There's a lot of blame to go around in Washington when it comes to why the country faced a financial crisis, according to the 10-member Financial Crisis Inquiry Commission that the government created in 2009 to investigate what contributed to the country's financial meltdown.
Regulators, politicians--both Republicans and Democrats--financial firms, and credit rating agencies' bad decisions and risky behavior were all to blame for the excessive borrowing that led to a surge in defaulting loans, the report says.
The report concludes: The financial crisis was avoidable.
The report blames regulators for not monitoring the financial markets carefully enough and the government for not being prepared to handle the fallout.
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, the report reads.
The report criticizes former Federal Reserve Chairman Alan Greenspan for unwisely pushing for financial institutions to police themselves. His successor Ben Bernanke and former Treasury Secretary Henry Paulson should have realized the problems in the subprime mortgage market sooner, the report says. The Clinton administration was criticized for shielding over-the-counter derivatives from regulation, which the report calls a key turning point in the march toward the financial crisis.
The report also blames credit rating agencies such as McGraw-Hill Cos' Standard & Poor's, Moody's Corp., and Fimalac SA's Fitch Ratings for their approval of securities that stemmed from risky mortgages that borrowers were unable to pay.
The report is expected to spark debate over the government's role in the housing market, Reuters reports. Republicans have said the government should retreat from promoting home ownership and has asked for the government-sponsored enterprises of Fannie Mae and Freddie Mac to be scaled back or even removed. While Democrats on the commission say that Fannie and Freddie contributed to the crisis, but were not a primary cause.
The full report is to be released by Thursday; Reuters was able to obtain a final draft of the report beforehand. The six-panel, appointed commission is made up of all Democratic congressional members. Republicans, who have criticized the report as being too broad, will release a separate report, as well as a report focusing solely on government housing policies.
Source: U.S. Panel Says Financial Crisis Avoidable, Reuters News (Jan. 25, 2011)