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A catalog of human errors, not an act of God, brought about the 2008 financial crisis, a federal panel in Washington said. The long-awaited report by the Financial Crisis Inquiry Commission, designated as the official federal study on the financial house of cards that collapsed in 2008, said the crisis came about through benign and malignant neglect, unwise deregulation and incompetence among bankers and the government.
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"The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. 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 said, adding to punctuate the point, "Theirs was a big miss, not a stumble."
The commission found after reviewing testimony from 700 witnesses that former Federal Reserve Chairman Alan Greenspan's push for deregulation and his "pivotal failure to stem the flow of toxic mortgages," was a "prime example" of the government closing its eyes to the crisis, The New York Times reported Wednesday. His successor, Ben Bernanke, as well as former Secretary of the Treasury Henry Paulson Jr., both underestimated the problem, the report said.
Regulators failed to stand up to banks because banks pour billions of dollars into both lobbying and political campaigns, which sets up a mutual back-scratching relationship between the financial industry and politics. Regulators, in effect, "lacked the political will" to do their jobs, the report said.
Bankers, meanwhile, took risks they did not understand and leveraged far more than they should. When a banker is taken by surprise then someone is going to be taken. In this case, millions of jobs were lost when lending dried up among the nation's five largest investment banks at one point. On paper there was $1 in capital available for every $40 in assets, meaning, the Times said, if assets lost 3 percent of their value, banks would fail. Some of them did.
"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," the report said.
Behind the finger-pointing, the six Democrats and four Republicans on the panel differed philosophically, with the main body of the text playing down the nation's financial mandate of promoting home ownership. As such, the panel concluded the Fed's low interest rates preceding the downturn were not a major factor.
Panel member Peter Wallison, appointed by Republicans, disagreed, however, and is writing his own report, which tags home ownership policy as a major contributor.
For what it's worth, the pundits will take it from here. They will hold the official and dissenting texts aloft and likely slam them hard on their desks, often during television broadcasts. They will decide which version makes the most noise.
In the meantime, "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," the report says.
In international markets Wednesday, the Nikkei 225 index in Japan lost 0.6 percent while the Shanghai composite index rose 1.17 percent. The Hang Seng index in Hong Kong added 0.23 percent while the Sensex in India fell 0.95 percent.
The S&P/ASX 200 in Australia rose 0.46 percent.
In midday trading in Europe, the FTSE 100 index rose 1.31 percent while the DAX 30 in Germany gained 1.15 percent. The CAC 40 in France rose 1.07 percent while the Stoxx Europe 600 rose 1.1 percent.
