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NY Times
Financial Crisis Was Avoidable, Inquiry Finds
By SEWELL CHAN
Published: January 25, 2011

WASHINGTON — The 2008 financial crisis was an “avoidable” disaster
caused by widespread failures in government regulation, corporate mismanagement and
heedless risk-taking by Wall Street, according to the conclusions of a federal inquiry.

“The greatest tragedy would be to accept the refrain that no one could have seen this coming
and thus nothing could have been done,” the panel wrote in the report’s conclusions,
which were read by The New York Times.
“If we accept this notion, it will happen again.”

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 [b]Bush administration’s “inconsistent response” to the crisis [/B
— 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.

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.”

The report does knock down — at least partly — several early theories for the financial crisis.
It says the low interest rates brought about by the Fed after the 2001 recession;
Fannie Mae and Freddie Mac, the mortgage finance giants; and
the “aggressive homeownership goals” set by the government as part
of a “philosophy of opportunity” were not major culprits.

It says the Office of the Comptroller of the Currency, which regulates some banks,
and the Office of Thrift Supervision, which oversees savings and loans,
blocked states from curbing abuses because they were “caught up in turf wars.”

Of the banks that bought, created, packaged and sold trillions of dollars
in mortgage-related securities, it says:
“Like Icarus, they never feared flying ever closer to the sun.”