{"id":3935,"date":"2011-01-26T09:07:38","date_gmt":"2011-01-26T17:07:38","guid":{"rendered":"http:\/\/www.politicsplus.org\/blog\/?p=3935"},"modified":"2011-01-26T09:07:38","modified_gmt":"2011-01-26T17:07:38","slug":"financial-crisis-inquiry-commission-the-culprits","status":"publish","type":"post","link":"https:\/\/www.politicsplus.org\/blog\/2011\/01\/26\/financial-crisis-inquiry-commission-the-culprits\/","title":{"rendered":"Financial Crisis Inquiry Commission: The Culprits"},"content":{"rendered":"

Tomorrow the full text, several hundred pages, of the Financial Crisis Inquiry Commission will be released.  The meltdown was both foreseeable and preventable.  The former, I knew, because I had foreseen it.  The main factors in the fall were criminal corporate greed, and corporate and regulatory incompetence.  While Democrats did contribute, it is mainly a Republican recession.  Fannie and Freddie, the scapegoats Republicans use to deflect blame, were not major contributors to the crisis.<\/font><\/p>\n

\n

\"Ben…The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke<\/strong>, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a \u201cpivotal failure to stem the flow of toxic mortgages\u201d under his leadership as a \u201cprime example\u201d of negligence. <\/p>\n

It also criticizes the Bush administration\u2019s \u201cinconsistent response\u201d to the crisis<\/strong> \u2014 allowing Lehman Brothers to collapse in September 2008 after earlier bailing out another bank, Bear Stearns, with Fed help \u2014 as having \u201cadded to the uncertainty and panic in the financial markets.\u201d <\/p>\n

Like Mr. Bernanke, Mr. Bush\u2019s Treasury secretary, Henry M. Paulson Jr., predicted in 2007 \u2014 wrongly, it turned out \u2014 that the subprime collapse would be contained<\/strong>, the report notes. <\/p>\n

Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton\u2019s term, is called \u201ca key turning point in the march toward the financial crisis.\u201d <\/strong><\/p>\n

Timothy F. Geithner, who was president of the Federal Reserve Bank of New York during the crisis and is now the Treasury secretary, was not unscathed; the report finds that the New York Fed missed signs of trouble at Citigroup and Lehman, though it did not have the main responsibility for overseeing them<\/strong>. <\/p>\n

Former and current officials named in the report, as well as financial institutions, declined Tuesday to comment before the report was released. <\/p>\n

The report could reignite debate over the influence of Wall Street; it says regulators \u201clacked the political will\u201d to scrutinize and hold accountable the institutions they were supposed to oversee<\/strong>. The financial industry spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with it made more than $1 billion in campaign contributions<\/font><\/strong>. <\/p>\n

The report does knock down \u2014 at least partly \u2014 several early theories for the financial crisis. It says the low interest rates brought about by the Fed after the 2001 recession; Fannie Mae and Freddie Mac, the mortgage finance giants; and the \u201caggressive homeownership goals\u201d set by the government as part of a \u201cphilosophy of opportunity\u201d were not major culprits<\/strong>. <\/p>\n

On the other hand, the report is harsh on regulators. It finds that the Securities and Exchange Commission failed to require big banks to hold more capital to cushion potential losses and halt risky practices, and that the Fed \u201cneglected its mission.\u201d <\/strong><\/p>\n

It says the Office of the Comptroller of the Currency, which regulates some banks, and the Office of Thrift Supervision, which oversees savings and loans, blocked states from curbing abuses because they were \u201ccaught up in turf wars.\u201d<\/strong> <\/p>\n

\u201cThe crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire,\u201d the report states. \u201cThe captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.<\/strong>\u201d <\/p>\n

The report\u2019s implications may be felt more in the political realm than in public policy. The Dodd-Frank law overhauling the regulation of Wall Street, signed in July, took as its premise the same regulatory deficiencies cited by the commission. But the report is sure to be a factor in the debate over the future of Fannie and Freddie, which have been run by the government since 2008. <\/p>\n

Though the report documents questionable practices by mortgage lenders and careless betting by banks, one striking finding is its portrayal of incompetence<\/strong>. <\/p>\n

It quotes Citigroup executives conceding that they paid little attention to mortgage-related risks. Executives at the American International Group were found to have been blind to its $79 billion exposure to credit-default swaps, a kind of insurance that was sold to investors seeking protection against a drop in the value of securities backed by home loans. At Merrill Lynch, managers were surprised when seemingly secure mortgage investments suddenly suffered huge losses. <\/p>\n

By one measure, for about every $40 in assets, the nation\u2019s five largest investment banks had only $1 in capital to cover losses, meaning that a 3 percent drop in asset values could have wiped out the firm<\/strong>. The banks hid their excessive leverage using derivatives, off-balance-sheet entities and other devices, the report found. The speculative binge was abetted by a giant \u201cshadow banking system\u201d in which the banks relied heavily on short-term debt. <\/p>\n

\u201cWhen the housing and mortgage markets cratered, the lack of transparency, the extraordinary debt loads, the short-term loans and the risky assets all came home to roost,\u201d the report found. \u201cWhat resulted was panic. We had reaped what we had sown<\/strong>.\u201d\u2026 [emphasis added<\/em>]<\/p>\n<\/blockquote>\n

Inserted from <NY Times<\/a>><\/p>\n

Of course, the Republican response to all this is to undo the financial regulation, insufficient itself, and depend on the market to correct itself, just like it did in 2007.  Republicans are 100% Bankster bought.<\/font><\/p>\n

Obama is doing little better.  Keeping Bernanke and Geithner is an economic nightmare.<\/font><\/p>\n

The solution remains obvious.  Break up the TBTF banks.  Eliminate the shadow markets.  Reemployment Glass-Steagall.  Dump Geithner and Bernanke.<\/font><\/p>\n","protected":false},"excerpt":{"rendered":"

Tomorrow the full text, several hundred pages, of the Financial Crisis Inquiry Commission will be released.  The meltdown was both foreseeable and preventable.  The former, I knew, because I had foreseen it.  The main factors in the fall were criminal corporate greed, and corporate and regulatory incompetence.  While Democrats did contribute, it is mainly a […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-3935","post","type-post","status-publish","format-standard","hentry","category-politics","category-5-id","post-seq-1","post-parity-odd","meta-position-corners","fix"],"_links":{"self":[{"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/posts\/3935","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/comments?post=3935"}],"version-history":[{"count":0,"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/posts\/3935\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/media?parent=3935"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/categories?post=3935"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.politicsplus.org\/blog\/wp-json\/wp\/v2\/tags?post=3935"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}