Financial Crisis Inquiry Commission: Crisis was avoidable

While this doesn’t come as much of a shock to anyone who lives outside of the Washington bubble, it may be big news inside the bubble. Of course it was avoidable and of course both Democrats and Republicans deserve plenty of blame. Politically, Obama hasn’t shown any improvements over Bush, as Obama opted to continue the Bush/Paulson plan with the same players who helped run the economy into the ground. By reconfirming Bernanke, it was clear the administration had no interest in changing the course.

Ultimately the crisis is a result of serious failings of the political and ruling class in the US. Political leadership failed, regulators failed and those who were considered the smartest people in the world (Wall Street) failed. This doesn’t say much about our ability to “out-innovate” if none of these people could see anything wrong with what was happening.

The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as a “prime example” of negligence.

It also criticizes the Bush administration’s “inconsistent response” to the crisis — allowing Lehman Brothers to collapse in September 2008 after earlier bailing out another bank, Bear Stearns, with Fed help — as having “added to the uncertainty and panic in the financial markets.”

Like Mr. Bernanke, Mr. Bush’s Treasury secretary, Henry M. Paulson Jr., predicted in 2007 — wrongly, it turned out — that the subprime collapse would be contained, the report notes.

Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton’s term, is called “a key turning point in the march toward the financial crisis.”

An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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