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This is an admission that cuts deeply and one you probably won't hear much about when Congress takes the SEC to the woodshed Monday for another ritual thrashing. They're also a little murky about where the trail of complicity wanders. Was it just the big guys, the fat cats, the bureaucrats at fault, or did some responsibility fall on regular folks, "regular" meaning everyone from Madoff's Palm Beach buds to the subprime crowd? And in a few places, they drift past really knotty difficulties (their short discussion on mark-to-market accounting skips swiftly across the surface like a smooth stone). One key moment: Deep into page two, they argue the unassailable point that the administration, the Federal Reserve and just about anyone in authority pays too much attention to the "short-term" stock market. Regulators, meaning Ben Bernanke and Henry Paulson, should "ignore" the short-term stock market in pursuit of decisions with "long-term consequences." There are several problems with this point of view. First, sometimes, like last year, getting from short-term to long-term is a leap of ass-grabbing faith. The notion that decisions should be made that ignore a collapsing stock market suggests there are known and tested policies that will produce a long-term recovery, based on metrics like economic growth that are more legitimate than equity prices. The unfortunate fact is (and it is unfortunate, but still a fact), in many different ways equity prices remain the primal fever chart of economic performance. Falling share prices don't just suggest a waning level of confidence by investors, they trigger a cascade of secondary effects, from margin calls to the need for more capital to layoffs. You can argue that equity prices are far too central in the economy, but you can't just walk away from them and say they should be ignored. Two, and far more important, is that, for better or for worse, we live in the ownership society that President Bush so famously bloviated about, particularly when it comes to retirement planning. This wasn't particularly anyone's choice -- the drift to defined contribution plans might have been unavoidable but it was hardly publicized or even voted on -- and for most Americans it's the very definition of long-term investing. But there are political and economic consequences to this market exposure. Falling share prices may have a far more immediate effect on regular folks than at any time in history. Your long-term may be my short-term. So it's not just regulatory mandarins who fixate on equity markets, it's voters too. Voters share both the bias toward loose money and accomodationist policies. They want bailouts, stimulus packages and -- at the risk of renewed bubbles -- a government that spurs growth. It may be simplistic, but the fact that so many Americans are exposed to equities plays a major role in the creation of the seemingly unshakable belief that we can simply patch things up, re-inflate and get going again. In short, there's a powerful feedback mechanism between masses and mandarins, and one we've not come close to escaping. Give Lewis and Einhorn credit: They gesture toward this, but, in a very Timesian way they focus on mandarin guilt. The real regulatory issue is much larger and more systemic. The profound underlying problem here is that political democracy and financial markets have been all but merged, creating a powerful impetus to wishful thinking. The subject may be economic, but the context is political. And changing our politics, altering our fabulous life styles in the most fundamental ways, is a lot harder than even trying to convince the SEC that Madoff was a crook. - Robert Teitelman See Lewis' and Einhorn's column from The New York Times Robert Teitelman is the editor in chief of The Deal. Categories Deal Video
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In Sunday's New York Times, the unlikely duo of Michael Lewis, financial chronicler-turned-sportswriter, and short seller and provocateur David Einhorn (pictured) co-author a sweeping 
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