of health. And the net result is that a lot of taxpayer money is going to folks who helped create the problem, or were less than innocent bystanders.

Unfortunately, there is a proud tradition in finance of bad actors finding profitable employment doing more or less what they did that created a train wreck. Drexel sold S&Ls a lot of the junk that brought them to ruin (and “sold” doesn’t even begin to describe it. A regulator told me that Lincoln Savings would get a daily fax from Drexel of what it had bought, and then when the regulators came a calling, Lincoln realized it was supposed to have filed demonstrating that it had done due diligence on the investments. It hired Arthur Andersen to create the phony paper trail). And the principals of LTCM, having nearly brought the financial system to its knees, started another hedge fund.

Now admittedly, the authorities did bring down Michael Milken, who in a plea bargain agreed to be barred from the securities industry permanently. But many of his lieutenants had profitable post-Drexel careers. And while the Enron collapse did lead to a much larger number of executives being investigated and prosecuted, it was not a financial intermediary in the traditional sense and almost serves as the exception that proves the rule. As we have noted repeatedly, we’ve seen no investigation of Lehman, where the public financial appear to have greatly overstated the true condition of the firm.

That is a long-winded way of saying there is much to be genuinely unhappy about. And as much as I do not want to seem fixated on how the public is being had, this is too important to let go by. If we allow ourselves to become inured to this sort of thing, it will further lower the barriers to this sort of behavior.

And while I recognize, unlike the Milken/Enron examples, the Countrywide conduct (so far) falls short of being criminal, it is certainly of questionable morality. We’ve had enough examples of the costs of buccaneer capitalism that it’s time we start demanding something better.

From the New York Times:

Fairly or not, Countrywide Financial and its top executives would be on most lists of those who share blame for the nation’s economic crisis…. Stanford L. Kurland, Countrywide’s former president, and his team have been buying up delinquent home mortgages that the government took over from other failed banks, sometimes for pennies on the dollar. They get a piece of what they can collect…. As hundreds of billions of dollars flow from Washington to jump-start the nation’s staggering banks, automakers and other industries, a new economy is emerging of businesses that hope to make money from the various government programs that make up the largest economic rescue in history… And there is PennyMac, led by Mr. Kurland, 56, once the soft-spoken No. 2 to Angelo R. Mozilo, the perpetually tanned former chief executive of Countrywide … Mr. Kurland has raised hundreds of millions of dollars from big players like BlackRock, the investment manager, to finance his start-up. Having sold off close to $200 million in stock before leaving Countrywide, he has also put up some of his own cash…. “It is sort of like the arsonist who sets fire to the house and then buys up the charred remains and resells it,” said Margot Saunders, a lawyer with the National Consumer Law Center, which for years has sought to place limits on what it calls abusive lending practices by Countrywide and other companies…. Mr. Kurland acknowledges pushing Countrywide into the type of higher-risk loans that have since, in large numbers, gone into default. But he said that he always insisted that the loans go only to borrowers who could afford to repay them. He also said that Countrywide’s riskiest lending took place after he left the company, in late 2006, after what he said was an internal conflict with Mr. Mozilo and other executives, whom he blames for loosening loan standards… But lawsuits against Countrywide raise questions about Mr. Kurland’s portrayal of his role. They accuse him of being at the center of a culture shift at Countrywide that started in 2003, as the company popularized a type of loan that often came with low “teaser” interest rates and that, for some, became unaffordable when the low rate expired. The lawsuits, including one filed by New York State’s comptroller, say Mr. Kurland was well aware of the risks, and even misled Countrywide’s investors about the precariousness of the company’s portfolio, which grew to $463 billion in loans, from $62 billion, three times faster than the market nationwide, during the final six years of his tenure. “Kurland is seeking to capitalize on a situation that was a product of his own creation,” said Blair A. Nicholas, a lawyer representing retired Arkansas teachers who are also suing Mr. Kurland and other former Countrywide executives. “It is tragic and ironic. But then again, greed is a growth industry.”

It’s funny how standards vary. If a company with a great technology was seeking funding, and there was outstanding litigation against the principals alleging misconduct, most VCs would pass on the deal. But if you are in the money game, as opposed to the building real businesses game, character might be viewed as an impediment to success.