Sunday, December 28, 2014

Financial crisis could have been avoided

The worst economic meltdown since the Great Depression could have been avoided.

Financial crisis could have been avoided

The worst economic meltdown since the Great Depression could have been avoided.

Try telling that to the millions of Americans who have lost their jobs, received pay cuts, and remain out of work. Tell it to the millions of people who have lost their homes to foreclosure, and the millions more whose homes have dropped in value or are under water.

Same goes for the millions of innocent small investors who saw their 401(k)s sliced in half or who lost most or all of their retirement savings.

Tell it to the current and future generations of taxpayers who will foot the bill for years to come for the tens of billions in federal bailouts for banks, automakers, and insurance companies. And the billions more used to prop up state and local governments.

That’s right. The 2008 financial crisis didn’t have to happen, and shouldn’t have happened.

That’s the stunning verdict of a federal panel that held 19 days of hearings; interviewed 700 witnesses; and examined millions of pages of documents and e-mails in an effort to figure out what led to the 2008 financial crisis.

The 633-page report by the Financial Crisis Inquiry Commission details what went wrong, how it could have been avoided, and what needs to be done to ensure it doesn’t happen again.

No one person is blamed for financial collapse. Though former Federal Reserve chairman Alan Greenspan comes under particularly harsh criticism. So does the current Fed chairman, Ben Bernanke, and Timothy Geithner, the current Treasury secretary, who was president of the New York Fed during the crisis.
Other regulatory agencies, including the Securities and Exchange Commission, the Office of the Comptroller of the Currency, which regulates banks, and the Office of Thrift Supervision, which oversees savings and loans, also failed to act or ignored warnings.

In particular, Greenspan was singled out for advocating deregulation of the financial industry. Likewise, the Fed failed to act on a 2004 law that would have imposed mortgage lending standards, which would have curbed the flow of toxic mortgages into the financial system.

At the New York Fed, Geithner missed signs of trouble at Citibank and Lehman Brothers, two big firms deeply involved in the sale of toxic mortgage-backed securities.

Bernanke and former Treasury Secretary Henry Paulson wrongly predicted in 2007 that the collapse in subprime lending would be contained.

The Bush administration was also criticized for its “inconsistent response” to the crisis by allowing Lehman to collapse after bailing out Bear Stearns.

A decision in the last year of the Clinton administration to shield over-the-counter derivatives from regulators was cited as a “key turning point” in fueling the financial crisis.

The report refutes other theories that blamed the crisis on low interest rates and mortgage giants Fannie Mae and Freddie Mac.

Going forward, it’s hoped a new law will enhance oversight of Wall Street, but the report shows how regulators had existing tools but failed to act.

Even more disturbing, the Wall Street banks have rebounded nicely while millions of average Americans are still paying for the 2008 financial collapse.

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The Inquirer Editorial Board's Say What? opinion blog showcases the work of the editors and writers who produce the newspaper's daily and Sunday opinion pages.

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