The Commission concluded that this crisis was avoidable—the result of human actions, inactions, and misjudgments. Warnings were ignored. The the crisis was caused by:
- Widespread failures in financial regulation, including the Federal Reserve's failure to stem the tide of toxic mortgages;
- Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk;
- An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis;
- Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw;
- And systemic breaches in accountability and ethics at all levels.
"Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again" said Phil Angelides, Chairman of the Commission.
The Commission's report also offers conclusions about specific components of the financial system that contributed significantly to the financial meltdown. Here the Commission concluded that: collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis, over-the-counter derivatives contributed significantly to this crisis, and the failures of credit rating agencies were essential cogs in the wheel of financial destruction.
The Commission also examined the role of government sponsored enterprises (GSEs), with Fannie Mae serving as the case study. The Commission found that the GSEs contributed to the crisis but were not a primary cause. They had a deeply flawed business model and suffered from many of the same failures of corporate governance and risk management seen in other financial firms but ultimately followed rather than led Wall Street and other lenders in purchasing subprime and other risky mortgages.
The Commission's report, which was delivered to the President and Congress this morning, contains the data and evidence collected in the Commission's inquiry, the conclusions of the Commission based on that inquiry, and accompanying dissents. The Commission's conclusions were drawn from the review of millions of pages of documents, interviews with more than 700 witnesses, and 19 days of public hearings in New York, Washington, D.C., and communities across the country that were hit hard by the crisis. Thereports and accompanying dissents are available to the public on the Commission's website at FCIC.gov.
The report was signed by FCIC chairman and former California State Treasurer Phil Angelides, former Florida Governor and Senator Bob Graham, former Commodity Futures Trading Commission Chairman Brooksley Born, Byron Georgiou, Heather Murren and John Thompson. Three Republican appointees – vice chairman and former California Congressman Bill Thomas and former advisers to President George W Bush Keith Hennessey and Douglas Holtz-Eakin – released a 29-page dissent. A fourth GOP dissenter, Peter Wallison, a former Treasury Department general counsel and counsel to President Ronald Reagan, released a separate, 98-page opinion. Please click here for the complete report, including both dissents.