A US government panel’s failure to reach a firm conclusion about what caused the financial crisis shows how complex Wall Street has become and how partisan Washington has grown.
The blurriness of its report comes months after a new law already has begun tightening financial rules to prevent another crisis.
All of which raises a question: Do the findings of the 633-page report matter?
In its report, the Financial Crisis Inquiry Commission blames a range of obvious culprits: Banks that made reckless bets, credit rating agencies that endorsed risky mortgage bonds and government regulators who overlooked danger signs until they threatened the global financial system.
It concludes that the crisis might have been prevented if banks had been more careful and regulators had asked tougher questions.
Those views have long since become mainstream in the more than two years since the crisis peaked. Yet among panel members, they sowed dissension. In the end, the Commission’s six Democratic appointees embraced its conclusions. The four named by Republicans did not; they offered their own reasons for the crisis – and three complained that the majority’s conclusions were too broad.
The absence of a sharp and unifying message dulls the report’s impact, analysts say.
“If only one side is picking and pulling different facts and trying to weave them into a narrative, you don’t end up with a cohesive final product that’s useful in policymaking,” said Paul Atkins, a former member of the Securities and Exchange Commission.
The report’s conclusions are also too generic to help steer regulators who have been writing rules for the financial overhaul law enacted last summer, Atkins said.
The crisis panel has been likened to the Pecora Commission, which investigated the cause of the 1929 stock market crash. It’s also drawn comparisons to the independent panel that investigated the September 2001 terrorist attacks.
Yet, those reports were more influential than the financialcrisis report is likely to be.
The Pecora hearings were held before Congress debated securities laws aimed at protecting investors in the future. And the 9/11 Commission crafted conclusions that managed to command a unanimous backing from appointees of both political parties.
By contrast, the financial crisis report “is either too late or it’s too early,” said Daniel Alpert, managing partner at the investment bank Westwood Capital LLC.
A year ago, the report might have shaped the new financial rules now taking effect. Alternatively, if the commissioners had waited a few years, they might have been able to detect flaws in the new financial regulations and suggest improvements.
“The report is going to sit on people’s credenzas until we need to come up with additional policy alternatives” for the next potential crisis, Mr Alpert said.
The timing was largely out of the commissioners’ hands. The original deadline of December 15, 2010, was in the law that created the panel. That’s a full year after the House voted on the financial regulatory measure. By then, the Commission had only just begun to interview 700 witnesses, review millions of pages of documents and hold 19 days of hearings.
Even if the panel had finished its work much earlier, the partisanship that divided the commissioners would have limited their ability to shape the regulatory overhaul. The Republican-appointed members didn’t even show up for the commission’s news conference presenting its final report.
Even members of the same party couldn’t agree.
One dissent by Republican commissioners blamed a global credit bubble fed by low interest rates. A separate lone dissent pointed a finger at policies that were intended to encourage homeownership. These included the government’s support of mortgage giants Fannie Mae and Freddie Mac.
The panel has referred cases of possible criminal wrongdoing to the Justice Department for investigation.
FCIC Chairman Phil Angelides told reporters that the group “fulfilled our obligations and referred matters to the appropriate authorities.”
The report and the dissenting findings found fault with Wall Street banks, mortgage lenders, people who failed to carefully review their mortgages, two presidential Administrations, two Federal Reserve chairmen and the current Treasury secretary.
The panel faulted the view expressed by some regulators that markets are “self-correcting” and banks can police themselves. Former Fed chairman Alan Greenspan pushed this hands-off approach for decades at the urging of the industry, the report said.
But complex investments backed by risky subprime mortgages were barely understood by regulators and banking executives, the panel found. The Fed was the only entity that could force higher standards on lenders, it said. Doing so would have slowed the torrent of deals that fed the crisis.
Experts say historians and scholars will see the report as only one of many documents that will contribute to the story of the financial crisis.
“It’s going to matter,” said Douglas Elliott, a fellow at the Brookings Institution and former investment banker. “It just won’t matter nearly as much as if it were earlier or had a clearer message.”