CONCLUSIONS OF THE
FINANCIAL CRISIS INQUIRY COMMISSION
• We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets. As part of our charge, it was appropriate to review government actions taken in response to the developing crisis, not just those policies or actions that preceded it, to determine if any of those responses contributed to or exacerbated the crisis.
• Nous sommes arrivés à la conclusion que le gouvernement était mal préparé à la crise, et sa réponse incohérente à ajouté à l'incertitude et la panique des marchés financiers. Dans le cadre de notre charge, il était approprié d'examiner les mesures prises par le gouvernement en réponse à la crise en gestation, pas seulement ces politiques ou ces actions qui l'ont précédée, afin de déterminer si l'une de ces réponses a contribué à la crise ou l'a exarcébée.
As our report shows, key policy makers—the Treasury Department, the Federal Reserve Board, and the Federal Reserve Bank of New York—who were best positioned to watch over our markets were ill prepared for the events of 2007 and 2008. Other agencies were also behind the curve. They were hampered because they did not have a clear grasp of the financial system they were charged with overseeing, particularly as it had evolved in the years leading up to the crisis. This was in no small measure due to the lack of transparency in key markets. They thought risk had been diversified when, in fact, it had been concentrated. Time and again, from the spring of 2007 on, policy makers and regulators were caught off guard as the contagion spread, responding on an ad hoc basis with specific programs to put fingers in the dike. There was no comprehensive and strategic plan for containment, because they lacked a full understanding of the risks and interconnections in the financial markets. Some regulators have conceded this error. We had allowed the system to race ahead of our ability to protect it.
Comme le montre notre rapport, les décideurs politiques au sein du Département du Trésor, de la Federal Reserve Board ( NdT: ce que l'on pourrait traduire par la direction générale de la Réserve Fédérale, chargée de coordonner chacune des Réserves Fédérales, une par Etat ) et la Federal Reserve Bank de New York ( NdT: la Réserve Fédérale de New York eut dans ces heures une action déterminante; son directeru à l'époque n'était autre que Tim Geithner, qui devint un des principaux conseillers du Président Obama )- qui étaient les mieux placés pour veiller sur nos marchés étaient mal préparés pour les événements de 2007 et 2008. D'autres agences ont également été à la traîne. Elles ont été handicapées par une incompréhension évidente du système financier dont elles étaient chargées de de la supervision, en particulier de celle de son évolution dans les années qui ont précédé la crise. Ce fut dans une large mesure en raison du manque de transparence des marchés clés. Ils pensaient que le risque avait été diversifié, alors qu'en fait, il avait été concentré. Maintes et maintes fois, à partir du printemps 2007, les décideurs et les régulateurs ont été de plus en plus pris au dépourvu à mesure que la contagion gagnait, sans pouvoir répondre adéquatement avec des programmes spécifiques, quitte à tremper leurs mains dans le cambouis. Il n'y avait pas de plan organisé stratégique pour le confinement, parce qu'ils n'avaient pas une compréhension complète des risques et des interconnexions existant au sein des marchés financiers. Certains régulateurs ont reconnu cette erreur. Nous avons laissé le système courir avec une vitesse plus grande que celle de notre capacité à le protéger.
While there was some awareness of, or at least a debate about, the housing bubble, the record reflects that senior public officials did not recognize that a bursting of the bubble could threaten the entire financial system. Throughout the summer of 2007, both Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson offered public assurances that the turmoil in the subprime mortgage markets would be contained. When Bear Stearns’s hedge funds, which were heavily invested in mortgage-related securities, imploded in June 2007, the Federal Reserve discussed the implications of the collapse. Despite the fact that so many other funds were exposed to the same risks as those hedge funds, the Bear Stearns funds were thought to be “relatively unique.” Days before the collapse of Bear Stearns in March 2008, SEC Chairman Christopher Cox expressed “comfort about the capital cushions” at the big investment banks. It was not until August 2008, just weeks before the government takeover of Fannie Mae and Freddie Mac, that the Treasury Department understood the full measure of the dire financial conditions of those two institutions. And just a month before Lehman’s collapse, the Federal Reserve Bank of New York was still seeking information on the exposures created by Lehman’s more than 900,000 derivatives contracts.
In addition, the government’s inconsistent handling of major financial institutions during the crisis—the decision to rescue Bear Stearns and then to place Fannie Mae and Freddie Mac into conservatorship, followed by its decision not to save Lehman Brothers and then to save AIG—increased uncertainty and panic in the market.
In making these observations, we deeply respect and appreciate the efforts made by Secretary Paulson, Chairman Bernanke, and Timothy Geithner, formerly president of the Federal Reserve Bank of New York and now treasury secretary, and so many others who labored to stabilize our financial system and our economy in the most chaotic and challenging of circumstances.
• We conclude there was a systemic breakdown in accountability and ethics. The
integrity of our financial markets and the public’s trust in those markets are essential
to the economic well-being of our nation. The soundness and the sustained prosperity
of the financial system and our economy rely on the notions of fair dealing, responsibility,
and transparency. In our economy, we expect businesses and individuals
to pursue profits, at the same time that they produce products and services of quality
and conduct themselves well.
Unfortunately—as has been the case in past speculative booms and busts—we
witnessed an erosion of standards of responsibility and ethics that exacerbated the financial
crisis. This was not universal, but these breaches stretched from the ground
level to the corporate suites. They resulted not only in significant financial consequences
but also in damage to the trust of investors, businesses, and the public in the
financial system.
For example, our examination found, according to one measure, that the percentage
of borrowers who defaulted on their mortgages within just a matter of months
after taking a loan nearly doubled from the summer of to late . This data
indicates they likely took out mortgages that they never had the capacity or intention
to pay. You will read about mortgage brokers who were paid “yield spread premiums”
by lenders to put borrowers into higher-cost loans so they would get bigger fees, often
never disclosed to borrowers. The report catalogues the rising incidence of mortgage
fraud, which flourished in an environment of collapsing lending standards and
lax regulation. The number of suspicious activity reports—reports of possible financial
crimes filed by depository banks and their affiliates—related to mortgage fraud
grew -fold between and and then more than doubled again between
and . One study places the losses resulting from fraud on mortgage loans
made between and at billion.
Lenders made loans that they knew borrowers could not afford and that could
cause massive losses to investors in mortgage securities. As early as September ,
Countrywide executives recognized that many of the loans they were originating
could result in “catastrophic consequences.” Less than a year later, they noted that
certain high-risk loans they were making could result not only in foreclosures but
also in “financial and reputational catastrophe” for the firm. But they did not stop.
And the report documents that major financial institutions ineffectively sampled
loans they were purchasing to package and sell to investors. They knew a significant
percentage of the sampled loans did not meet their own underwriting standards or
those of the originators. Nonetheless, they sold those securities to investors. The
Commission’s review of many prospectuses provided to investors found that this critical
information was not disclosed.
THESE CONCLUSIONS must be viewed in the context of human nature and individual
and societal responsibility. First, to pin this crisis on mortal flaws like greed and
xxii FINANC IAL CR I SI S INQUIRY COMMISSION REPORT
hubris would be simplistic. It was the failure to account for human weakness that is
relevant to this crisis.
Second, we clearly believe the crisis was a result of human mistakes, misjudgments,
and misdeeds that resulted in systemic failures for which our nation has paid
dearly. As you read this report, you will see that specific firms and individuals acted
irresponsibly. Yet a crisis of this magnitude cannot be the work of a few bad actors,
and such was not the case here. At the same time, the breadth of this crisis does not
mean that “everyone is at fault”; many firms and individuals did not participate in the
excesses that spawned disaster.
We do place special responsibility with the public leaders charged with protecting
our financial system, those entrusted to run our regulatory agencies, and the chief executives
of companies whose failures drove us to crisis. These individuals sought and
accepted positions of significant responsibility and obligation. Tone at the top does
matter and, in this instance, we were let down. No one said “no.”
But as a nation, we must also accept responsibility for what we permitted to occur.
Collectively, but certainly not unanimously, we acquiesced to or embraced a system,
a set of policies and actions, that gave rise to our present predicament.
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