Thursday, January 27, 2011
The Financial Crisis Inquiry Commission delivered the results of its investigation into the causes of the financial and economic crisis. The Commission 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
And systemic breaches in accountability and ethics at all levels.
The Commission’s report also offers conclusions about specific components of the financial system that
contributed significantly to the financial meltdown. Here the Commission concluded that: collapsing
mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis, over-the-counter derivatives contributed significantly to this crisis, and the failures of credit rating agencies were essential cogs in the wheel of financial destruction.
The Commission 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 Reports's Conclusions and Dissents are posted on its website.