certain banks where labelled, targeted and setup for the release of the boil called 'sub' prime debt (toxic debt)
and the organisations that overseer that are paid by the self same masters that they themselves overseer

but please remember it was the tax payer who 'bailed out' the private banking system ... ho hum ...

The auditors have long been as dodgy as any of the people they looked into

Not always. Auditing is barely profitable for accountancy firms. They usually have to bid for big audits and then make up the profits on the consultancy work. I personally think that this can be a huge conflict of interest. If they provide the consultancy work they will have a tendency to overlook their involvement in such deals.

Longer term though maybe a criminal action against Ernst & Young that effectively kills them off like Arthur Anderson after Enron. It will mean fewer big auditors but that might mean that the auditors become more cautious. To lose two big auditors in a little more than a decade might make them re think their client relationships.

+1, I meant the last decade or so.

I have been on both sides as an auditor and as the person having their work audited. Even now the majority of auditors are good and competent. The bigger auditors have different problems. They have a lot of graduates so even trainees start on £25k+ that is hard work to break even on a large job without skipping a few corners. Also the real problems do not lie in the audit. Lehman's would have done many things at a high level so well above the pay grade of the average auditor. It is these which are the problem.

With many of the banks the problems are with the valuation of the mortgages. If it is being paid properly it could be valued at the full value but many loans are not being paid regularly these could be worthless if they are second mortgages, but under the US stress tests they are values at nearly full value. That discrepancy is going to be big problem. How they are valued is down to the partners and senior auditors in negotiations with directors.