The Financial Crisis Inquiry Commission (FCIC) delivered Thursday to President Obama and members of Congress the results of its investigation into the causes of the financial and economic crisis.
The FCIC concluded that the crisis was avoidable and was caused by:
- Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages;
- Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk;
- An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis;
- Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw;
- And systemic breaches in accountability and ethics at all levels.
“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 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” said Phil Angelides, Chairman of the Commission.
The FCIC’s report also said specific components of the financial system contributed significantly to the financial meltdown: collapsing mortgage-lending standards and mortgage securitizations; over-the-counter derivatives; and the failures of credit rating agencies.
The FCIC also examined the role of government sponsored enterprises (GSEs), with Fannie Mae serving as the case study. The Commission found that the GSEs contributed to the crisis but were not a primary cause. “They had a deeply flawed business model and suffered from many of the same failures of corporate governance and risk management seen in other financial firms but ultimately followed rather than led Wall Street and other lenders in purchasing subprime and other risky mortgages,” the report said.
To reach its conclusion, the FCIC reviewed millions of pages of documents, interviewed more than 700 witnesses, and held 19 days of public hearings in New York, Washington, D.C., and communities across the country that were hit hard by the crisis. The reports and accompanying dissents are available to the public on the Commission’s website.
The operations of the FCIC will conclude on Feb. 13.