Open Thread: The FCIC Says Who's to Blame for the Financial Crisis
Wednesday, January 26, 2011
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.
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?