This brouhaha over the Boston Fed's rationalization for missing the housing bubble reminds me of a conversation I overheard a few weeks ago between a former Federal Reserve bank supervisor and his counterpart at the New York Fed.

I can't give you their names since they were conversing privately a few feet away from me before the start of a conference on financial regulation (nor can I give you the name of the confab since that would give their identities away), and I just managed to overhear the exchange.

I have to say that today's House Financial Services Committee hearing into Lehman Brothers' collapse leaves me confused in more than one respect.

Ben Bernanke told the committee that regulatory authority over Lehman rested with the Securities and Exchange Commission under a voluntary program set up in 2004.

The closer one looks at the Lehman Brothers' bankruptcy examiner's report, the more one wonders what bank regulators were up to.

In fact, the report shows that the bill proposed by Senate Banking Committee Chairman Chris Dodd is misguided in having the Federal Reserve take over investment bank supervision while continuing to oversee large commercial banks, and serve as lender of last resort to both. The plain fact is that those two roles are in conflict, as we've pointed out before.

Back when the Federal Reserve started buying mortgage-backed securities from investment banks in the fall of 2008, there was some feverish speculation within the ranks of Financial Week, where I worked at the time, that the Fed's efforts were helping the banks make their balance sheets look better than they really were. But there was no way to prove that at the time.

Now the Lehman Brothers' examiners report is reviving such speculation, because Lehman's transactions with the New York Fed were similar to those it engaged in with other banks. And in the case of so-called Repo105 transactions involving $50 billion in Lehman assets that were temporarily shifted off of Lehman's balance sheet, the report says those transactions were "materially misleading" to investors because they were not properly disclosed.

There are three pieces in the blogosphere today that touch on the fundamental problem with our economic system and why it will remain in a ditch, or just lurch onward to the next crisis, if it isn't addressed.

And that is monopoly. I'll leave aside the politics of that, which is addressed well enough by Thomas Franks over at the Wall Street Journal. In a nutshell, he warns of a return to feudalism, which I've done as well before.

One of the big stories today is the emails between the Federal Reserve Bank of New York and American International Group in which the regulator told the insurer to withhold details from public filings about certain payments it made to banks during the crisis.

Bloomberg reports :

"AIG said in a draft of a regulatory filing that the insurer paid banks, which included Goldman Sachs Group Inc. and Societe Generale SA, 100 cents on the dollar for credit-default swaps they bought from the firm. The New York Fed crossed out the reference, according to the e-mails, and AIG excluded the language when the filing was made public on Dec. 24, 2008. The e-mails were obtained by Representative Darrell Issa, ranking member of the House Oversight and Government Reform Committee."

This is no doubt infuriating on several levels.

But I want to focus on one: emails. Seriously, you put this in emails?

Congress is acting like a nest of mad hornets on word that the New York Fed hid some details of AIG’s credit-default insurance payouts to big banks in late 2008.

Recall that the government was in the midst of pouring $180 billion of taxpayer bailout money into AIG at the time – and that company executives were simultaneously getting multimillion-dollar bonuses. It’s not exactly clear why NY Fed officials would actively try to keep things a secret, but it’s plain that they did, judging by an exchange of e-mail messages disclosed Thursday. The SEC was at odds with the decision and the information was released several weeks later, after things had blown over some.