For this morning’s exercise lets see where the FCIC and BN differ in emphasis and causal factor.
1. Federal Reserve Chairman Alan Greenspan: We each agree that Greenspan was the single biggest factor in allowing the crisis to develop. Nonfeasance is what I called his refusal to perform his duties as a bank regulator. The FCIC reached the same conclusion.
2. The Federal Reserve (in its role of setting monetary policy) Our biggest disagreement. As discussed repeatedly in Bailout Nation as well as in these pages, Ultra-Low Rates are what jump started the housing appreciation cycle, sent bond managers into the arms of RMBS underwriters, and had other pernicious effects on risk management.
There is simply too much data proving that these interest rates were the push that got the ball rolling. The FCIC said they “created increased risks.” What they may be saying is that despite low rates, had these other factors not occurred, the crisis would not have happened (we wont know until the report is out).
3. Senator Phil Gramm: It does not appear that the Commission named anyone in Congress as a causation. They do seem to have named several of Gramm’s pet deregulatory projects — namely, the Commodities Futures Modernization Act (CFMA). (I’ve heard rumors of Glass Steagall repeal getting some ink as well). I do not think you can separate the legislation from its proponents — especially with someone like Grammm, with his long history of magical beliefs in the markets.
4-6. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings (rating agencies): They called them “cogs in the wheel of financial destruction;” I prefer the Stiglitz quote I used: “They were the prime enables of the credit crisis.”
7. The Securities and Exchange Commission (SEC) The infamous 204 change in leverage rules –the “Bear Stearns exemption:” — gets the appropriate blame.
8-9. Mortgage originators and lending banks: Specific errors in risk management and underwriting got blamed, but we shall have to wait until the full release to see if the Lend-to-Sell-to-Securitizers model comes in for criticism.
10. Congress: We obviously disagree here, but its not surprising that Congress and its members seem to be given a pass by the committee filled with congress people.
11. The Federal Reserve again (in its role as bank regulator) Lets assume they extend the blame of Breenspan and Bernanke to the full FOMC. here.
12. Borrowers and home buyers: The borrowers played a major role here, and I have yet to see any criticism of the reckless of the American in their free money grab from the FCIC.
13-17. The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley, and Goldman Sachs) and their CEOs: They seem to catch flak for their recklessness and irresponsibility. Exactly how much will be revealed in the full report.
18. President George W. Bush: Lots of blame for W’s administration, primarily for rescuing Bear but not Lehman.
19. President Bill Clinton: For the Commodities Futures Modernization Act, but unknown about Glass Steagall repeal.
20. President Ronald Reagan: Nothing said whatsoever about the man who started the entire deregulatory movement. I suspect that Reagan would not have recognized how a legitimate attempt to reduce red tape and help small business became a Frankenstein creature
21-22. Treasury Secretary Henry Paulson: Guilty.
23-24. Treasury Secretaries Robert Rubin and Lawrence Summers: No mention of Rubin, but his protege Summers comes in for a tongue lashing.
25. FOMC Chief Ben Bernanke: Guilty
26. Mortgage brokers:
No mention Guilty!
27. Appraisers (the dishonest ones): No mention
28. Collateralized debt obligation (CDO) managers (who produced the junk): No mention
29. Institutional investors (pensions, insurance firms, banks, etc.) for buying the junk: No mention
30-31. Office of the Comptroller of the Currency (OCC); Office of Thrift Supervision (OTS): Both found guilty of pre-empting state regulators from preventing abusive lending.
32. State regulatory agencies: see above
33. Structured investment vehicles (SIVs)/hedge funds for buying the junk: No mention
So all told, the commission seemed to focus more on the head line players — Fed chiefs, SEC, OCC, OTS regulators, governmental bodies, and the big wall street banks and rating agencies.
The devil is in the details, and we shall have to wait until tomorrow to see what lies within the covers of the full FCIC report.