Financial Crisis Panel Divided Along Political Lines

The Financial Crisis Inquiry Commission delivered its final report Thursday. The commission wound up divided along political lines, with the majority Democrats highlighting the deregulatory philosophy of former Fed Chairman Alan Greenspan as a leading cause of the crisis. The Republicans on the commission refused to endorse the final report and issued their own dissents.

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The official commission tasked with finding the root causes of the financial crisis issued not one but three reports today. All of the Democratic appointees on the Financial Crisis Inquiry Commission backed its official report, but the Republican appointees produced two separate dissents.

NPR's John Ydstie has the story.

JOHN YDSTIE: The commission which was mandated by Congress spent a year investigating the meltdown. It examined over a million pages of material, interviewed more than 700 people and held 19 public hearings.

Chairman Phil Angelides kicked off the commission's news conference.

PHIL ANGELIDES: This financial crisis could have been avoided. Let us be clear. This calamity was the result of human action, inaction and misjudgment.

YDSTIE: Angelides and other Democratic members of the commission went on to catalog the failures of Wall Street titans and government policymakers and regulators.

ANGELIDES: This report documents specific instances where leaders did not take action to stamp out smoldering threats that eventually led to financial crisis.

YDSTIE: And the commission names names. It points out that just before Bear Stearns collapsed, Securities and Exchange Commission Chairman Christopher Cox expressed comfort about the capital cushions at Wall Street firms. It reminds us that Fed Chairman Ben Bernanke and then Treasury Secretary Henry Paulson reassured the public that the turmoil in the subprime mortgage market could be contained.

But the stage for the crisis was set in the two preceding decades, according to the commission, as belief in the self-correcting nature of markets and the ability of financial firms to police themselves became widely accepted.

Here's commission member John Thompson who's chairman of Symantec.

JOHN THOMPSON: This misplaced confidence in deregulation of a highly competitive industry was championed by the former Federal Reserve chairman, Alan Greenspan, and others and supported by successive administrations and Congresses.

YDSTIE: But while the Democrats on the commission believe that inadequate government regulation was a major cause of the crisis, Republican dissenter Peter Wallison, a former Reagan administration official, disagrees. Wallison, now at the American Enterprise Institute, argues government activism in the housing market caused the problem. He says any serious analysis of the crisis needs to focus on the fundamental issue: subprime mortgages that defaulted by the millions.

PETER WALLISON: All of these very weak mortgages were stuffed into our financial system because of government policy.

YDSTIE: Wallison argues that the government's affordable housing policies required financial institutions to make a high percentage of loans to financially-challenged borrowers. By 2008, he says, half the mortgages in the system were questionable.

WALLISON: That was completely ignored by the commission, even though that information was provided to them.

YDSTIE: Three other Republicans on the commission cited different reasons. In their dissent, they argued that the global nature of the crisis undercuts the notion that U.S. government housing policy or lack of regulation caused the crisis.

With the major overhaul of financial regulation already signed into law, the commissioners faced questions about whether their efforts would have much effect. They argued there's still lots of room for reform. The commission's work may also provide business for the courts. Angelides says it has made several referrals to legal authorities for investigation.

The commission's many documents and interviews will also provide journalists and historians with material. Here's one example. In his interview with the commission, Fed Chairman Ben Bernanke said at one point during the crisis 12 of the 13 most important financial firms in the country were at risk of failure.

John Ydstie, NPR News, Washington.

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