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Hey buddy! Wannna know a secret? This whole financial crisis thing could have been avoided!

By MARCY GORDON and DANIEL WAGNER
January 27, 2011

The government-appointed panel investigating the roots of the financial crisis says the meltdown occurred because government officials and Wall Street executives ignored warning signs and failed to manage risks.

The crisis could have been avoided, the Financial Crisis Inquiry Commission determined in a final report released Thursday that was only supported by Democrats on the panel. Instead the country fell into the deepest recession since the 1930s and millions of people lost their jobs, the congressionally appointed panel concluded.

The Bush and Clinton administrations, the current and previous Federal Reserve chairmen, and Treasury Secretary Timothy Geithner all bear some responsibility for allowing the crisis to happen, the panel said.

It also criticized bankers who got rich by creating trillions of dollars in risky investments. The deals grew so complex that bank executives and regulators did not understand them, the report found, and banks discouraged aggressive oversight of their activities, saying the government’s interference would stifle financial innovation.

Still, the commission’s findings were tainted by partisan politics. Six Democrats on the panel supported the conclusions; the four Republicans dissented. The inquiry commission was created by Congress in 2009 to delve into the causes of the financial crisis.

In a dissent, three Republican commissioners blamed a global credit bubble fed by low interest rates. A separate lone dissent blamed policies aimed at promoting homeownership, including the government’s support of Fannie Mae and Freddie Mac.

The panel has referred cases of possible criminal wrongdoing to the Justice Department for investigation.

FCIC Chairman Phil Angelides told reporters that the group “fulfilled our obligations and referred matters to the appropriate authorities.”

The conclusions contradicted a parade of witnesses in the panel’s hearings who said the crisis couldn’t have been avoided or prevented. Federal Reserve Chairman Ben Bernanke and Goldman Sachs Group Inc. CEO Lloyd Blankfein were among those asserting that defense.

“The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the report said. “If we accept this notion, it will happen again.”

The report detailed numerous warning signs that were ignored, among them: an explosion in risky subprime mortgage lending, an unsustainable rise in housing prices, widespread reports of unscrupulous lending practices, steep increases in homeowners’ mortgage debt and a spike in Wall Street firms’ trading activities, especially in high-risk financial products.

“A combination of excessive borrowing, risky investments and lack of transparency put the financial system on a collision course with crisis,” the report said.

The commission criticized the view held by some regulators that markets are “self-correcting” and banks can police themselves. Former Fed Chairman Alan Greenspan pushed this hands-off approach for decades, at the urging of the financial industry, the report said.

As investments grew more complex, regulators allowed large parts of markets to develop with little oversight. That prevented them from seeing the problem early, or responding effectively, the report found.

A prime example was the Fed’s failure to stanch the flow of risky subprime mortgages. The complex investments backed by those mortgages were barely understood by regulators and banking executives. They relied heavily on opinions from credit rating agencies.

The Fed was the only entity that could impose higher standards on mortgage lenders, the report said. Doing so would have slowed the torrent of deals that fed the crisis.

Copyright © 2011 The Associated Press

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16 Responses to Hey buddy! Wannna know a secret? This whole financial crisis thing could have been avoided!

  1. woody188

    January 27, 2011 at 3:18 pm

    The deals grew so complex that bank executives and regulators did not understand them, the report found, and banks discouraged aggressive oversight of their activities, saying the government’s interference would stifle financial innovation.

    Is that what they call bundling the same asset (home mortgage) into multiple investment vehicles (MBS/CDO) these days, complexity?

    Used to be that was called fraud and people were prosecuted for it. When overseas banks found out about it, they were bailed out by American tax payers. Now institutional investors are trying to get their money back too. Still no one has gone jail. Wonder why that is?

    • Guardhouse Lawyer

      January 30, 2011 at 4:29 am

      Why has no one gone to jail? For the same reason as the last time you brought this crap up. Because it did not happen. NO ONE has sold the same asset to two or more different investors at the same time. NO ONE.

      Mortgages were sold multiple times, but that’s just like a used car moving from one set of hands to another.

      Those mortgage bundles contain the original mortgage documents.
      Why do you think they call them bundles?

        • Carl Nemo

          January 30, 2011 at 5:26 pm

          Thanks Almandine for the superb links concerning this debacle. Hopefully justice will be served on at least a handful of these slimeballs that engaged in these easy money scams. It’s too bad Congressmen aren’t included in the “sweep”.

          What a mess is all I can say and seemingly our Congressional contingent was well aware of this unfolding tragedy.

          Of all the Congressional characters I loathe the most it’s “Bwany Fwank”. The guy represents the epitome of a ever-scheming Congressional ‘dirtbag’ and there’s no place deep enough in hell if one exists for the likes of him and his complicit brethren. : |

          Carl Nemo **==

      • Carl Nemo

        January 30, 2011 at 1:41 pm

        “Those mortgage bundles contain the original mortgage documents. Why do you think they call them bundles” …extract from post

        If this is true GHL, then why are so many homeowners across the nation screaming fraud due to the fact no one can locate the alleged ‘paper’ showing how their mortgage was ‘bundled’ and as to whom their property truly belongs. Allegedly all these transactions were conveniently digitized with no traditional sealed, paper-based documents attesting to ownership much less who owns the note on their homes. This currely is a monstrous debacle that banks and regulators are trying to rectify. Many judges have thrown out motions to foreclose due to the fact the bank can’t prove via paper documents that they have an interest in the properties.

        • Carl Nemo

          January 30, 2011 at 1:48 pm

          “This currely is a monstrous debacle that banks and regulators” …should read …This currently is a monstrous debacle that banks and regulators. My apologies.

          Yep they’re bundled alright to the point of being unrecognizable as to who owns what. The crooks engaged in this garbage debt scam were so drunk on its effectiveness that they got sloppy indeed and now the chickens are coming home to roost. They need to get stiffed along with people allowed to keep their homes gratis, mortgage free. F**k bankers and the horses they rode in on…!

          Carl Nemo **==

          • griff

            January 30, 2011 at 9:05 pm

            Well I hope they lost my paperwork.

      • woody188

        January 30, 2011 at 10:58 pm

        I suggest you look into “put backs.” Then you can explain to everyone why PIMCO, the private-equity firm BlackRock, and even the Federal Reserve Bank of New York, are demanding the return of $47 billion from Bank of America’s Countrywide Financial unit.

        The dirty secret is the banks have sold the same mortgage up to forty times. Once word got out, they had to foreclose on homes to get the hard assets and make the pay outs early. That is why we got TARP. That is why foreclosures continue to increase. It’s all about keeping the lid on this massive fraud and making “Joe Six-pack” think it was his fault and make his grandchildren pay for it.

        Believe me or not. I couldn’t care less. But remember where you heard it first. Because it will come out sooner or later. Then you can eat crow.

  2. Danny Adams

    January 27, 2011 at 5:06 pm

    >>the meltdown occurred because government officials and Wall Street executives ignored warning signs and failed to manage risks.<<

    I'm glad someone in a position of power finally admitted officially that the problem wasn't caused directly and solely by subprime mortgage holders. For all that, I'm tired in general of seeing problems more often than not blamed on the poorest people in society, those least able to defend themselves–especially when the problems are at a national level.

  3. neondog

    January 29, 2011 at 9:43 am

    What is always missing from the conversation is that the same congress that attacks Freddie and Fannie are ones that also vote for GSEs to insure “more” high risk mortgages, putting the tax payer once again on the hook . Mortgage Insurance today is just another way to “socialize risk ” while the profiteers reap the rewards. To call these “profiteers” Capitolist would be an insult to all working people.

  4. Keith

    January 29, 2011 at 5:56 pm

    Probably the best evidence that the panel “got it right” is that Canada’s banks have weathered this latest “financial crisis” rather well.

    Indeed, since the early 1900s (when they went through their own banking crisis) banking in Canada has been tightly regulated. And Canada’s banks have been run very conservatively (some would say TOO conservatively by American standards) ever since.

    As a result, while Canadian banks DID suffer some downward exposure as a result of the “let the fox guard the hen house” nonsense going on next door, the Canadian government has NEVER allowed its banks to push such risky loan portfolios and “zero money down” mortgages as banks in the States were freely allowed to do.

    Indeed, well before this latest “economic crisis” , when the President and CEO of the Toronto Dominion (TD) bank was looking to buy a US bank that was carrying some of that stuff on its books, he was heard to remark, “If I can’t understand it, I don’t want it. Get rid of it.”

    TD later bought the bank, but ONLY after all that debt was passed off to someone else.

    As a result, of the ten strongest banks in the world today, TWO are from Canada. One is the The Toronto Dominion Bank (TD) and the other is The Royal Bank Of Canada (RBC).

    What’s more, the rest of Canada’s so-called “big five” banks have remained solidly solvent throughout. It is also telling that not a SINGLE BANK in Canada has failed during this latest so-called “economic crisis”.

    All of which now begs the obvious question: Why?

    Clearly, all the lame excuses the US banking panel got from the likes of Greenspan, Blanckfein, Bernacke, Geitner and their buddies from Goldman Sachs that this was all “unavoidable was nothing but horsepucky!

    Indeed, if it was all so “unavoidable”, then why did Canada’s banks (who never bought into any of that “derivative” and “zero money down” nonsense) remain relatively unscathed throughout?

  5. Carl Nemo

    January 30, 2011 at 5:44 pm

    Great post Keith concerning conservative banking found in Canada. : )

    A few years back I purchased stock in all the major Canadian banks. Why so, because they pay fat, safe dividends to their shareholders.

    Here’s a list of some of the majors: Bank of Montreal, symbol NYSE: BMO, Canadian Imperial NYSE: CM, Bank of Nova Scotia NYSE: BNS, Toronto-Dominion NYSE: TD, Royal Bank of Canada NYSE: RY. We’re talking about an average dividend of about 7% not including capital appreciation on the stock valuations. This is go to sleep money on your money. :D

    Granted there’s a FOREX risk, but Canada is incredibly rich in natural resources. The Chinese are heavily invested in Canada and regardless of the U.S. finds itself, Canada will still be in demand relative to Asia concerning resources including Australia with its banks in the catbird seat too.

    The U.S. is going down and down hard…believe it…! : |

    Carl Nemo **==

    • Keith

      January 31, 2011 at 10:42 am

      Yep…you nailed it Carl.

      My wife is a former employee of TD Bank. She was with them for over 38 years. And, until she retired a few years back she was socking away TD stock in their “employee matching” program. Thank goodness she did as it is now giving us a nice healthy (and hopefully financially safe) retirement…. in a country where (as I’ve already discussed) we don’t need to worry about being robbed (or shot) while walking down the street….

      But I digress.

      Yes, you’ve named what are called the “big five” Banks in Canada. They remain heavily regulated to this day. Not so much to stifle business investment, mind you, but just regulated enough to make sure they remain both profitable and “safe”. TD calls it doing business by “due diligence”…making sure that those you lend money to have a reasonable expectation of paying it all back. Gee, what a concept!

      Recently, the Canadian Government once again lowered the maximum payback horizon on home Mortgage debt from 35 years back to 30, which was probably not needed as most Canadians self-limit themselves to a lot lower payback horizon. mortgages are for.

      And second mortgages are no longer going to be federally insured. This means that the bank (not the government) will be left “holding the bag” in the case of default. Needless to say, that change further adds to the bank’s need for “due diligence”.

      And, with the Gulf oil crisis of 2010, Somehow, the Canadian oil sands are looking a whole lot less “dirty” after this episode. Indeed, if energy is the master resource of the human race, then Canada is truly blessed.

      That’s because, beneath the boreal forests of Alberta and Saskatchewan and halfway between Edmonton and the border of the Northwest Territories, lies a black bonanza of oil-soaked sand.

      It’s hard for most Americans (and even many Canadians) to grasp the simple fact that these sands make up THE largest known petroleum assets on the planet. The pool covers an area larger than England and it absolutely DWARFS the light oil reserves of the entire Middle East.

      So, how much is there? Right now, our friends to the north are sitting on a pool of 1 Trillion (that’s right…TRILLION…with a “T”) barrels of oil with another 2 Trillion barrels in reserve. By comparison, Saudi Arabia is sitting on “only” 250 Billion barrels.

      What’s more, most Americans remain totally oblivious to the fact that the United States gets the bulk of its “foreign oil” from Canada, NOT from the Middle East.

      Indeed, the United States consumes about 18 million barrels of oil PER DAY. They get about 9 million of that from domestic production. However, almost three Million barrels of oil per day comes from Canada with the rest being made up of oil from a host of other foreign sources.

      And, as the Middle East becomes more and more engrossed in ethnic and religious strife (and their oil reserves become more and more depleted) new technologies are already being applied to remove the oil in Canada’s oil sands in a FAR more efficiently while at the same time, minimizing its impact on the environment.

      Indeed, Alberta (where a lot of this oil is located) has recently placed strict limits on the amount of water (a critical element in generating steam that removes the oil from the sand) that can be drawn from the aquifer there. This, in turn, has forced oil companies working the oil sands to find new and innovative ways to recycle that water. And they have.

      As a result of all this good fortune, while many of the rest of the world’s currencies (including ours in the United States are becoming weaker, Canada’s dollar is now close to par with ours. What’s more, and as I said, thanks to FAR stricter regulations on their banking industry, Canada also managed to avoid most of the economic downturn that our country is STILL going through.

      Indeed, NONE of their “big five” commercial banks required ANY bailout money from the Canadian government to say afloat.. To the contrary, most of them came through the recession with tens of Billions more in profit. Maybe that’s because our neighbors to the north are also carrying only a small fraction of the Trillions of dollars in national debt we here in the United States are now paying ever-increasing amounts of interest on.

      As you have also noted, clearly, Canada is now poised to become a major future supplier of raw materials (including oil) to the rest of the planet as it moves beyond the recession. And it’s nice to know that, for now at least, the United States and Canada remain on friendly political and trading terms as they are each other’s largest trading partners.

      And it’s a good thing, too, because, in a world that is becoming more “Anti-American” every day, we can certainly use all the friends we can get.

  6. eve

    January 31, 2011 at 1:10 pm

    Clearly, all the lame excuses the US banking panel got from the likes of Greenspan, Blanckfein, Bernacke, Geitner and their buddies from Goldman Sachs that this was all “unavoidable was nothing but horsepucky!
    -Keith

    Or we can call it what these comments really were … lies. They are liars. They lied with intent to intentionally deceieve and reap the rewards.

    So when does their punishment begin?
    Have they not committed fraud?

    Do you remember when Hank Paulson said there would be “martial law” if these bailouts were not passed?

    This “cabal” of thieves should be held responsible for the robbery of the US taxpaying citizen. Their crimes make Madoff’s look like a bake sale robbery.

    Maybe it’s time for a currency change?
    One that does not let the likes of Alan Greenspan, Ben Bernanke, or any of these other financial robber barons fleece Americans any longer.

    Te Fed has bailout foreign banks with US taxpayer money. OUR money.
    Do you own research, it’s there to see.

    Do I seem a little bit T’d off? That’s because I am.