The always interesting Big Picture blog has culled together quotes and analysis from today’s NY Sun and other sources documenting Lee Pickard, the former director of the Securities and Exchange Commission’s trading and markets division, admitting that the current stock market tumble and credit crisis can be directly attributed to a purposeful SEC exemption that was given to five firms. Those five firms? Goldman Sachs, Morgan Stanley, and the now-belly-up Lehman Bros., Merrill Lynch, and Bear Stearns.

For the past 30 years, net capital rules required broker dealers to maintain a debt-to-net capital ratio of 12-to-1. But in 2004, at the height of subprime lending and mortgage fraud, the SEC allowed theses firms to operate at a 30 and even 40 to 1 ratio, Big Picture notes. In other words, it was blind-eye deregulation–skirting rules in place for more than three decades–and cut-and-run greed that caused these three firms to implode in on themselves.

The two remaining investment banks, Goldman Sachs and Morgan Stanley, are also suffering hits from the flying debris caused by this week’s stock tumbles. Morgan Stanley shares sank 42 percent Wednesday, while Goldman Sachs’ plummeted 53 percent.