Government regulators and policymakers, as well as titans of Wall Street finance, are culpable for the financial crisis of 2007 and 2008, according to an official report released Thursday by the Financial Crisis Inquiry Commission (FCIC).
The report, a 633-page tome, constitutes the first official governmental take on the underpinnings of the worst financial crisis since the Great Depression. In it, the commission finds that the crisis was avoidable and driven largely by human error or inaction.
But this official take did not receive unanimous support of the congressionally appointed FCIC commissioners. Rather, the findings were approved down party lines, with the six commissioners appointed by Democrats signing off on the report, while the four selected by Republicans issued two separate dissents.
The report reaches far and wide to cast blame for the financial crisis.
"A crisis of this magnitude cannot be the work of a few bad actors," the report states.
It points fingers at government officials and regulators for failing to anticipate the crisis.
"We had allowed the system to race ahead of our ability to protect it," the report says.
In particular, the report homes in on the Federal Reserve for its "pivotal failure to stem the flow of toxic mortgages" by not demanding more prudent mortgage-lending standards.
"The Federal Reserve was the one entity empowered to do so, and it did not," the report states.
It also takes former Fed Chairman Alan Greenspan to task for advocating deregulation of the financial markets. However, the report concludes that before the crisis, regulators like the Securities and Exchange Commission (SEC) still possessed the power to protect the financial system, and failed to exercise it.
"They had ample power in many arenas and they chose not to use it," the report states. "Too often, they lacked the political will — in a political and ideological environment that constrained it — as well as the fortitude to critically challenge the institutions and the entire system they were entrusted to oversee."
The report also suggests that growing lobbying efforts by the financial-services sector helped weaken regulatory constraints, noting that the sector spent $2.7 billion from 1999 to 2008 on reported lobbying, with individuals and political action committees in the sector adding over $1 billion more in campaign contributions.
However, in a move that is not likely to satisfy congressional Republicans who have long accused them of playing a primary role in the crisis, the official report declares that Fannie Mae and Freddie Mac "were not a primary cause" of the financial crisis.
While the government-sponsored enterprises, dubbed "the kings of leverage" by the report, did purchase sub-prime and other risky mortgages, they "followed rather than led Wall Street and other lenders in the rush for fool's gold."
Conservatives have pointed the finger at the government's affordable housing goals as pushing Fannie and Freddie into buying risky mortgages. Peter Wallison, an FCIC commissioner and fellow of financial policy studies at the American Enterprise Institute, issued his own dissent to the official report, identifying affordable housing policy goals as the primary cause of the crisis.
The official FCIC take was that those goals, while they "failed to ensure that the philosophy of opportunity was being matched by the practical realities on the ground," only "marginally" contributed to Fannie's and Freddie's purchases of risky mortgages.
The report also scrutinizes the actions of private actors, saying corporations overextended themselves in a rush to take on excessive risk while failing to appreciate the precarious positions they were assuming.
"Too often, risk management became risk justification," the report says.
On both the public and private side, the report singles out the officials at the top of their respective food chains, saying those heads had a duty to be responsible — a duty they failed to meet.
"We do place special responsibility with the public leaders charged with protecting our financial system, those entrusted to run our regulatory agencies, and the chief executives of companies whose failures drove us to crisis," the report states. "These individuals sought and accepted positions of significant responsibility and obligation. Tone at the top does matter and, in this instance, we were let down. No one said 'no.' "
In a dissent, three conservative FCIC commissioners accused the official take as casting too wide a net to offer any significant insight.
"It is too broad," the dissenters wrote. "When everything is important, nothing is."
It rejects claims from either side of the political spectrum that either too much or too little government was the cause of the crisis as "too simplistic."
Rather, the dissent says that trying to identify a uniquely American cause of the crisis ignores its global reach. Along the same lines, attempting to identify a single culprit of the crisis, like U.S. housing policy, is similarly limited. While there were several key contributors to the crisis, none suffice as a standalone explanation, the dissenters say.
Instead, they identified a variety of causes for the crisis, including the credit bubble that emerged worldwide beginning in the late 1990s, the housing bubble that followed suit in the United States, poor credit ratings and the growing use of nontraditional mortgages.
"Both the 'too little government' and 'too much government' approaches are too broad-brush to explain the crisis," they wrote.