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Open Thread: The FCIC Says Who's to Blame for the Financial Crisis

Wednesday, January 26, 2011

WNYC
Financial Crisis Inquiry Commission Holds Hearing in Washington (Chip Somodevilla/Getty)

On Thursday morning, the Financial Crisis Inquiry Commission released its final report to the president and the public on the causes of the 2008 financial crisis.

One major finding: The 2008 financial crisis was avoidable.

The ten-member commission was formed in 2009 to take a closer look at the causes of the financial meltdown and the resulting near-failure of major financial institutions who were eventually bailed out by the government.

The FCIC's report will be nearly 600 pages and is the result of nearly 700 witness interviews, reviews of millions of pages of documents and 19 days of public hearings around the country, many of them in New York.

Though bipartisan in name, the Commission was split down partisan lines throughout the investigation. Of the ten FCIC members, only the six Democrat-appointed Commissioners endorsed the final report.

The Republican Commissioners have written a minority report, expressing their disapproval with the majority report and Republican Commissioner Peter Wallison wrote his own dissent.

Nocera, for one, agrees with the Majority report's finding that former Federal Reserve Chairman Alan Greenspan, and his support of deregulation of the banking system, is culpable.

I do think that he is the single most culpable individual in the entire thing. His refusal to take seriously the part of his job where he was to protect the banking system. He just opted out. And because he has such a profound deregulatory bias, and because he was so powerful in Washington and his instincts held so much sway, he basically caused the entire federal government to follow him off the cliff.

What the report says:

  • The Federal Reserve did not do enough to reign in banks, singling out Alan Greenspan for backing “30 years of deregulation."
  • The report criticizes the Bush administration for its "inconsistent" response to the crisis which built up uncertainty to the markets.
  • Low interest rates brought about by the Fed after the 2001 recession, Fannie Mae and Freddie Mac, the big mortgage finance companies, and the government's “aggressive homeownership goals” were not major culprits.
  • Regulators, like the the Securities and Exchange Commission, failed to require big banks to hold enough capital in case of potential losses from risky practices.
  • It blames the Clinton administration for "sweeping deregulation" of derivatives, which was a "key turning point" in the progress of the financial crisis.

What the Dissenting Commissioners say:

  • The Republicans blame the credit bubble which they say was inflated by increased investments in high risk mortgages, including the nontraditional mortgages pushed by firms like Countrywide Financial Corp. and Washington Mutual Inc.
  • They also blame the housing bubble that started in the late part of the 20th century.
  • They say U.S. monetary policy might have contributed to the credit bubble, but it wasn't the cause.
  • Wallison's dissent argues the government housing policy, the U.S. Department of Housing and Urban Development, during the Clinton and Bush administrations, layed the foundation for the meltdown when it backed risky loans and that Fannie Mae and Freddie Mac fueled the subprime bust when they bought a lot of those bad mortgages.

"A pox on all houses," quoth WNYC's economics editor Charlie Hermann, ala Shakespeare. The report quotes the bard as well: "the fault lies not in the stars, but in us."

So, a lot of this breaks down into the debate we've been having since 2008. What do you think? Who do you blame for the financial crisis, and do you think enough's been done to prevent the rest? 


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Comments [13]

lucinda from bunker hill w.va. 25413

i also blaim the mortgage servicing co.they got milliens of dollers,and never wanted to help home owners,we only had 103,000 loan in 1999 we live on a budget,my husband worked at is job for 35 years,stop blaming the bowrers and the hard working peaple,we are victums of fraud,when are the FBI going to shut the mortgage servsers down?

Jan. 28 2011 10:10 AM

The business of business is to make money, regardless of the consequences to others. Blaming them is like blaming tigers for killing antelopes- that's what they do. On the other hand, a market economy has proved way more productive in generating (though not distributing) wealth than a government, command economy. To deal with this dilemma, I propose the 28th Amendment to the Consitution (obviously modeled on the second amendment):

"A well regulated economy, being necessary to the general welfare of a free State, the right of the people, through their elected representatives, to oversee our market economy, shall not be infringed."

Of course, if our representatives are bought and sold by the corporations, they won't do ****. So the 29th amendment would have to be about getting money out of politics. But I leave that to someone else to spell out.

Jan. 27 2011 11:17 AM
Harvey Kravetz from Fairfield, CT

As a financial advisor and a student of economics the cause of the subprime melt down has a lot of blame to go around. But if you look closely at the problem you can see the the power of greed was so great that in spite of the obvious problems too much money was being made to stop the game. But without the rating companies playing the greed game the crap could not have been sold. It was one thing for the banks to securitize the subprime loans, but they could not have been repackaged and sold if they were properly rated.

Jan. 27 2011 11:01 AM
Sunny Howe from Tega Cay, SC

I blame Michael Chertoff! If you recall it was Congress who passed a bill in the House that said anyone here illegally should be considered a Felon, arrested, put into prison and deported. There were marches on the streets of all major cities in America. It was the actions of Michael Chertoff the Attorney General, who decided to start "Operation Roundups" where many illegals (the largest receivers of no doc loans) where rounded up, many had to quit their jobs, go into hiding to avoid getting deported. It was this action that was the tip of the iceberg in the real estate market. Put these people back to work and you will see the entire economy turn around!

Jan. 27 2011 10:57 AM
matt from Harlem

Were the wars at all mentioned as a cause of economic trouble?

Jan. 27 2011 10:53 AM
MP from Brooklyn

I blame Ayn Rand - for everything.

Jan. 27 2011 10:53 AM
Richard Hokin from Darien CT

It's simple: too many believers of their own BS, from top to bottom.

Jan. 27 2011 10:52 AM
Mark

I blame capitalism. These kind of crises are a fundamental part of capitalist production and the less regulation there is the worse they are. To search for individuals to blame gives them too much power and subscribes to the "great man" interpretation of history where strong personalities shape history not economic conditions. What if there was no Stalin to defeat the Nazis? Well, if there was no Stalin then Trotsky would have defeated the Nazis instead and probably quicker because he wouldn't have signed the Molotov-Ribbentrop act...so what if there was no Alan Greenspan? Then I'm sure some other free market fundamentalist and Rand acolyte would have played the same historical role. The aim of this report isn't to find the perpetrators of the crises but to absolve capitalism for it's inherent human cost and injustice.

2-for-1: how do I spend my snow day? (for the unemployed everyday is a snow day! woohoo!) I write mildly Marxist polemics on the Internet! :)

Jan. 27 2011 10:24 AM
Ed from Larchmont

One smaller cause was the lack of more younger people: if there had been more younger people, there would have been more qualified people to buy houses. Demographics.

Jan. 27 2011 10:17 AM
jgarbuz from Queens

It's all the fault of the American people, who decided to buy into some nonsense called "the American Dream," which in effect meant you could move from the cramped inner city apartments into oversized McMansions and oversized SUVs, most based on borrowing and taking on increasing debt, just as genuine global competition, and a real energy crisis was just beginning. If the majority of people want to blame somebody, they should look into the mirror and point the figure at the person they see in it, for believing a fantasy, and are now angry and disappointed to find out that Santa Claus really does not exist!

Jan. 27 2011 10:17 AM
Steve from NYC

When looking for someone to blame, I always remember what my father taught me: You can't cheat and honest man.

Jan. 27 2011 10:17 AM
David from Queens

We all drowned in the Fountainhead with Greenspan

Jan. 27 2011 10:15 AM
gary from queens

Recessions and economic bubbles occur in cycles. Instead of forming commissions, we can look to history for answers.

The last U.S. president that tried to spend his way out of a recession---using printed or borrowed money---was Franklin Roosevelt. And all that accomplished was to turn a simple recession into a decades-long depression. The New Deal----Roosevelt's stimulus plan----delayed our recovery. Government becoming a player discouraged private investment. The new regulations and mandates, which always follows government investment, creates economic uncertainty. The only thing that finally created economic growth and put people back to work was World War II. Thanks to the New Deal's huge influx of government dollars into the economy, the stock market hadn't returned to it's pre-depression highs until well into the 1950s. Roosevelt's Secretary of the Treasury Henry Morgenthau Jr. admitted that the New Deal had failed in it's mission in testimony before the Democrat majority-run House Ways and Means Committee on May 9, 1939:

QUOTE
We tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong… somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises… I say after eight years of the Administration (Franklin Roosevelt from 1931-1939) we have just as much unemployment as when we started… And an enormous debt to boot!
UNQUOTE

References:
1. Burton Folsom Jr New Deal or Raw Deal? How FDR’s economic legacy has damaged America. New York: Threshold Editions, 2008.
2. Morgenthau Diary, May 9, 1939, Franklin Roosevelt Presidential Library.
3. Richard K. Vedder and Lowell E. Gallaway, Out of Work: Unemployment and Government in Twentieth-Century America. New York: Holmes & Meier, 1993.

Jan. 27 2011 09:35 AM

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