House Republicans defended "deregulation" in advance of House Oversight and Government Reform hearings designed to assign blame for the financial market crisis that prompted Congress to pass a $700 billion rescue plan last week.
"In the midst of the most serious financial crisis in a generation, some claim that deregulation is entirely to blame," states the report, which was written by Republican staff on the oversight committee.
"This is simply not true and more importantly serves to grossly oversimplify a problem whose roots run deep and involve myriad actors and issues."
The report instead points a finger at a few large institutions, in particular Fannie Mae and Freddie Mac. These mortgage giants, with portfolios that skyrocketed in value between 1990 and 2005, were a "central cancer of the mortgage market, which has now metastasized into the current financial crisis," the report states.
Had Fannie and Freddie been restructured after the Office of Federal Housing Enterprise Oversight reported on their fraudulent accounting activities, "we would likely not be in the crisis we have today," the report states.
The committee hearings this week will examine the reasons why Lehman Brothers, the investment bank, went bankrupt, and why the American International Group, the large insurer, had to be rescued with an $85 billion federal bailout. Each invested in complicated mortgage-backed financial instruments that had the affect of broadening the risk of subprime loans far beyond their original lenders.
The report does put some of the blame on the federal regulatory structure, but says the fractured regulatory structure was too blame, not a lack of regulation. "The problem is a lack of coherent regulation," the report states.
"The words regulation and deregulation are not absolute goods and evils, nor are they meaningful policy prescriptions."
The report also points a finger at ratings agencies that it says inflated ratings for subprime mortgage backed securities for fear of losing market share. The report also notes that Republicans controlled Congress when it passed a law protecting ratings shopping, which contributed to the current crisis.
