The Blind Men & The Elephant—The Totally BS FCIC Commission Report and Dissents, Which Put All Together Actually Reveal Something


The Financial Crisis Inquiry Commission came out with its report—and two dissents!

Wanna cop a feel?

Lots to read! Lots of bullshit to wade through! Lots of finger pointing! Lots of skewed analysis that justify a political agenda!


Actually, cynical glee is the only emotion that keeps major depression at bay: The FCIC was set up in May of 2009, with the goal of getting to the root causes of the Global Financial Crisis, and find what policies and which actors were responsible for the melt-down. In a very real sense, the FCIC was supposed to be the modern day version of the Pecora Commission—

—but it wasn’t. Not by a country mile.

The bipartisan Commission members cleaved along party lines: The six members of the Democratic majority wrote the report, the four Republican minority members wrote two separate dissents.

The official report of the Commission—the one written by the six Democrats—starts by saying that the financial meltdown of 2008 was avoidable—which is trivially true: Every man-made event is “avoidable”.

Then the report squarely blames the Federal Reserve for abdicating its regulatory responsibility—which is very true: The Fed under Greenspan made it practically a point of honor to leave all the financial markets alone, and let them “innovate” as they saw fit, without vetting whether the “innovations”—like credit default swaps, mortgage bonds, and so on—were dangerous or not. Warren Buffett famously called default swaps the “financial weapons of mass destruction”—before the crisis. So Greenspan should have known better.

Then the Commission report goes after the banksters—which is also accurate, as their greed and recklessness certainly contributed to the crisis. Certainly their mismanagement of risk—not to mention their completely opaque balance sheets—created the conditions for crisis.

But the Commission report blames the banksters on moral grounds—it says nothing about how bankers have no skin in the game, as it were. They are employees of a corporation, not partners in a concern. Consider private European banks, that never put themselves at the level of risk that American corporate banks did. The Commission report doesn’t seem to understand the idea of OPM, and how banksters were the ultimate players in that game.

As to the government, the only criticism leveled by the Commission report is after the fact: The “inconsistent response [of the Federal government] added to the uncertainty and panic of the markets”. This, of course, is a reference to the Bush administration’s salvaging of Bear Stearns, yet then letting Lehman Brothers—a much larger, more important firm—sink.

The sense that comes off the report from the Democratic majority is that the Federal government did nothing wrong—except when it was being run by Republicans, such as the Federal Reserve, and the Treasury during the Hank Paulson/George W. Bush administration. Then, of course, they fucked up royally.

So although the Commission report highlights true causes of the financial crisis, one cannot take it seriously: It is so politically skewed—and so unwilling to look at long term, Great Society, New Deal government policies that directly led to systemic problems in the financial markets—that it torpedoes its own credibility. 

At least the report can be taken semi-seriously: The first dissent, written by three of the Republican members—Keith Hennessey, Douglas Holtz-Eakin, and Bill Thomas—is the most incompetent and irresponsible of the three written statements released by the Commission. It’s more of a joke than a dissent.

The three dissenters portentously claim they have identified “Ten Essential Causes of the Financial Crisis”: But what they actually do is simply enumerate a series of symptoms of the crisis. As anyone knows, symptoms aren’t causes.

Their number one “Essential Cause” is that “Starting in the late 1990’s, China, other large developing countries, and the big oil-producing nations built up large capital surpluses. They loaned these savings to the United States and Europe, causing interest rates to fall.”

This of course is bullshit—and bullshit that everyone knows: Interest rates were low starting in 1992 because Easy Al—that is, Fed Chairman Alan Greenspan—kept them low, goosing along the American economy whenever it threatened to slow down. This directly led to “irrational exuberance”, and a series of bubbles during the 1990’s and 2000’s. The only bubble Chinese and foreign money blew was in Treasury bonds. The tech bubble, Internet 1.0 bubble, housing bubble? All the Fed.

The other “Essential Causes”—such as II. (Housing Bubble), III. (Non-Traditional Mortgages), etc.—are clearly results of Easy Al’s easy money policies, while still other “Essential Causes”—such as X. (Financial Crisis Causes Economic Crisis)—are essentially tautologies.

There is no causal framework to Hennessey’s et al. dissent. There is no argument. There is just a series of symptoms tossed off, but no clear idea of what happened—only that it was not caused by private enterprise or the free market. Ultimately, this dissent is full of sound and fury, signifying nothing. (There’s a lot of Shakespeare quoted in these three documents; I don’t want to feel left out.)

The other dissent, written by Peter Wallison, starts off on a promising note (aside from an unfortunate typo on the very fist page): It accurately points to the Federal government policy (via the Department of Housing and Urban Development (HUD)) of fomenting home ownership to as many Americans as possible, regardless of their credit-worthiness, as being a prime culprit in the Crisis. 

Wallison is dead right—and points to how both the Clinton and Dubya administrations are equally responsible for having fomented home-ownership to the point of helping to create a housing price bubble.

Wallison very accurately points to the huge sub-prime and Alt-A loans as being the Achilles’ Heel of the whole mortgage-loan/securitization contraption. He notes—accurately—that these sub-Prime mortgages were the ones that blew up Fannie Mae and Freddie Mac.

But then Wallison veers off into Stupido Territory: He completely dismisses all arguments that anything else caused the Global Financial Crisis. Low interest rates, foreign flows of funds, shadow banking, or lax regulation—according to Wallison, none of them had anything to do whatsoever with the Crisis. Wallison blames it all on the sub-prime/Alt-A borrowing (and presumably the borrowers themselves—and of course, fucking HUD).

In other words, it was all the Gubmint’s fault.

Worst of all, Wallison denies that mortgage securitization had anything to do with the crisis—which is like saying that an iceberg had nothing to do with the sinking of the Titanic. Wallison writes, “But securitization is only a means of financing. If securitization was a cause of the financial crisis, so was lending. Are we then to condemn lending?’—which is exatly what he did before: Wallison rightly condemned loans to mortgage borrowers who were not credit-worthy. Yet securitization? According to Wallison, Not guilty.

Wallison is so blinkered by his pro-business, pro-bank, anti-government stance that he cannot—or will not—connect the dots between Federal government fomenting of mortgage loans, Federal Reserve abdication of its regulatory responsibilities, and rampant, unregulated, foolhardy securitization that eventually ended in tears.

Because Wallison is so willfully blinkered, one has to take with a grain of salt his fascinating explanation of how slipshod and arrogantly the Democratic majority ran the Commission. Were Wallison more willing to assign blame to the private sector where that blame is due, he would be more believable in his criticisms of the handling of the Commission. As it is, one isn’t sure whether to believe him or not.

That’s why this whole thing is so depressing: The report and the Wallison dissent accurately identify all the major causes of the Global Financial Crisis. Much like Plato’s blind men, each feeling a different part of an elephant and coming to their own—inaccurate—conclusions. Yet combined, they form an accurate picture. 

But because of partisan point-scoring and sheer meanness, an important opportunity to settle on the official version of the crisis was thrown away. 

So because there is no consensus as to why the financial crisis happened, there will be no consensus as to how to repair the financial system so that it does not happen again.
This will turn the financial system’s playing field into a politicized stage: Democratic administrations and Congresses will treat the financial markets one way, trying to fix the system according to their (partisan) lights, while Republican administrations and Congresses will try to fix the system according to their (also partisan) lights. 

Who will win in this seesawing? The banksters. 

Who will lose? Americans.