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  • Financial Report Reflects Ideology More Than Facts

    The release of the final report(s) of the Financial Crisis Inquiry Commission (FCIC) brings to mind the story of several blind men trying to describe an elephant. One felt the legs and decided an elephant was like a forest, while another felt the trunk and decided that elephants are like snakes.

    Sadly, the FCIC went the same way by releasing three different reports, each of which reflects a certain view of the 2008 financial collapse. The majority report lists many causes of the crash but lays most of the blame on deregulation, greed, and poor judgment by financial institutions, mortgage-related banks, and credit-rating agencies. This mainly ideological view appears to be more a defense of the Dodd–Frank legislation than anything else.

    On the other hand, three of the four Republican appointees centered their report on the global conditions that played a significant role in the crisis, such as the glut of capital that put such pressure on interest rates that investors would go to any lengths to get a return on their money. They point out that the crisis hit with equal ferocity in Europe and Asia, which were not subject to U.S. regulatory policy.

    The fourth commissioner, Peter Wallison, points to the role of the government-created housing finance entities Fannie Mae and Freddie Mac, as well as other government housing policies, as the major cause of the crisis. Wallison points out that a major flaw in the Dodd–Frank bill is that it largely ignored both Freddie Mac and Fannie Mae. Opinions differ on the extent of their role, but they definitely contributed to the crisis.

    There were many causes of the 2008 crash, and their interaction was extremely complex. New financial products were much riskier than most issuers, customers, or rating agencies understood, and it is clear that underwriting standards were poor. However, it stretches credibility to assume that these practices occurred only because of deregulation in the U.S. or because of greed or mismanagement on Wall Street. While there is plenty of blame to spread around, just focusing on the U.S. is shortsighted.

    The inability to come to a single conclusion is in large part due to the flawed structure and role of the FCIC. Unlike the Pecora Commission of the 1930s, which investigated the crash of 1929 before Congress acted, the FCIC was designed to report after Congress had already decided on its own to impose additional regulations on the financial services industry. That, combined with a partisan structure where six commissioners were appointed by Democrats and four by Republicans, ensured that its report would be written in response to a political agenda rather than as a neutral study of the situation.

    As a result, despite a great deal of honest effort by all of the commissioners and their staffs, the report will have little lasting value. There is still a need for technical and academic experts to do an unbiased study that will guide future generations in how to avoid a repetition of 2008’s events.

    Posted in Economics [slideshow_deploy]

    11 Responses to Financial Report Reflects Ideology More Than Facts

    1. Bobbie says:

      Zero tolerance for government incompetence. Bring these derelicts to the forefront. Honesty is productive and we deserve nothing less. Sick of the word games of cover. Sick of the set-ups. Sick of the broad generalizations. Sick of the President's American dream coming true! Accountability is necessary especially when these issues are beyond our control.

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    3. shane, colorado says:

      I agree to that

    4. O_Henry says:

      When government is given power by the people to take over a portion of the society, economy, academia etc., one then opens the door for the usual changes (some small and some quite large) that come in the daily operation of society, economy, etc. to be removed from the naturally occurring regulating forces i.e. free market (if economics) or the board of trustees (if academia) to being controlled by the vote of the membership of congress or the ruling of the courts. There is no guarantee that the congress will adequately deliberate the issues and make good decisions (better than the free market or the board of trustees). There is no guarantee that the judiciary will make well thought rulings. The solution is to keep government small and permit the naturally occurring regulatory forces in any element of society to work. Guaranteed, these forces work much faster than either congress or the judiciary and may have "customizable" applications to differing segments of the population or geography that laws do not permit. Therefore, do not be surprised if a government panel such as the Financial Crisis Inquiry Commission shows its division along several divides and only returns large costs to tax payers rather than productive results. We've benefitted greatly in the USA because Edison, Ford, Westinghouse, Goodrich, Pasteur, Colt, and Gates (to name a few) didn't take their cues from a government commission, the congress, or the courts.

    5. R Holland, Chandler, says:

      Stop the deficit spending. Eliminate Fanny and Freddie, get the government out of the mortgage business.

    6. Pingback: Must Know Headlines 1.28.2011 — ExposeTheMedia.com

    7. Tom Sullivan in FL says:

      Causes of the Subprime Bubble and Collapse

      1. Fed created easy money – artificially low interest rates for 2-3 years

      2. SEC permitted increased leverage from about 10:1 to 30:1

      3. Federal regulation – seven layers of fake regulators – blind, deaf and dumb

      4. CRA created insane lending standards for housing goals for low and moderate income housing

      5. HUD imposed on Fannie and Freddie low-moderate income quotas

      6. Extortion – Four biggest banks pledged $6 trillion to low and moderate income. BOA, Citi, JP Morgan, Wachovia. Had to make pledges in order to expand.

      7. Democrats fought Republican efforts by Bush and McCain and others to rein in lending standards. Barney Frank wanted to roll the dice in favor of mortgages.

    8. Leon Lundquist, Durango CO says:

      The Hell of it is we pay for this deception, indeed the Commission was designed for smoke screen. They never intended to use its Report, and that’s a proof to me of Criminal Intent. I remember that pre election period as the third or fourth shock to the Financial System. Obama was talking down the Economy, saying every wrong thing. No doubt complexity hides the deception very well. Progressives have no Intent to fix anything, that is as clear as science. Barney Frank was covering up for Fannie/Freddie. When AIG went down to twenty cents, the Plutocrats were buying up all that American Real Estate for next to nothing! Stealing, sure, by market manipulation.

      Isn’t it amazing! The Commission couldn’t find the Community Redevelopment Act, Franks, ACORN and Obama connection. Obama found that loophole for ACORN to do their intimidation tactics on Banks so that millions of toxic assets could be created! Oh! Great Community Organizer, all right! He organized a financial disaster! Then! Then, he became the political beneficiary of it! This is perfectly sickening when you realize this FCIC is part of the Cover Up! The Demo Crats didn’t wait for the findings, that wasn’t what FCIC was for. And then, talk about never failing to take advantage of a crisis? Another big unreadable Omnibus Bill to over Regulate the Finance Industry (except for Obama’s friends.)

      We really need to increase the fire in our dialog and undo everything these damned Progressives have done since Woodrow Wilson!

    9. Gabriel says:

      -infact, the private sector lenders had 19% higher losses then the other 16 smaller lenders under government regulation(C.R.A.)

      -though, Fannie and Freddie(primary G.S.E.’s had 5% higher losses then the private sector lenders.

      -so basically if you want to compare a higher loss with fannie and freddie at 5% to the private sector having $1.444 trillion more in actual losses then go right ahead!

      -or if you want to compare percentages…please, lets!

      - government losses make up for 13.5% while private sector losses make up for about 86.5% of total losses. wow, its funny how every single number comes close to that magic 85% of total private sector control in the entire housing market share!

      -again, so since fannie and freddie had 5% higher bottom line losses then the private sector lenders that means we should only trust free market lending?…

      -and the private sector lender losses that dwarfed the government regulated lender losses accounts for…..?

      -I also assume you intentionally forgot to mention the fact that Fannie and Freddie needed regulatory reform years ago. They had full warning about the problem years ago. Who was in charge? not a single regulatory refrom bill passed from the republican/conservative led 103rd-109th congress(for 12 years) or the republican/conservative Bush administration(for 8 years) or the republican/conservative banking and finance committee chairs(for 10 years) or the republican/conservative treasury secretary(for 10 years). nothing passed, not a single bill. Which party passed specific regulatory reform for fannie and freddie in 2007…..oh yeah, Democrats in congress. hmmmmm. well, no suprise, the right-wing hates government so why would they be for regulatory reform for the largest market in the United States even after being warned about it over and over and over?

      Also, Bush and Republicans/Conservatives in congress pushing for 5.5 million more homeowners during the warnings. Or grahm-leachy which almost eliminated any and all regulation for this market. Who to blame, Republicans in congress for voting for that bill and Clinton for signing it. Wait, did I just blame someone in my own party for something! wow, I would pay money to see a republican/conservative blame someone in their own party for just one thing…I can only dream.

      -The bottom line is that Fannie and Freddie and These private companies would have been alot better with more attention and at best, some kind of regulatory reform, but thanks to republicans/conservatives in congress and the Bush Administration nothing happened. That is not opinion, that is legislative and economic history.

      Government regulated lenders are no better or worse then the private sector lenders but the total loss is much much worse for the private sector. Again, not an opinion, numerical evidence.

    10. Gabriel says:

      -I think the real problem with your debate is to only single out fannie and freddie.

      #1-the other lenders under c.r.a. did better then the private sector.

      #2-fannie and freddie alone had 5% higher losses then the private sector which is not that signifigant.

      #3-the private sector losses dominate the total market share

      #4 the private sector owns 85% of the total market share

      #5 not a single regulatory reform bill was passed through congress for 12 years.

      A majority of the loans taken in by Fannie and Freddie from 2005-2009 were already bad. Horrible data systems, no regulation of any form, no oversight, nothing. So basically, loans that originated in the private sectors, outside of Fannie and Freddie, taken in by Fannie and Freddie makes it Fannie and Freddie’s fault that the bad loans originated completely outside of Fannie and Freddie in the first place? Man, I just love conservative thinking! So much spinning it makes you dizzy!

      Again, Fannie and Freddie were and are no worse then the private sector lending. Infact, total “bottom line losses” in the private sector destroy Fannie and Freddie or any other G.S.E.’s or Lenders under C.R.A.

      Any single person on this website who thinks otherwise bring evidence, not talking points.

      It’s funny that you blame Barney Frank(one finance commitee chair) and Chris Dodd(one banking commitee chair) when congess was controlled for 12 years by around 300 conservative/republicans both in the House and Senate. As if those two could get anything through Congress or even to President Bush for a signature anyways. Blaming them is impossible both by legislative, historical and numerical means. It’s one of the worst spins in history. It’s really not that hard to figure out, aside from the mountains of evidence I just presented. Think about what you are saying, you are blaming two congressman and a piece of Legislation that was passed in 1977 that makes up for less then 4% of total housing market share from 1999-2009. If CRA loans were so bad, why did they work just fine for over 30 years while regulatory reform was in place? Conservatives in congress who are against regulatory reform in everyway had legislative power, along with President Bush. Have you even read the C.R.A act of 1977? I have. Its is sitting in my desk(pdf format). Have you even read the periodic reports, federal reserve board date, F.D.I.C. reports? Have you even studied and researched housing market share, bottom line losses, etc? Did you even realize that G.S.E’s(Fannie and Freddie) make up for less then 11% of Total Market Share from 1999-2009? This (demonize and blame government for everything) logic is so drastically flawed I can’t believe people buy into it. I already admitted that both Government and Private controlled lending was at fault but one way more then the other. Only so much information can sink in, otherwise providing everything I have is a waste if people simpy choose to ignore factual evidence. Oh well…

    11. Spiritof76, NH says:

      Government by the socialists, for the socialists and of the socialists is run on ideology. There should be no surprise there.

      A good start to real financial reform woule be to send Barney Frank and Chris Dodd to jail for their promotion of subprime bubble and vigorous obstruction of reforms at Fannie and Freddie.

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