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Posted at 10:24 AM ET, 01/27/2011

FCIC final report: 'Financial crisis was avoidable'

By Ezra Klein

The Financial Crisis Inquiry Commission has released its final report, which looks to "determine what happened and how it happened so that we could understand why it happened." The full document -- including the dissents from four of the Republicans on the panel -- can be downloaded here. The transcripts of the hearings the committee conducted can be found here. If the thousands of pages in those two links seem like a bit much to you, the FCIC's conclusions are here (pdf). This, I think, is the key takeaway:

We conclude this financial crisis was avoidable. 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. Theirs was a big miss, not a stumble. While the business cycle cannot be repealed, a crisis of this magnitude need not have occurred. To paraphrase Shakespeare, the fault lies not in the stars, but in us.

Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. The tragedy was that they were ignored or discounted. There was an explosion in risky subprime lending and securitization, an unsustainable rise in housing prices, widespread reports of egregious and predatory lending practices, dramatic increases in household mortgage debt, and exponential growth in financial firms’ trading activities, unregulated derivatives, and short-term “repo” lending markets, among many other red flags. Yet there was pervasive permissiveness; little meaningful action was taken to quell the threats in a timely manner.

The prime example is the Federal Reserve’s pivotal failure to stem the low of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not. The record of our examination is replete with evidence of other failures: Financial institutions made, bought, and sold mortgage securities they never examined, did not care to examine, or knew to be defective; firms depended on tens of billions of dollars of borrowing that had to be renewed each and every night, secured by subprime mortgage securities; and major firms and investors blindly relied on credit rating agencies as their arbiters of risk. What else could one expect on a highway where there were neither speed limits nor neatly painted lines?

By Ezra Klein  | January 27, 2011; 10:24 AM ET
Categories:  Financial Crisis  
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Comments

Part 1 of 2

Reaganomics failed and now the bill is due.

Stop cutting our society apart. The problem is NOT too much spending, it is too little taxation.

They got rich from the Reagan/Bush tax cuts and W's massive rich-people welfare program. It is time they pay for it. Tax the rich now!

Put back the regulations removed by Contract On America. Civilization works when everyone follows the rules, and regulations are the rules that make the economy work for everyone. Deregulation didn't work in 2007 or 1983 or 1929. It will not work in the future. If nothing else, Reagan proved Big Business is not capable of self-regulation or even moderation when greed is the driving emotion resulting in anarchy and economic collapse, again.

Massive budget cuts mean massive layoffs. Millions of jobs are at risk for millions of families. Make government work for the people, and fight the people who work against the government. Americans need help from our government, not a sentence of abject poverty. The American spirit is about helping our neighbors, not stratifying society and condemning the less fortunate to endless suffering.

Stop outsourcing government jobs! The only people who tell you Big Business could do the job better and cheaper are the Big Business people who get the jobs then jack the bill up. Lying for dollars, the new Big Business past-time. It costs the American taxpayers billions every year.

End the corporate tax loopholes and make them pay their fair share. Make them pay the same income taxes the middle-class must pay. Tax corporations for every job they send overseas.

Enough with this stupidity. Tax gasoline at a realistic rate. Tax vehicles by their weight, age and documented gas mileage and exhaust profile. SUVs pollute and are destroying our streets. Tax small engine sales and usage, too, since they pollute more than vehicles. Tax breaks for two-wheeled vehicles. Better yet, ban SUVs and stop wasting precious resources.

Stop the idiotic war on science! To bad if you don't like the facts. That is what they are – facts! Repeatable, verifiable and irrefutable facts. You cannot change them. You can not hide them. You cannot twist them. If you think you can make up your own facts to fit your own ideological world then you are either insane or a delusional right-winger. Either way, get some help.

Posted by: TaxTheRichNow | January 27, 2011 10:37 AM | Report abuse

Part 2 of 2

I understand the misguided belief that private citizens should own guns. I believe in the Easter Bunny, too. So be it. Own your gun. Tax gun ownership! $100 a year for every hand gun. If we cannot outlaw them again tax every assault weapon $500 a year. Failure to pay or register your weapon is an automatic $10,000 fine per weapon plus surrendering the weapon and community service. Tax ammo sales at $1 per round. $10,000 fine per weapon exported or sold to anyone who cannot document United States residency. No limit on ownership numbers. You get to own your guns and the Americans get some money. Everyone happy.

The right-wing agenda has destroyed our competitiveness, our education system, our health care system, our journalism, our infrastructure and our international credibility. Listening to right-wing politicians droning on with the same failed Reaganesque mantra has gone beyond annoying and has reached insane levels. Letting Reaganites make fiscal policy again is like giving car keys to an habitual drunk. All of us are going to get hurt even worse than before.

Bring accountability back to the United States. Hold criminals undermining our nation to the highest standards, not the lowest, especially the ideologues looting our national treasury.

Outlaw the lobbyists. Make vote buying and selling a capital crime at all levels. It has corrupted our government and threatens our society. It is an affront to sensible citizens and makes for very bad laws. Americans should not be subjected to the worst government Big Business can buy. Laws are to protect citizens, not service corporations.

Remove the right-wing ideologues from every court bench in the land. A judge's highest calling must be the law. Our courts must be impartial and fair for all. Judges must not belong to the highest bidder, nor follow the ideology of a failed political cult. And conservative societies always fail. THAT is a fact.

Take America back from the right-wingers! Their regressive policies destroy societies. If they can't or won't add constructive, helpful contributions to the conservation then stop listening to them. You cannot compromise or negotiate with habitual liars. Trying to will only frustrate you further. Remember what happened when Democrats tried to stop the banking crisis – lies and obstructions. Tell the anarchist mob to sit down and shut up. They screwed it up for all of us over the last 30 years and now the Americans need to fix it. Either that or let them go somewhere else and screw up that society.

Posted by: TaxTheRichNow | January 27, 2011 10:39 AM | Report abuse

--*Reaganomics failed and now the bill is due.*--

LOL. The problem with "Reaganomics" was that Reagan failed to veto the huge increases in spending that came out of the Democratically controlled Congress of the era. Otherwise, his reforms set the stage for the growth that ran for two decades.

Posted by: msoja | January 27, 2011 11:12 AM | Report abuse

"End the corporate tax loopholes and make them pay their fair share."

I'd rather steal nothing from the corporations and thus encourage them to do business here.

"Massive budget cuts mean massive layoffs. Millions of jobs are at risk for millions of families."

That's what you get when you depend on government thievery for your livelihood. Team Reebok gives you a job pushing paper, and then team Nike cuts your job when the bills appear too high. Advocates of unlimited government should always remember that the people running the show won't always share their ideology.

"And conservative societies always fail. THAT is a fact."

It is not a fact - it is only true in your deluded little mind.

"Remove the right-wing ideologues from every court bench in the land. A judge's highest calling must be the law. Our courts must be impartial and fair for all."

And left wing ideologues are just peachy, right? What a fascist you are.

Posted by: justin84 | January 27, 2011 11:30 AM | Report abuse

The prime example is the Federal Reserve’s pivotal failure to stem the low of toxic mortgages, which it could have done by setting prudent mortgage-lending standards.'

This is very true but wouldn't left wing idealougues state that right wing banks were trying to "keep the poor down" and not allow them homeownership?

Posted by: visionbrkr | January 27, 2011 11:36 AM | Report abuse

According to this central banker, despite the tools available to them and widespread coverage of pending fiscal issues by the non-mainstream press, central banks around the world were unable to predict the Great Recession of 2008 - 2009:



http://viableopposition.blogspot.com/2010/11/mr-bean-strikes-again-more-candor-from_01.html

Posted by: Baywoodfarm | January 27, 2011 11:50 AM | Report abuse

As usual Ezra only reports one side of an issue. What he fails to mention is that all the Republicans on the commission voted against the Democrat generated final report saying that the Democrats has already decided at the beginning of the process that the financial crisis was from too little government regulation and everything the majority Democrats on the commission did was to justify that forgone conclusion. Nothing was mentioned in the report about the roll of Fannie, Freddie and Democrat members of Congress in encouraging the risky mortagage loans to people who did not have the finances to support those loans. If you want to find a culprit for the financial crisis the first ones in line should be Freddie and Fannnie. Next up Congressmen like Barnie Frank.

Posted by: RobT1 | January 27, 2011 12:15 PM | Report abuse

"The problem with "Reaganomics" was that Reagan failed to veto the huge increases in spending that came out of the Democratically controlled Congress of the era."

Oh, so it was the Democrats who started the military buildup and caused the collapse of the USSR.

Thanks for clearing that up.

Interesting how you failed to note Reagan cut taxes significantly just as he started a military buildup, same as BushJr did. Reagan was very popular and so the Democratic Congress basically had to submit to his budgets. Almost all Congresses in modern times have submitted to the President's budgets. Same happened to Clinton and BushJr.

It will be interesting to see if the nect few years are a departure from course.

Posted by: lauren2010 | January 27, 2011 1:05 PM | Report abuse

P.S. I just want to clarify that my sarcasm in my previous post about US military buildups being the cause of the downfall of USSR does not imply I believe that is the reason the USSR fell.

Indeed, John Lennon had more to do with the collapse of the USSR than Reagan.

Posted by: lauren2010 | January 27, 2011 1:07 PM | Report abuse

P.S.S. I just want to clarify that my previous comment about John Lennon being a factor in the fall of the USSR does not imply I think he was a major factor of their fall.

Indeed, there are many reasons the USSR fell, but Lennon and Reagan had relatively little to do with it, though Lennon was slightly more of a contributing factor than Reagan.

Posted by: lauren2010 | January 27, 2011 1:11 PM | Report abuse

P.S.S.S Gee, I might as well spell it out....

The main reason the USSR failed is because it was a bad idea in the first place. Nothing that large and complex with disparate nations and loyalties and costs could have succeeded indefinetely.

And the reason it fell when it did was because the USSR no longer had leaders willing to murder millions of its own citizens to preserve the union and the Afghan loss showed it was time for the USSR members to revolt.

Had Stalin, for example, been in charge in the late 80s, and early 90s, the USSR would not have fallen, even with an Afghan loss.

Instead Gorby was in charge, and people like Lech Walesa knew he was no Stalin.

BTW, a little research would inform you our own CIA concluded that the USSR started downsizing its defense budgets before Reagan got into office and it kept it that way until the collapse. Gorby and others were laughing at the USA's increased defense spending paranoia even as they were cutting.

Our biggest mistake was aiding the Afghan radicals to defeat the USSR. The Russians were there trying to put down radicals and terrorists. They were there initially at the request of the Afghan gvmt. Even had the USSR won in Afghanistan (which is unlikely, as we are learning today), the sheer weight of holding together the USSR would have torn it asunder later anyway.

The Afghan influence on the fall of the USSR belongs to the USSR hardliner's mistakes in thinking they could win that war, and then that after losing it, they could then hold the USSR together when they had such a cream puff like Gorby leading them. As I said, though. Had Stalin been in charge, things would have been different.

Posted by: lauren2010 | January 27, 2011 1:28 PM | Report abuse

Once a federal agency is at the root of the problems! Inaction by the Fed back when Greenspan was the lord of finance is at the heart of the issue.

www.eclecticramblings.wordpress.com

Posted by: my4653 | January 27, 2011 1:46 PM | Report abuse

Read Bernanke response -

http://www.bloomberg.com/news/2011-01-27/bernanke-says-fed-failed-in-2005-to-see-broader-risks-from-housing-market.html

That is more relevant here than anything else because practically he is the only one person who has credibility, desire & means to clear his own culpability here. He essentially admits his mistakes in that letter.

Sad commentary is neither do we have enough people of influence who are not 'tinted' and want to enforce good regulations nor many Bernanke's who are making honest efforts to clean their past mistakes.

Everything what we read, we shake our head in despair. For all the talk about Obama (and Bechmann's comments of 'shameless Obama') we are nowhere near to solve our problems and bound to go the path of Japan and Italy and eventually UK where best days are behind.

Nothing changes here in this country...

Posted by: umesh409 | January 27, 2011 3:03 PM | Report abuse

--*Oh, so it was the Democrats who started the military buildup and caused the collapse of the USSR.*--

I know you're just pretending to be a simpleton, right? You really are able to differentiate between initiatives put forth by the President and those put forth by congressmen, aren't you?

Now, it wouldn't be far off to say that Reagan got his military buildup by acquiescing to all sorts of domestic spending that the Dems wanted, but apparently that sort of thinking (involving more than a single aspect at a time) is beyond you. None of which validates the nonsense that TaxTheRichNow spouts above.

--*Reagan was very popular and so the Democratic Congress basically had to submit to his budgets.*--

Except for the budgets that Tip O'Neil pronounced Dead-On-Arrival, of course.

Posted by: msoja | January 27, 2011 3:30 PM | Report abuse

Mr. Klein:

Regarding the report, I recommend for your reading this blog post over at nakedcapitalism:

http://www.nakedcapitalism.com/2011/01/fcic-insiders-say-report-gives-wall-street-a-free-pass-simply-sought-to-validate-conventional-wisdom-about-crisis.html

I suspect the Yves Smith is more correct in her assessment than either of the commission's groups when it comes to the facts and accuracy of the two reports.

Posted by: valkayec | January 27, 2011 4:01 PM | Report abuse

Mr. Klein:

Regarding the report, I recommend for your reading this blog post over at nakedcapitalism:

http://www.nakedcapitalism.com/2011/01/fcic-insiders-say-report-gives-wall-street-a-free-pass-simply-sought-to-validate-conventional-wisdom-about-crisis.html

I suspect the Yves Smith is more correct in her assessment than either of the commission's groups when it comes to the facts and accuracy of the two reports.

Posted by: valkayec | January 27, 2011 4:10 PM | Report abuse

Reagan proposed budgets, and largely got what he wanted. And then he signed them.

And if you think any buildup BIG ENOUGH TO CAUSE THE USSR TO SPEND ITSELF TO DEATH was cheap, then you are the simpleton.

You didn't even bother mentioning my point Reagan slashed taxes as he "outspent the USSR". You probably think that had nothing to do with the sudden onset of debt under Reagan, though prior Democratic Congresses never seemed able to mount any debt on their own.

I don't know why I waste time teaching basic history to people who revert to talking points and myths to help them feel good about what they believe. You are a disgrace to your country, a place where free and independant thought is the fundamental requirement to being free. US Soldiers died so idiots like you can smear their memory with propaganda befitting "Baghdad Bob".

Indeed, I think I'll just refer to you as Baghdad Bob from now on, because your lame assertions equate to the ones he made during the Iraq Invasion (e.g. We have the Americans on the run!) LOL

Posted by: lauren2010 | January 27, 2011 5:35 PM | Report abuse

@mjosa:LOL. The problem with "Reaganomics" was that Reagan failed to veto the huge increases in spending that came out of the Democratically controlled Congress of the era. Otherwise, his reforms set the stage for the growth that ran for two decades.

So you agree that it was in fact Reagan's fault that the deficits ballooned in the 80's, because he didn't fight hard enough against the evil dems in congress. Does it occur to you that if he had vetoed those bills, he would have been a 1 term president? Either he was too weak willed to make the hard choices brought on by cutting taxes on the rich (ie making the tax code less progressive) or the "great communicator" couldn't convince the public that the programs that they liked and supported were bad.

Either way, Reagan failed and ballooned the deficit.

Posted by: srw3 | January 27, 2011 6:15 PM | Report abuse

@vb: This is very true but wouldn't left wing idealougues state that right wing banks were trying to "keep the poor down" and not allow them homeownership?

This is really below your usual commenting, which I usually find thoughtful, even if I disagree with it.

When did the banks ever care about what left wing people or even politicians said about them? I mean really, banks (like most companies) only care about generating profits. If there were profits in tricking people into purchasing mortgages they couldn't afford, bankers went whole hog for it and damn the consequences.

Isn't it the bank's fault for lending money to people who were not credit worthy? Shouldn't they be reaping the whirlwind or bad loans and be out of business now? I don't recall banks shouting from the rooftops about how they were being forced to make imprudent loans.

Shouldn't they pay the price for making such a dumb business decision? You know, capitalism and all that stuff...

Posted by: srw3 | January 27, 2011 6:30 PM | Report abuse

@msoja: Otherwise, his reforms set the stage for the growth that ran for two decades.

Oh I forgot, wasn't this "2 decades of growth" the time when real income for the majority of individuals was stagnant and only the growth of 2 earner families kept family purchasing power from plummeting? Just askin'.

I am old enough to remember when a family could be middle class even with a non professional (ie not a doctor, lawyer, or other degreed professional) single earner head of household. By the end of Bush the elder's term this kind of life was rapidly disappearing in the rear view mirror. Good paying jobs with benefits were replaced with crappy jobs with low pay and no benefits. That's what I call progress, and we have Reagan and the repubs to thank for it. Clearly this didn't happen without the dems going along, but the repubs were driving the employment car off the cliff.

Posted by: srw3 | January 27, 2011 6:59 PM | Report abuse

--*So you agree that it was in fact Reagan's fault that the deficits ballooned in the 80's, because he didn't fight hard enough against the evil dems in congress.*--

Not zackly. There are plenty of other people to blame. I don't think Reagan's actions kept pace with his rhetoric (which was generally admirable), but that's partly the nature of the political beast that people have bred. Still, he had as much or more a mandate as any other president in my lifetime, and yet he failed to roll back in the slightest any of the big, monster social programs. Even there, though, he's still the left's biggest bogeyman, which is worthy of renown by itself.

Posted by: msoja | January 27, 2011 8:23 PM | Report abuse

The Robert Wood Johnson Foundation (RWJF) activism was a major contributing factor to the home foreclosure meltdown and subsequently our economic crisis. More here:

http://cleanairquality.blogspot.com/2009/03/worldwide-economic-meltdown-and.html

Posted by: marcusaurelius1 | January 28, 2011 9:21 AM | Report abuse

Wow lauren2010, you really do have an uncanny ability to spin a tale, don't you? Maybe you should receive a Pulitzer for the work of fiction you produced, lol.

Posted by: novalifter | January 28, 2011 10:57 AM | Report abuse

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