Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Burying of the Financial Crisis Inquiry Report

Politics / Market Regulation Feb 08, 2011 - 11:28 AM GMT

By: Global_Research


Best Financial Markets Analysis ArticleAndre Damon writes: Late last month, the US Financial Crisis Inquiry Commission issued the first official report on the causes of the 2008 financial meltdown.

The report is devastating. The commission interviewed over 700 witnesses, held 19 days of public hearings, and investigated millions of documents. Based on this research, it gives a fairly accurate picture of the fraud and criminality that led to the greatest financial catastrophe since the Great Depression.

The report implicates corporate executives, regulators, and politicians in the conversion of the US economy into a Wall Street casino. It ties the unethical, irresponsible, and often blatantly illegal practices of the financiers to the impoverishment and suffering of millions.

As significant as its contents, however, is the speed with which the report has been buried by the media and political establishment. Within hours, articles on it were dropped from the front pages of the New York Times and Wall Street Journal web sites. Printed stories were relegated to inside pages. TheFinancial Times, which focuses its coverage on global economic news and developments, did not put the findings on its printed front page on either the release day or the day after.

As for the Obama administration, the report was conveniently released the day after the State of the Union address. While the president no doubt had advance word of its findings, he made no mention of its imminent release. Indeed, none of the report’s themes, from the dramatic increase of the weight of the financial system in the US economy, to the breakdown of regulation and corporate accountability, made their way into his speech.

The commissioners—including six Democrats and four Republicans, chaired by former California Treasurer Phil Angelides—sought to downplay the conclusions contained in their report. At the press conference held to announce their findings, the commissioners used more equivocal language than that of the findings, with one noting that responsibility for the crisis “stretched from the living room to the boardroom,” meaning that the American population shared equal responsibility with the banks for the financial crisis. When asked by multiple reporters whether their report unveiled criminality, the commissioners refused to answer.

Regardless of the intentions of the authors, however, the act of systematically detailing the causes of the financial crisis constitutes a telling indictment of the banks, politicians, and regulators. This was no doubt sensed by the commissioners, four of whom supported dissenting versions of the report that sought to undermine the connection between deregulation, the loosening of lending standards, and the ensuing financial collapse.

Commentary that trickled into the editorial pages of major newspapers over several days largely disregarded the report’s devastating conclusions, either focusing on tangential issues or openly denouncing the committee’s methods.

The report implicates nearly everyone holding a responsible position in the finance sector. It clearly demonstrates that the heads of banks and security rating firms took part in a conspiracy to create the financial bubble of 2005-2007—often for direct personal enrichment. This was facilitated by the transformation of politicians into little more than cheerleaders for the financial bubble and regulators into the impotent facilitators of bank fraud.

As the report points out, “From 1999 to 2008, the financial sector expended $2.7 billion in reported federal lobbying expenses; individuals and political action committees in the sector made more than $1 billion in campaign contributions.” This inflow of bank cash to campaign coffers deprived regulators of “the necessary strength and independence of oversight necessary to safeguard financial stability.”

With the ensuing deregulation, and fueled by the cheap cash provided by the central banks, financial firms turned to a spree of speculation, primarily in the housing market, which the commission claimed “lit and spread the flame of contagion and crisis.”

“Lenders made loans that they knew borrowers could not afford and that could cause massive losses to investors in mortgage securities,” it concluded, adding that in 2004, four years before the collapse, executives at Countrywide Financial, a key originator of bad mortgages, “recognized that many of the loans they were originating could result in ‘catastrophic consequences’.”

The commission concluded that Countrywide and other lenders “knew a significant percentage of ... loans did not meet their own underwriting standards or those of the originators. Nonetheless, they sold those securities to investors.”

The fraudulent loans made by lenders were then bought and repacked in the form of collateralized debt obligations. These securities were nothing more than collections of bad mortgages that were reshuffled and resold in such a way that the majority of the ensuing securities got the highest possible credit rating.

The major investment banks, such as Goldman Sachs and Morgan Stanley, charged a hefty fee for repackaging bad mortgages. However, they made even more through leveraged speculation on the mortgage-backed securities that they and other banks had issued.

The report points out that, “As of 2007, the five major investment banks—Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley had leverage ratios as high as 40 to 1, meaning for every $40 in assets, there was only $1 in capital to cover losses.”

This meant that, as long as housing values kept rising and defaults were kept low, the banks would continue to accrue immensely inflated profits. But the moment there was a drop in the housing market and foreclosures rose, the results would be catastrophic. As the report noted, “Less than a 3% drop in asset values could wipe out a firm.”

The corporate mechanism that was supposed to stop this speculative cycle, the financial ratings agencies, “abysmally failed.” The report notes that in 2006, Moody’s, the credit rating agency, gave its highest rating to 30 mortgage-related securities every weekday. “The results were disastrous,” concludes the report. “83% of the mortgage securities rated triple-A that year ultimately were downgraded.”

Regulators, including the Securities and Exchange Commission and the Office of Thrift Supervision, failed to take any action to contain the pervasive fraud that was creeping into the financial system. “The Federal Reserve,” the commissioners write, “failed to meet its statutory obligation to establish and maintain prudent mortgage lending standards.”

This resulted in the “rising incidence of mortgage fraud, which flourished in an environment of collapsing lending standards and lax regulation.”

In 2006, when billions of dollars in fraudulent securities began to collapse in value, officials in charge of the US economy were taken completely unawares. Ben Bernanke, the chairman of the Federal Reserve, underestimated the impact of the financial crisis by many orders of magnitude, while insisting that the crisis would stay confined to subprime mortgages.

The big banks, meanwhile, took a more prudent stance, continuing to distribute garbage securities while betting that they would fall in value. Goldman Sachs in particular specialized in this practice, which one expert compared to “buying fire insurance on someone else’s house and then committing arson.”

By October 2008, the sparks of the subprime mortgage crisis had ignited what Federal Reserve Chairman Ben Bernanke told the panel was “the worst financial crisis in global history, including the Great Depression.” He added that of the “13 … most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.”

The collapse of Lehman Brothers and the subsequent bank panic precipitated an unprecedented transfer of wealth into the coffers of the banks, under the guise that this was the only way to prevent a general collapse of the economy. The government shoveled money to the financial companies through every means at its disposal—from the Federal Reserve to the Treasury to the FDIC—both in the form of handouts and in loans.

In the bailout of failed insurer AIG alone, the US government gave $180 billion to the world’s largest banks, of which $124.8 billion is still outstanding. The report notes that $2.9 billion of this money made its way directly into the coffers of Goldman Sachs, one of AIG’s largest partners.

Yet despite the immensity of the crisis and the social devastation it has wrought, nothing has been done to prevent its repeat. As the commission has concluded, “Our financial system is, in many respects, still unchanged from what existed on the eve of the crisis. Indeed, in the wake of the crisis, the U.S. financial sector is now more concentrated than ever in the hands of a few large, systemically significant institutions.”

The report concludes that “the greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again.”

Under far different circumstances, the contents of the FCIC report would constitute evidence to send thousands of people to jail, including the heads of the banks and the leading officers of the regulatory bodies.

It has become a constant feature of American political life, however, that in the midst of criminality on a scale not seen before in US history, absolutely no one can be held accountable—no one within the economic and political elite, that is. From economic fraud on a monumental scale, to environmental disasters such as the BP oil spill, to the government-orchestrated violation of the most basic democratic and constitutional rights of the American people—the United States sends far more people to prison than any other country in the world, but the chief criminals are never prosecuted.

Indeed, in the wake of a crisis that is generally acknowledged to be the worst since the Great Depression, the only person who has been forced to serve jail-time is Bernie Madoff. He was sent to prison, moreover, not so much because he defrauded many people of a lot of money, but because he defrauded the wrong people and in the wrong way.

Such a culture of absolute impunity is one hallmark of a decaying aristocratic society. The corporate and financial elite is so embedded in criminal activity that the issue of responsibility can not even be broached, for fear that it will begin to unravel the entire stinking edifice.

World Socialist Web Site

Andre Damon is a frequent contributor to Global Research. Global Research Articles by Andre Damon

© Copyright Barry Grey , Global Research, 2011

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in