With Perfect Behavior By All, Financial Crisis Can Be Avoided: Leave Avarice at Door

You!

You've just finished watching Obama's State of the Union, perplexed at how to harmonize Obama's suggestion that he will revitalize education and American innovation while engaging in a game of freeze tag with budget components. Somewhere, somehow, some serious impossible is lurking in the details. But whatever. You move on, thinking about Obama, and wondering whether he is the cause of our current woes.

The report from the commission tasked with clarifying what happened to us over the last two years has finally issued its report. The Financial Crisis Inquiry Commission actually split along partisan lines, with the Democrat appointed members opting to blame everyone and the dissenting Republicans opting to blame, in essence, poor sub-prime borrowers and their Federal enablers (Fannie Mae and Freddie).

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 Bush administration’s “inconsistent response” to the crisis — 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.”

(N.Y. Times)

The report largely dismissed the theme pushed in conservative circles, that all can very nearly be blamed on Democratic support of Fannie Mae and Freddie Mac, and laws like the CRA encouraging non-real Americans of dubious background to hit the sacred suburbs.

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. 

(N.Y. Times)

The general implication of everyone (with no Obama in sight mind you), points to the type of equal opportunity incompetence that we here have always acknowledged. This crisis involved everyone, from regulators to Democrats to Wall Street to mortgage brokers to homeowners. While the government oversight component was sorely lacking, the Wall Street incompetence component was surely excessive and blind to the risk of amassing notional value atop manageable real mortgage losses. It had the effect of amplifying instability and forcing excessive action to prevent financial collapse. We watched Bear Stearns, Merrill Lynch and Lehman Brothers fall under the risk, and without bold action, the United States could have been the final collapsing entity on that list.

The Times leads with the statement that it was all avoidable, but we presume that means that all human parties would have had to defy human nature and act responsibly at every point along the invisible path to perdition. In other words, it was pretty much unavoidable.