So the SEC in 2004 gave 5 firms an alternative rule to operate under, basically
loosening the standards. Guess what happened? Ah, the joys of a Republican

[Ex-SEC Official Blames Agency for Blow-Up of Broker-Dealers](

The SEC allowed five firms the three that have collapsed plus
Goldman Sachs and Morgan Stanley to more than double the leverage they were
allowed to keep on their balance sheets and remove discounts that had been
applied to the assets they had been required to keep to protect them from

The net capital rule also requires that broker dealers limit their
debt-to-net capital ratio to 12-to-1, although they must issue an early
warning if they begin approaching this limit, and are forced to stop
trading if they exceed it

the SEC, under its new Consolidated Supervised Entities program,
allowed the broker dealers to increase their debt-to-net-capital
ratios, sometimes, as in the case of Merrill Lynch, to as high as