FCIC Spreads The Blame On The Financial Crisis

[Conan71]

This is a pretty compelling read and puts the crisis into terms that even people with no interest in finance can understand.

"The commission faults policies under both Presidents Bush and Obama, as well as actions taken by the Federal Reserve under Alan Greenspan and the current chairman, Ben Bernanke. Tim Geithner, the current Treasury Secretary who was president of the New York Fed during the crisis, and his predecessor, Henry Paulson, were also named in the report"

"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," the commission states.

The report also cites "a systemic breakdown in accountability and ethics" as a factor in the crisis. However, it states that "to pin the crisis on mortal flaws like greed and hubris would be simplistic."

"It was the failure to account for human weakness that is relevant to the crisis," the report reads.

The commission tells a familiar story of banks churning out trillions of dollars worth of poor quality home loans that were bundled into mortgage-backed securities, rubber-stamped by ratings agencies, and sold to unsuspecting investors around the world. As the housing market soured, those assets became worthless, leading to massive losses for banks and giving rise to a severe liquidity crisis.

The crisis was driven by the proliferation of "synthetic" securities, such as collaterized debt obligations, and the excessive use of leverage at many financial firms, the report finds. These and other practices were carried out in a "shadow banking system" the report says, which was almost entirely unregulated."

http://money.cnn.com/2011/01/27/news/economy/fcic_crisis_avoidable/index.htm

[waterboy]

Interesting that an AP story about the same report came up with a slightly different summary. See if you can find the somewhat major difference.....

"WASHINGTON – The government-appointed panel investigating the roots of the financial crisis says the meltdown occurred because government officials and Wall Street executives ignored warning signs and failed to manage risks.
The crisis could have been avoided, the Financial Crisis Inquiry Commission determined in a final report released Thursday that was only supported by Democrats on the panel. Instead the country fell into the deepest recession since the 1930s and millions of people lost their jobs, the congressionally appointed panel concluded.
The Bush and Clinton administrations, the current and previous Federal Reserve chairmen, and Treasury Secretary Timothy Geithner all bear some responsibility for allowing the crisis to happen, the panel said."

I am curious how a meltdown that started before Obama became president became something he could have avoided. Then I noticed the difference. They changed the dates to 2008-2009 to be inclusive of his first year. What gives?

[Conan71]

Interesting that an AP story about the same report came up with a slightly different summary. See if you can find the somewhat major difference.....

"WASHINGTON – The government-appointed panel investigating the roots of the financial crisis says the meltdown occurred because government officials and Wall Street executives ignored warning signs and failed to manage risks.
The crisis could have been avoided, the Financial Crisis Inquiry Commission determined in a final report released Thursday that was only supported by Democrats on the panel. Instead the country fell into the deepest recession since the 1930s and millions of people lost their jobs, the congressionally appointed panel concluded.
The Bush and Clinton administrations, the current and previous Federal Reserve chairmen, and Treasury Secretary Timothy Geithner all bear some responsibility for allowing the crisis to happen, the panel said."

I am curious how a meltdown that started before Obama became president became something he could have avoided. Then I noticed the difference. They changed the dates to 2008-2009 to be inclusive of his first year. What gives?

No idea.  They also mentioned in the story I posted that the three Republicans on the panel dissented from the majority, from whom this report was based, so Obama taking some of the blame actually did come from Democrats seated on the panel.

[waterboy]

Yeah, but which one is true er..acccurate? Is the summary from CN Business a spin, or is the AP a spin? These look like summaries based on the report so someone is playing a little loose I think.

I do believe the wheels were well in motion under Clinton and Bush to such an extent that by 2008 it was inevitable. Perhaps they mean Obama's efforts did little to lessen the impact.

[Gaspar]

I don't think anyone believes he could have avoided it. 

It's how he addressed the issues as a result of it that are in question.  Using it as a platform to push massive legislation, much of which had been unsuccessful for decades.  Using a crisis as a smoke screen to hide 2,000 page bills.

Government's role in addressing recession should be, easing restrictions and impediments to business and encouraging growth.  Instead he pursued government growth, increased regulation and the threat of corporate tax increases, coupled with the promise of more government debt that would undoubtedly fall on tax payers later.

This forced many smaller business to re-evaluate or terminate both staff and operations.  As a result we have fewer small businesses, almost 10% of the population still unemployed, nearly 20% underemployed, and increased corporate profits due to decreased overall competition.

So. . .no, President Obama is not responsible for the recession, it started long before he was in office with multiple catalysis.  He is however responsible for its durability, and will continue to be.

[Conan71]

Yeah, but which one is true er..acccurate? Is the summary from CN Business a spin, or is the AP a spin? These look like summaries based on the report so someone is playing a little loose I think.

I do believe the wheels were well in motion under Clinton and Bush to such an extent that by 2008 it was inevitable. Perhaps they mean Obama's efforts did little to lessen the impact.

I think you've brought to light a cautionary issue of who and what we should or can believe or at least how cautious we need to be when we read or hear a story.  It's interesting to see how two different news organizations can take the same report, yet come up with conclusions which sound different from each other.  Many people will read the conclusion and not the supporting information so that's what they think is news when it's actually closer to editorializing. 

[waterboy]

Gas, Weren't his actions consistent with what Bush and co. had started and McCain had pretty much supported? If so it seems a failure of our system more than with any one entity. Seems harsh to say that he now holds all responsibility for duration and intensity when no one else (in power) had any better ideas. At least no one outside of TNF  

[Conan71]

I think some of the blame does fall on President Obama as there were controversial policies big business and small business didn't want or enough ambiguity in what to expect, it's kept money on the sidelines as Democrats controlled the legislative and executive branches and we know they are just all about socializing every aspect of our lives and bidness. 

The major part though, I believe, is simply the free markets doing what they do controlling their destiny by managing their way out of a tough time: lean out workforce and inventories to match demand, book profits, stash cash in the event of a prolonged recession, look for bargains to reinvest cash in, and wait it out hoping some competition vanishes.

I think with a lot of cash on the sidelines we might see more consolidation or at the very least healthy companies out shopping for bargains on equipment, inventories real estate, and customer lists.

I know for certain many companies are not planning to ever return to carrying the kind of inventories they did pre 2008.  Customers for large industrial goods are simply getting used to longer waits and used equipment is plentiful and filling the bill when an emergency replacement is needed.  We are all learning to get more productivity out of people therefore requiring fewer people to run a company even as sales levels are creeping back up.

[waterboy]

That sounds reasonable actually. It seems to me that a new president takes about 18 months to get a grasp on the position, then, assuming no major war or catastrophe occurs, can start to make effective decisions based on reality rather than party or ideological positions he may have been persuaded by and elected upon. That may explain why presidents are usually accused of turning on their base about the same time.

We're not out of the woods yet though, like you, I sniff some clear air.

[Conan71]

That sounds reasonable actually. It seems to me that a new president takes about 18 months to get a grasp on the position, then, assuming no major war or catastrophe occurs, can start to make effective decisions based on reality rather than party or ideological positions he may have been persuaded by and elected upon. That may explain why presidents are usually accused of turning on their base about the same time.

We're not out of the woods yet though, like you, I sniff some clear air.

Group hug and a frosty Marshall's?

[Gaspar]

Gas, Weren't his actions consistent with what Bush and co. had started and McCain had pretty much supported?

To some extent, however a second stimulus, that was no more than a dumpster of special projects from everyone's bottom desk drawer would have never been signed. 

A healthcare initiative that pushed regulation further than ever imagined and is still almost undecipherable would have never been signed.

Establishing The Bush Tax Relief as permanent would have taken priority to help stop the spiraling uncertainty within small business.

Tax holidays and the suspension of many of the energy taxes would have been pushed to increase production across all industry.

There would be a proposal to end ethanol subsidies until more efficient means of production could be developed(currently ethanol production requires 2.6 gallons of gasoline to produce one gallon of ethanol).  This inflates food, production and transportation costs because resources are shifted to the production of a product that uses more resource than it creates.

Repeal of AMT, a permanent end or reduction to the death tax, and marriage penalty would have been priority.  A raise in the exemption per child to $7,000 would also be proposed.

A requirement for a 60% majority in congress for any increase in taxes would have been proposed.

A simplified tax system with only two tax rates was a priority. 

The elimination of stupid or broken government programs would be pushed.

The contrasts are far greater than the similarities, and now in retrospect, I think most people can say, "wow if we had only done that". . .Now whether or not any of this would have gotten by the Pelosi/Reid spending machine is another story.

[waterboy]

Group hug and a frosty Marshall's?

I'll just go with the Marshall's, thanks. 

The thing I really got out of the presidents speech was a sense of all of us having a stake in turning our country around. Truly, if we don't come together now and address the issues we all know exist, we will slowly fade till we're back to a pre-WWI status. I don't think I'm comfortable with the "If I can't have her, nobody can have her" philosophy of political leadership. My whole life I've heard these same issues argued with little success in solving them because of the stiff back each side presents.

Like him or not, this president is a player and may provide the environment to find consensus among the more moderate from each side. No leader from the fringes can do that no matter how right they and their fanatical following may think they are. It will depend upon the 77% that reside between Paul and Obermann to do the heavy lifting.

[waterboy]

To some extent, however a second stimulus, that was no more than a dumpster of special projects from everyone's bottom desk drawer would have never been signed. 

A healthcare initiative that pushed regulation further than ever imagined and is still almost undecipherable would have never been signed.

Establishing The Bush Tax Relief as permanent would have taken priority to help stop the spiraling uncertainty within small business.

Tax holidays and the suspension of many of the energy taxes would have been pushed to increase production across all industry.

There would be a proposal to end ethanol subsidies until more efficient means of production could be developed(currently ethanol production requires 2.6 gallons of gasoline to produce one gallon of ethanol).  This inflates food, production and transportation costs because resources are shifted to the production of a product that uses more resource than it creates.

Repeal of AMT, a permanent end or reduction to the death tax, and marriage penalty would have been priority.  A raise in the exemption per child to $7,000 would also be proposed.

A requirement for a 60% majority in congress for any increase in taxes would have been proposed.

A simplified tax system with only two tax rates was a priority. 

The elimination of stupid or broken government programs would be pushed.

The contrasts are far greater than the similarities, and now in retrospect, I think most people can say, "wow if we had only done that". . .Now whether or not any of this would have gotten by the Pelosi/Reid spending machine is another story.

See, those are bumper sticker platitudes and phrases. They reside among the 23-27% of the population that just plain hate one or both parties. NO president will ever even try to do these things. Piss of Iowa, kiss off seniors, confuse the business community and insure ONE VERY controversial term. Won't happen so stop dreaming.

Doesn't mean that they aren't correct in some manner. Drop the manufactured misleading verbage like "death tax", "Bush Tax Relief" and "marriage penalty" and you find some flaw in each of the them. But some good as well. Eliminate them all and another crop of weeds sprouts up in their place. Unintended consequences is reality. Ethanol is the product of a flawed legislative system and needs abolished for sure, but is that the solution to an energy crisis that looms? Or is it the system that produced such stupidity that needs addressed first.

Meanwhile such talk is simply not helping.

[Gaspar]

Eliminate them all and another crop of weeds sprouts up in their place. Unintended consequences is reality.

Meanwhile such talk is simply not helping.

So. . .your taking the "It doesn't matter, because whatever we do we're screwed anyway" position?

I can't subscribe to that.

[waterboy]

That looks like what I'm saying but I don't mean to imply that. Probably just my old fart cynicism leaking out. What I see as the problem is systematic, not political or personal. My wife doesn't understand that in spite of all his mistakes, I still sort of like Bush as a guy and I don't doubt he had patriotic motives. I doubt you or G will ever like Obama in any way. Its this damn "my team" concept that is great in sports and entrepreneurial stuff but counter productive in democracy.