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The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the panel wrote in the report’s conclusions, which were read by The New York Times. “If we accept this notion, it will happen again.”

While the panel, the Financial Crisis Inquiry Commission, accuses several financial institutions of greed, ineptitude or both, some of its gravest conclusions concern government failings, with embarrassing implications for both parties. But the panel was itself divided along partisan lines, which could blunt the impact of its findings.

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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, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence.

It also criticizes the Bush administration’s “inconsistent response” to the crisis — allowing Lehman Brothers to collapse in September 2008 after earlier bailing out another bank, Bear Stearns, with Fed help — as having “added to the uncertainty and panic in the financial markets.”

Like Mr. Bernanke, Mr. Bush’s Treasury secretary, Henry M. Paulson Jr., predicted in 2007 — wrongly, it turned out — that the subprime collapse would be contained, the report notes.

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’s term, is called “a key turning point in the march toward the financial crisis.”

kalm wrote:Cid1990 just told me in another thread that only idiots didn't see it coming. Which I'm guessing is code for Fannie and Freddie.

1) The financial services industry spent $5 billion in lobbying efforts from around 1995-2005 to deregulate their sector.

2) The Republican controlled 104th congress passed Graham-Leach-Bliley and the Commodities Futures Modernization Act and Bill Clinton signed it into law.

3) Freddie and Fannie contributed to the problem and you can even make an argument they caused the housing bubble, but the whole crisis would have been far less significant if it hadn't been for #2.

Both sides are to blame, but if you want to identify three people of power and influence who claimed they really understood economics and didn't have a fucking clue what they were pushing it would be these guys:

Born and the OTC Derivatives MarketBorn was appointed to the CFTC on April 15, 1994 by President Bill Clinton. Due to litigation against Bankers Trust Company by Procter and Gamble and other corporate clients, Born and her team at the CFTC sought comments on the regulation of derivatives,[3] a first step in the process of writing comprehensive regulations. Born was particularly concerned about swaps, financial instruments that are traded over the counter between banks, insurance companies or other funds or companies, and thus have no transparency except to the two counterparties and the counterparties' regulators, if any. CFTC regulation was strenuously opposed by Federal Reserve chairman Alan Greenspan, and by Treasury Secretaries Robert Rubin and Lawrence Summers.[4] On May 7, 1998, former SEC Chairman Arthur Levitt joined Rubin and Greenspan in objecting to the issuance of the CFTC’s concept release. Their response dismissed Born's analysis and focused on the hypothetical possibility that CFTC regulation of swaps and other OTC derivative instruments could create a "legal uncertainty" regarding such financial instruments, hypothetically reducing the value of the instruments. They iterated the traditional capitalist-class argument that the imposition of regulatory costs would "stifle financial innovation" and encourage financial capital to transfer its transactions offshore. The disagreement between Born and the Executive Office's top economic policy advisors has been described not only as a classic Washington turf war,[6] but also a war of ideologies,[9] insofar as it is possible to argue that Born was acting ideologically in a sense comparable to Greenspan, Rubin, Levitt, Summers, and the rest of the neoclassical economics-supported neoliberal and neoconservative academic, corporate, and policy-maintenance communities.

Born declined to publicly comment on the unfolding 2008 crisis until March 2009, when she said: "The market grew so enormously, with so little oversight and regulation, that it made the financial crisis much deeper and more pervasive than it otherwise would have been."[6] She also lamented the influence of Wall Street lobbyists on the process and the refusal of regulators to discuss even modest reforms.[6]

An October 2009 Frontline documentary titled "The Warning" described Born's thwarted efforts to regulate and bring transparency to the derivatives market, and the continuing opposition thereto. The program concluded with an excerpted interview with Born sounding another warning: "I think we will have continuing danger from these markets and that we will have repeats of the financial crisis -- may differ in details but there will be significant financial downturns and disasters attributed to this regulatory gap, over and over, until we learn from experience."[9]

http://en.wikipedia.org/wiki/Brooksley_Born" onclick="window.open(this.href);return false;

Dissenters Fault Report on Crisis in Finance


One dissent points to broad economic forces that contributed to the credit and housing bubbles that built up during the last decade, including a glut of savings in developing Asian countries that began accumulating in the late 1990s and provided the fuel for mortgage-backed investments in the United States and Europe. It does not focus on the culpability of government and business leaders, as the main report does.

The other dissent argues that decades of government policies to promote homeownership are to blame for the creation of tens of millions of shoddy mortgages before the housing bubble burst in 2006-7. Though not the mainstream view, it could affect the looming debate over the future of Fannie Mae and Freddie Mac, the mortgage finance giants that have been in government conservatorship since 2008.

The disagreements threaten to blunt the impact of the main report. Those who had hoped for an authoritative account that would sear the public consciousness now seem pessimistic.

“I’m sad about it,” said Kenneth T. Rosen, a business school economist at the University of California, Berkeley, who testified before the commission last year. “This is a history, not a policy prescription. The fact that people read history so differently is a surprise to me. But I guess I shouldn’t be surprised at anything going on in Washington right now.”

Steve Fraser, a Wall Street historian, said he did not think that the report would do much to stop the financial sector’s return to business as usual.

“I am surprised — more than surprised, shocked even — that all that’s transpired since 2007-8 has produced as little as it has, in terms of reckoning with how out of control this financial system was and the damage it’s done,” he said.

Mr. Fraser said the Dodd-Frank regulatory overhaul law signed last July was helpful, but did not represent a far-reaching reassessment of the proper role of finance in American life.

“For a historian, it’s a baffling moment,” he said. “All the stars seemed aligned to produce real, fundamental change in the direction of public policy, and yet here we are with an administration itself bending over backwards to make friends with the financial industry.”