"If you hear lawmakers and pundits repeating these like mantras, you can be sure that the financial regulation facelift is off to a bad start. "

A hugely important post on Bloomberg by Susan Antilla if you believe, as I do, that fraud, negligence, and fiduciary mismanagement are more important issues than CDS's, CDO's, complexity, ignorance of risk, etc.:

"Listen carefully for these words and phrases as politicians get to work on an overhaul of U.S. financial regulation in the months ahead: ``duplicative,'' ``balkanized,'' and the twin ``quilts'' -- ``patchwork quilt'' and ``crazy quilt.''

If you hear lawmakers and pundits repeating these like mantras, you can be sure that the financial regulation facelift is off to a bad start.

Those are the adjectives often used to describe the role of state securities regulators, the 50 local cops on the securities beat whose presence has long been a thorn in the deregulatory side of the financial industry.

Although the role of state regulators has been derided as wasteful (they regulate something that's supposedly already being regulated), expensive (it costs big bucks to pay lawyers to comply, and even bigger bucks to pay lawyers if you don't comply and get caught) and petty (they're just trying to steal the thunder from the real regulators in Washington), those who support the states see it differently.

``If you take away the states' power, there is only one game in town -- the Securities and Exchange Commission,'' says Renee Jones, associate professor of law at Boston College. ``That's a risk to investors.''

Yet there's a significant prospect that, amid plans to streamline financial regulation in ways that address the current financial crisis, state regulators might lose some of their power."

Understand this, they look into the treatment of average investors, and please remember the recent performance of the SEC.

``Given this opportunity to change the law, I think they will pounce on this,'' Jones says, referring to members of our sterling financial industry, their lobbyists and various politicians who are always keen to get government at any level to stop badgering business with rules.

It's far more desirable to be regulated by the SEC -- four recent reports by the agency's inspector general will help you understand why -- than by, say, Texas, where Securities Commissioner Denise Crawford says her underpaid and overworked civil servants find it rewarding ``to see the results when bad guys get put in jail.''

``The folks in my office are not looking to go to work for Wall Street,'' says Crawford, drawing a comparison to the well- worn career path that propels smart but underpaid SEC staffers into lucrative jobs defending financial firms.

To get an idea of what she's talking about, go to your favorite Web search engine and plug in ``former Securities and Exchange Commission.'' The results are thick with gushing press releases that announce the hiring of regulators by industry."

Good Lord, actual sense. The power of the financial lobby is immense. Exhibit A: TARP.

"The North American Securities Administrators Association, an investor-protection organization made up of 67 state, provincial, and territorial administrators in the U.S., Canada, and Mexico, tallied 2,276 enforcement actions and returned $616 million to investors in 2007, racking up 1,062 years of jail time for offenders who ended up being prosecuted. And that's only a partial tally that excludes 32 members that haven't gotten around to sending NASAA their data.

By comparison, the SEC in its most recent annual reporting period brought 671 enforcement cases and returned more than $1 billion to investors.

It was Kansas that started all this trouble back in 1911, adopting laws to address crooked promoters who fleeced investors in the state. Jones says that every state except for Nevada had enacted similar law -- known as ``blue sky'' -- by the early 1930S.

State regulators in their earliest days didn't have what it took to ward off the Great Depression, though, and Congress passed the Securities Act of 1933, which a year later led to the creation of the SEC as a federal regulator. Thus, there would be two layers of supervision to handle problems in the financial markets, Jones says."

We need a blue sky right now to deal with all these dreadful weather words we've been hearing.

"Business interests have successfully slashed the authority of the states during several rounds of political fighting over the years. Most notably, in 1996 the National Securities Markets Improvement Act, or NSMIA, took away the states' authority to oversee registration and review of public companies whose securities were sold to investors in their jurisdictions.

Even though their powers were reduced, the states roared back. Former New York State Attorney General Eliot Spitzer exposed and punished Wall Street firms for conflicts of interest between investment-banking departments, which underwrote securities sales by public companies, and research departments, which touted the stocks of those clients.

This year, regulators from Massachusetts and 11 other states brought cases against major banks and securities firms that had marketed auction-rate securities to investors as ``safe,'' only to see that market collapse. The states negotiated agreements that got customers' money back."

Can't have financial advisers taken to task for lying, exaggerating, etc. It's the system, the complexity, the models, etc. We can't blame human beings for these problems. It gums the system up, and our models include gullible clients.

"The SEC hopped on those auction-rate cases after the tough work already had been done by those crazy-quilt regulation duplicators in the states. Massachusetts, for example, sued UBS AG on June 26 and settled with the firm jointly with other NASAA members and the SEC on Aug. 8.

You would hardly know that, though, to read an Oct. 6 statement by the President's Working Group on Financial Markets at the U.S. Treasury Department, whose research is often cited as a starting point for regulatory overhaul.

``In the past few months, the SEC, with others in law enforcement, have restored liquidity to Auction-Rate Security investors in the largest securities buyback in the nation's history with tens of billions of dollars of liquidity being restored to tens of thousands of investors,'' the group gushed.

It isn't a far stretch to divine that Treasury is looking to downplay the role of the unnamed ``others in law enforcement'' who actually did the work.

SEC spokesman John Nester said the agency was involved with the auction-rate case ``from the get-go.'' William Galvin, secretary of state of Massachusetts, remembers it differently. ``We certainly consulted with the SEC,'' he said. ``But the idea that they were leading the charge is absurd.''

And so is the idea of cutting back on what the states are allowed to do in the financial arena. Memo to Congress: if you're looking for talent to run the new regulatory world, skip the SEC. The phone numbers you need are a click away in the records of your state payroll back home."

Looks to me like these state fellows get it, and are doing the heavy lifting. Please understand this: Regulations are one thing, fraud, negligence, and fiduciary mismanagement are another.