The Financial Crisis Inquiry Commission released its report today, and it's already under attack by the Four Horsemen of the Economic Apocalypse: the Ideologue, the Lobbyist, the Think-Tanker, and the Politician. We've already seen the Maestro transformed into Edith Piaf, Phil Angelides cast as the info-terrorist from Australia, and two dissenting reports that do a great job of debunking ... each other.
And this is just the first day.
Those of us who weren't intrepid enough to get an advanced copy of the report are still reviewing it in detail, but many of its findings were foreshadowed by its interim reports and the testimony of witnesses. The Commission has concluded that the economic crisis was not "unavoidable," as many have claimed. The report describes the housing bubble as the "spark" that ignited the crisis, but suggests it only became a firestorm because of a misguided philosophy of deregulation, years of regulatory irresponsibility, failed ratings agencies, and reckless and unethical banking behavior.
The Commission concludes that there was "a systemic breakdown in accountability and ethics" among bankers. But despite the Commission's rhetorical caution, for some readers the information in the report will also evoke the breakdown of a deeper and broader "system" - one that includes regulators, elected officials, academia, and think tanks. Wealthy bank executives, government officials, economists, and ambitious politicians formed a web of mutual interest that served each of them well but failed everybody else. And the report raises the inevitable question: What's really changed?
Counterattacks were inevitable. The redoubtable Alan Greenspan hasn't responded to the report directly yet, but shortly before its release he preemptively withdrew the partial mea culpas he offered after the crisis. The Republican members of the Commission staged a walkout and have written dissenting opinions. The Chamber of Commerce issued a histrionic press release, and Republicans in Congress are using the "rollback to 2008 levels" as a gimmick to defund the partial reforms enacted last year.
The Alan Greenspan who spoke at the height of the crisis was not the man who appeared on television earlier this month. The 2008 Greenspan said, "Those of us who have looked to the self-interest of lending institutions to protect shareholders' equity (myself especially) are in a state of shocked disbelief." For a free-market purist like Greenspan, that was nearly tantamount to a repudiation of his lifelong philosophy.
When he testified before the FCIC last year, however, Greenspan had become more evasive and more ideological. He even trotted out the discredited theory that Fannie Mae and Freddie Mac caused the crisis. Greenspan also said: "I was right 70% of the time and wrong 30% of the time." He seemed unaware that when you only answer 70% of the questions right on a test, you fail.
And by the time he appeared on television a couple of weeks ago, Greenspan had turned positively Piaf-like. He challenged critics to "prove I was wrong" in any of his decisions as Federal Reserve chairman. Non, je ne regrette rien ...
Greenspan's self-evaluation had climbed from 70% to 100% in a few short months - but it should be noted that the lower grade was given under oath.
A little compassion is in order. Greenspan reached the greatest heights of his profession, only to see his credo discredited in the cruelest way possible: by reality. A person can do one of two things in that situation: resolve to face reality and help repair the harm that's been caused, or double down on his fallacies. After flirting with the first option, Mr. Greenspan seems to have opted for the second.
Maybe it was a little unfair of the Calculated Risk blog to point out that Mr. Greenspan ended a lengthy discussion of the dangers of a housing bubble back in 2005 by asking only one question: "Shall we break for coffee?" But maybe not. That meeting, of the Federal Open Market Committee, included lengthy debate about the kinds of events that Mr. Greenspan would later say could not have been predicted.
Can't predict, can't enforce, can't regulate: Greenspan also told the Commission there's no point even trying to regulate banks anymore. "The complexity (of finance) is awesome," he said, and regulators "are reaching far beyond [their] capacities." Greenspan insisted that regulators would need to review each and every loan document in order to monitor banks properly. But anybody who understands audits knows that's not necessary. He's saying regulation isn't worth the trouble because it would require enormous budgets and lots of all nighters - which would mean even more of those infamous coffee breaks.
And he never has a second cup at home!
Tom Donohue runs the US Chamber of Commerce, which he's expanded into a $350-million operation thanks to generous donations from Goldman Sachs, Texaco, and a number of anonymous donors. Under Donohue's leadership the Chamber has become an openly partisan right-wing organization whose allegiance is not to business per se, but to the extremely large businesses that are its special constituency. The organization's response to the FCIC report is short on substance - the report's a "missed opportunity" that isn't "objective" - but it's long on vituperation.
The Chamber's real target is the Commission's plan to make some of its source data available to the public, which will allow journalists, academics, and others to review and analyze it in detail. Ideally that will trigger something like a national "mindshare" project, producing citizen-created reports that could shed light on the events of the past and stimulate a broader debate about the future - without costing the government a penny. That should please the ideological right.
Instead the Chamber finds the whole idea infuriating, describing it as "an astounding abuse of process that would effectively create a government-sanctioned WikiLeaks."
WikiLeaks? That would make Commission Chair Phil Angelides the Julian Assange of Wall Street. And since Assange is being described in Washington these days as a "terrorist," what's the Chamber really saying?
It doesn't have to make sense, and it doesn't. The real purpose of the Chamber's huffing and puffing is to create a simplistic narrative its lobbyists can use when they descend on Washington in pursuit of its real goal: ensuring that legislators don't take any more meaningful steps to prevent the kind of widespread catastrophe we saw in 2008, and which millions continue to endure today.
Party of No... Problem
Four Republicans refused to sign the Commission's final report. Now they've produced two dissenting reports - reports that also dissent with one another. Three of the Commissioners, including former Representative Bill Thomas and economist/McCain campaign advisor Douglas Holtz-Eakin, wrote one, and Peter J. Wallison wrote the other.
Holtz-Eakin was a senior visiting fellow at the Peterson Institute for International Economics, which is funded by billionaire anti-Social Security crusader Pete Peterson. The Peterson Institute is best-known for arguing that globalization and outsourcing have made the United States $1 trillion richer. Wallison's an attorney who's best known for leading Ronald Reagan's deregulation initiative. (How'd that work out for you?) He's currently Arthur F. Burns Fellow in Financial Policy Studies at the American Enterprise Institute.
It's the war of the right-wing think tanks, with the American Enterprise Institute in one corner and the Peterson Institute in the other. Which anti-government ideology will prevail?
Wallison uses the already-discredited ploy of blaming the crisis on the Community Reinvestment Act, Fannie and Freddie, and other government programs. The response by Holtz-Eakin et al. is meatier and more thoughtful - wrong, but meatier and more thoughtful - and it deserves more attention. One of its key arguments is that the housing bubble was a worldwide phenomenon, and therefore U.S. financial policy could not have caused the crisis. There are a number of effective rebuttals to this argument (e.g., the world's financial system is interconnected), but the most striking thing about these two arguments is the way they contradict one another. If US policy can't cause an international crisis, then this one certainly can't be blamed on the CRA or Fannie and Freddie.
It would appear that the Commission's Republican dissenters are pinned down by ideological crossfire.
And other parties to be named at a later date ...
There are other critiques of the Commission's report, including the suggestion that it isn't specific enough in assigning blame and the argument that it overlooks widespread fraud. We'll look at those arguments in the coming days and weeks.
Democrats come in for their share of criticism in the report, too, and rightfully so. The deregulation fervor of the Rubin/Summers/Geithner clique played a critical role leading up to the crisis, and too many of the same players are still in positions of authority. The FCIC has referred several potential criminal cases to the authorities, and we'll see if they're investigated by the Holder Justice Department with the appropriate level of zeal and dedication. So far the record's been less than impressive.
As for the Republicans in Congress, what's there to say? They'll keep trying a number of gambits to kneecap last year's Dodd/Frank bill. With hundreds of regulations yet to be written, their "defund and delay" strategy could do serious damage to our financial security. So could their efforts to eliminate funds for investigation, enforcement, and consumer protection as provided in that bill. And through it all they'll keep insisting that banks aren't still too big to fail, bankers aren't still breaking the law, and there are no future financial meltdowns brewing on Wall Street.
Meanwhile unemployment's expected to remain abnormally high for the foreseeable future, more than three million homes are in foreclosure, and the number of Americans living in poverty rose to 43 million in the aftermath of the crash, including one out of every six children.
(We discussed the report's findings on Russian Television's Alyona show this afternoon, and the clip is here. It's in English ... Russian Television is widely distributed on cable here in the US.)
Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.
He can be reached at "email@example.com."
Website: Eskow and Associates
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