Was the Financial Meltdown Avoidable and Who is to Blame?

The right and the left are at it again.

The Financial Crisis Inquiry Commission released their report recently. It was passed out on a vote divided along party lines. (What’s new?) The finger pointing began immediately. (This goes back to some of my early posts about the opposition being the “enemy.” If you’re for it, since you’re the enemy, I have to be against it.)

Rather than rehash the arguments here—which would be a lot of writing—I’m going to connect you to some of the information I have researched. Obviously, the more of it you read, the better informed you will be on the subject. The facts are: This financial crisis was avoidable. There were many systemic flaws and abuses that led to it. If we don’t do something, it could happen again in the future. So this is not about partisan finger pointing; it is not about assigning blame and doling out punishment (although there are many who deserve punishment and should be punished); it is about fixing the problem to assure this will not happen again in the future. After the Great Depression, many measures were put into place to avoid another one. Some of them have been removed. Others have been ignored. But primarily, the never-satisfied thirst for ever increasing profits drove people to look for new ways to get around the old fences. We need an on-going system that will be looking for those straying and writing new regulations to keep them on the reservation.

Here are the broad categories of conclusions from the report. You can read the expanded explanations by going to the commission’s web site.

We conclude this financial crisis was avoidable.

We conclude widespread failures in financial regulation and supervision
proved devastating to the stability of the nation’s financial markets.

We conclude dramatic failures of corporate governance and risk management
at many systemically important financial institutions were a key cause of this crisis.

We conclude a combination of excessive borrowing, risky investments, and lack
of transparency put the financial system on a collision course with crisis.

We conclude the government was ill prepared for the crisis, and its inconsistent
response added to the uncertainty and panic in the financial markets.

We conclude there was a systemic breakdown in accountability and ethics.

We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.

We conclude over-the-counter derivatives contributed significantly to this
crisis.

We conclude the failures of credit rating agencies were essential cogs in the
wheel of financial destruction.

Here are some of the debaters on this issue. I think you will find them informative and thought-provoking.
Foreseeable and Preventable by Jeffry A Frieden, a professor of government at Harvard

A Non-Partisan Conclusion by Nicole Gelinas, a contributing editor to the Manhattan Institute’s City Journal

Follow the Money by Yves Smith, author of the blog Naked Capitalism

More Than Just Greed by Jeffrey A. Miron, a director of undergraduate studies in economics at Harvard University
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