What caused the financial meltdown? Here’s the official answer (sort of…)

confused-monkeyThe last Congress created the Financial Crisis Inquiry Commission (www.fcic.gov) to answer that question and yesterday they gave the official answer in a 545 page report. So who’s to blame?The conclusions (read them here) are:

  • The financial crisis was avoidable
  • Widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets
  • Dramatic failures of corporate governance and risk management…were a key cause of this crisis
  • A combination of excessive borrowing, risky investments and lack of transparency put the financial system on a collision course with crisis
  • The government was ill prepared for the crisis
  • There was a systemic breakdown in accountability and ethics
  • 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
  • The failures of credit rating agencies were essential cogs in the wheel of financial destruction

The details behind each of the above summaries gives a scathing condemnation to the multitude of links in the chain, any one of which, if caught, could have slowed or stopped the ultimate melt down of 2008.

But – 3 of the commission members (Republicans) dissented from the majority of the 6 (Democrats) who wrote the majority conclusions. You can read their dissenting opinion here. If you’ve got the time (and care!), reading both summaries reminds me of the old story of 3 blind men describing an elephant – they all view it differently.

So – what or who do you think caused the meltdown?

Filed under article topic: The Economy/Economics,The Fed & Housing policy
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