26th January 2011
The financial crisis was avoidable – that is the verdict of the US Federal commission due to be published tomorrow but reported in a New York Times scoop this week.
The report from the Financial Crisis Inquiry Commission will blame corporate mismanagement. Wall Street is lambasted for its wildly overleveraged positions and huge exposure to mortgage backed securities and credit default swaps which senior executives didn't understand.
The Clinton and Bush presidencies, the Federal Reserve, in particular, Alan Greenspan, the New York Fed and the SEC all take a huge portion of the blame too.
However the report also reflects America's bitterly divided political scene with the Republican minority presenting a dissenting view, heaping more blame on the Government and less blame on industry. The minority has a minority too as one Republican member, former Reagan staffer Peter J. Wallison has written his own report blaming Government lenders Fannie Mae, Freddie Mac and Clinton era policies to extend home ownership.
In the blogosphere, the Big Picture is ‘delighted' with the report so far, as are its commenter's but they are demanding blood or if not that prison for some of those involved.
Longball111 says: "The report is great but until these clowns start going to prison it's all just a wave in the air."
Calculated Risk's Bill McBride wants to know what government financial ‘field examiners' were finding out in the early 2000s.
"My first suggestion is that the Commission start interviewing – in private – the field examiners at the Fed, FDIC, OCC and OTS. There is no need to publicly embarrass any examiner. The various Inspector General reports on bank failures would provide a starting point (see Eric Dash's article in the NY Times: Post-Mortems Reveal Obvious Risk at Banks).
"Ask the examiners what they saw and when – according to the Inspector General's reports, the field examiners were warning about lending problems in 2002 and 2003."