The Financial Crisis Inquiry Commission finally released it’s finding today. A 576-page book reports the results of panel’s investigation into the 2008 collapse of the financial industry. They concluded that the crisis was avoidable and spread the blame around appropriately to many. Mismanagement of the Federal Reserve by both Alan Greenspan and Ben Bernanke feature prominently, as do Wall Street, Fannie Mae, Freddie Mac, both Clinton and Bush-43 administrations. Government policies, regulators share the blame with greedy bankers and hedge fund traders.

Financial Crisis Avoidable
Federal Reserve Chairman Ben Bernanke, and his predecessor, Alan Greenspan, are among those blamed by the Financial Crisis Inquiry Committee in their finding.

The panel consisted of ten members, six Democrats and four Republicans. Only the six Democrats endorsed the report. Three Republicans wrote one dissent to it, and the fourth, Peter J. Wallison, currently a co-director of the American Enterprise Institute, offered a second, unique dissent. The commission took 19 months, held 19 days of hearings and interviewed some 700 witnesses.

The Democrat majority report primarily blames the current and previous Fed chairmen for allowing the housing bubble to expand and collapse. They then took aim at the “inconsistent response” by the Bush-43 administration for bailing out Bear Stearns but not Lehman Brothers. Former Treasury Secretary Henry Paulson Jr. was also named specifically for failing to act despite signs of a pending housing collapse in 2007.

The panel then points a finger at the Clinton administration’s policy on the derivatives market, calling it “a key turning point in the march toward the financial crisis.” Robert Ruben, and his successor, Larry Summers, were both proponents of allowing the exotic instruments like credit default swaps to be created, sold and traded with little regulation or oversight. Naturally, credit-reporting agencies like Moodys and Standard & Poors failed to accurately assess these derivatives to those buying them.

The current Treasury Secretary, Timothy Geithner, drew heat as well during his term as head of the New York Federal Reserve Bank. He was cited for failing to oversee firms like Lehman Brothers and Citigroup. The five largest banks in the country, all of whom Geithner was responsible to monitor, were way over-leveraged at a ratio of 40:1 on average. As little as a 3% decline in the value of their assets would have wiped them out. The Crash of 2008 was an accident waiting to happen.

Government agencies like the Securities and Exchange Commission and the Office of Thrift Supervision were also key players in the mismanagement of the government’s regulatory apparatus. Policies on increasing home ownership and banking regulations share the blame with predatory lenders and wily hedge fund traders. Wall Street lobbyists spread nearly $4 Billion dollars in campaign contributions during the ten years leading up to the Crash of 2008. In other words, the panel’s report declared that pretty much everything that could go wrong, did!

While the Financial Crisis Inquiry Committee spread the blame around, it is fairly clear that the chief culprits, in their view, have been the last two chairmen of the Federal Reserve, Ben Bernanke and Alan Greenspan. They could have turned off the spigot of cheap money which fueled the housing bubble, which crippled the nation and the world. Fannie Mae and Freddie Mac are still sitting on trillions of dollars of toxic assets from deflated and sub-prime mortgages. Once again, we learn the hard lesson that without rational means, such as proper margin rates and capital-to-asset ratios, failure is a foregone conclusion.

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