Financial Crisis Inquiry Commission Says Disaster Was Avoidable

The bipartisan Financial Crisis Inquiry Commission's final report, a tome of 576 pages, will be available on Thursday, but the media have received advanced copies. It says that the financial disaster of that came to a head in 2008 was entirely avoidable. In the conclusion, the 10 member body says, "The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again." And since the 6 Democrats approved the report and the 4 Republicans on the panel are issuing minority reports, one can confidently say that the measures that will be taken are destined to be inadequate to prevent a replay.

There is a bumper crop of blame parceled out by the commissioners. Two Fed chairmen, Messrs. Alan Greenspan and Ben Bernanke, have red ink on their hands. The former is blamed for a "pivotal failure to stem the flow of toxic mortgages" on his watch. The latter just plain missed the crisis and spent much of 2008-09 trying to figure out what to do.

The Bush administration blundered and dithered in 2008 with an "inconsistent response" to the Wall Street meltdown. It ensured the bailout of Bear Sterns but let Lehman Brothers go broke. This "added to the uncertainty and panic in the financial markets." Henry M. Paulson, Mr. Bush's Treasury secretary, predicted in 2007 the subprime meltdown would be contained and this colored early policy decisions that made things worse.

Meanwhile, the Democrats come in for some blame as well. The decision to avoid regulating over-the-counter derivatives in 2000 was "a key turning point in the march toward the financial crisis." Timothy Geithner, Mr. Obama's Treasury secretary and New York Fed Chairman during the crisis, failed to bring Citibank to heel and didn't really know what was going on at Lehman.

Most damning, "The crisis was the result of human action and inaction, not of Mother Nature or computer models gone awry. The 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." And "When 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. What resulted was panic. We had reaped what we had sown."

The trouble is that the commission divided along party lines. The Democrats are happy with this analysis, while the Republicans are issuing two minority reports. Sewell Chan, writing in the New York Times stated that three of the GOP members have a dissent prepared, and a fourth conservative, Peter J. Wallison (a former Treasury official and White House counsel to President Ronald Reagan), is dissenting from their dissent with his own report "calling government policies to promote homeownership the primary culprit for the crisis."

Since they don't agree on the causes, they won't agree on the fixes. The gridlock continues.

© Copyright 2011 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

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