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Thursday, January 27, 2011

FCIC Reports

Writing in the Financial Post, Janet Whitman asks, "What caused the financial crisis?". The Financial Crisis Inquiry Commission has issued it's report on the crisis and surprise, surprise the blame falls largely on party lines.

The Dems on the commission blame "reckless" Wall Street Bankers, the Fed and the U.S. Securities and Exchange Commission and "ethics breaches at all levels". The Republicans blame "the U.S. housing bubble, non-traditional mortgages, faulty credit ratings for investments of bundled mortgages, financial firms with too much exposure to high-risk loans, inadequate capital at some big banks, risk of big bank failures, and financial panic amid failures and near failures of Wall Street banks".

Then there's the dissenting report by Peter J. Wallison, an American Enterprise Institute fellow appointed to the FCIC by Republicans. Wallison offers another viewpoint, assigning the blame most closely to where it should be.

Mr. Wallison pins the blame squarely on U.S. government housing policies. By encouraging and supporting high-risk loans to low-income borrowers, the government inflated a massive and unmanageable bubble of bad home loans.

By 2008, fueled by the policies of the Clinton and Bush administrations, the United States had 27-million subprime and Alt-A home mortgages – representing half of all mortgages outstanding and valued at a whopping US$4.5-trillion.
The U.S. government through vehicles like the Community Reinvestment Act, Fannie and Freddie actively encouraged (forced) the nations banks to loan money to people who otherwise would never have qualified for a mortgage loan. Did bankers act "recklessly"? Probably. But because of government policies they had a lot of "troubled assets" on their hands that they had to deal with or get burned. It was a game of financial "hot potato" and it eventually collapsed.

Read the Wallison's report:

1 comment:

JR said...

And no doubt the Dems will deny this latest report's conclusions too.

The FCIC might as well start drafting it's report on the next financial crisis - the one that's almost surely going to result from massive debt and runaway money printing presses.