So far, only the New York Times has the story â the crisis was caused by âwidespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Streetâ â but I expect this to be explosive in advance of the actual FCIC release on Thursday. The many causal factors highlighted in the FCIC report: ⢠Alan Greenspanâs malfeasance â his refusal to perform his regulatory duties because he did not believe in them â allowed the credit bubble to expand, driving housing prices to dangerously unsustainable levels; Greenspanâs advocacy for financial deregulation was a âpivotal failure to stem the flow of toxic mortgagesâ and âthe prime exampleâ of government negligence; ⢠Ben S. Bernanke failed to foresee the crisis; ⢠The Bush administrationâs âinconsistent responseâ â saving Bear, but allowing Lehman to crater â âadded to the uncertainty and panic in the financial markets.â ⢠Bush Treasury secretary Henry M. Paulson Jr. wrongly predicted in 2007 that subprime meltdown would be contained. ⢠The Clinton White House, including then Treasury Secretary Lawrence Summers, made a crucial error in âshielding over-the-counter derivatives from regulation [CFMA]. This was âa key turning point in the march toward the financial crisis.â ⢠Then NY Fed President, now Treasury secretary Timothy F. Geithner failed to âclamp down on excesses by Citigroup in the lead-up to the crisis;â Further, a month before Lehmanâs collapse, Geithner was still in the dark about Lehmanâs derivative exposure; ⢠Low interest rates brought about by the Fed after the 2001 recession âcreated increased risksâ but were not chiefly to blame, according to the FCIC (I place some more weight on Ultra-low rates than they do); ⢠The financial sector spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with the industry made more than $1 billion in campaign contributions. The impact of which an incestuous relationship between bankers and regulators, Congress and bankers, and classic regulatory capture by the industry. ⢠The credit-rating agencies âcogs in the wheel of financial destruction.â ⢠The Securities and Exchange Commission allowed the 5 biggest banks to ramp up their leverage, hold insufficient capital, and engage in risky practices. ⢠Leverage at the nationâs five largest investment banks was wildly excessive: They kept only $1 in capital to cover losses for about every $40 in assets; ⢠The Office of the Comptroller of the Currency along with the Office of Thrift Supervision, âfederally pre-emptedâ (blocked) state regulators from reining in lending abuses; ⢠The report documents âquestionable practices by mortgage lenders and careless betting by banks;â ⢠The report portrays the âbumbling incompetence among corporate chieftainsâ as to the risk and operations of their own firms: -Citigroup executives admitting that they paid little attention to the risks associated with mortgage securities. -AIG executives were blind to its $79 billion exposure to credit default swaps; -Merrill Lynch top managers were surprised when mortgage investments suddenly resulted in billions of dollars in losses; Lastly, the report dismissed the usual reality-challenged theories for the causes of the financial crisis. Fannie Mae and Freddie Mac âcontributed to the crisis but were not a primary cause.â (Or as I called them, they were just two more crappy banks) The various home ownership goals set by the government were not culprits either. http://www.ritholtz.com/blog/2011/01/fcic-what-caused-the-financial-crisis/
The composition of the commission has changed several times since its formation. The executive director J. Thomas Greene was replaced by Wendy M. Edelberg, an economist from the Federal Reserve. Five of the initial fourteen senior staff members resigned, including Matt Cooper, a journalist who was writing the report. Darrell Issa, a top Republican on the House Oversight and Government Reform Committee, questioned the Federal Reserve's involvement as a possible conflict of interest, and there has been disagreement among some commission members on what information to make public and where to place blame. Mr. Angelides called the criticisms "silly, stupid Washington stuff," adding: "I donât know what Mr. Issaâs agenda is, but I can tell you what ours is." In a joint interview the commissionâs chairman, Phil Angelides (D), and vice chairman, Bill Thomas (R), said that the turnoverâs effects had been exaggerated and that they were optimistic about a consensus.[7] http://en.wikipedia.org/wiki/Financial_Crisis_Inquiry_Commission
I know this is off the wall, we have 15, 20 or maybe more "failings" of the crisis BUT sheesh, we were cooking with gas big time, building, selling, everyone was spending and making money, plenty of people had jobs. What got in the way of building or keeping a robust economy that we had to resort to excess leverage, working in the gray areas of regulations and laws? It's almost as if the results of this new report, regulators will erect new barriers, constraints until the pent up financial frustration breaks through again.