Blind faith in Free Markets caused the ECONOMIC CRISIS - The Financial Crisis Inquiry Report

Blind faith in Free Markets caused the ECONOMIC CRISIS 

and the REPUBLICAN conservative ECONOMY WE ARE CURRENTLY FACING 

 

The Financial Crisis Inquiry Report

 

The financial Crisis Inquiry Report 

only shows and demonstrates the failure of capitalism and deregulation or laxed regulation

caused the mortgage crisis led by the greatest AynRand disciple Alan Greenspan who thought 

"due to the widely accepted faith in the selfcorrecting nature of the markets and the 

 

ability of inancial institutions to effectively

police themselves." - the invisible hand of capitalism

 

 

CONSERVATIVE FREE MARKET ORIENTED LIBERTARIAN GOVERNING ALLOWING CAPITALISM TO REIGN CAUSED THE CRISIS 

In other words Free Market Capitalism with Conservative GOP policies are the right mix for FAILURE

 

The report says, 

 

"While the vulnerabilities that created the potential for crisis were years in the making, it was the collapse of the housing bubble—fueled by

low interest rates, easy and available credit, scant regulation, and toxic mortgages

Trillions of dollars in risky mortgages had become embedded

throughout the financial system, as mortgage-related securities were packaged,

repackaged, and sold to investors around the world. The losses were magnified by derivatives

such as synthetic securities."

 

"The crisis reached seismic proportions in September  with the failure of

Lehman Brothers and the impending collapse of the insurance giant American International Group (AIG). Panic fanned by a lack of transparency of the balance sheets of major inancial institutions, coupled with a tangle of interconnections among institutions

perceived to be “too big to fail,” caused the credit markets to seize up. Trading ground

to a halt. The stock market plummeted. The economy plunged into a deep recession" - 

The big Capitalists!!!

 

"Financial markets have become increasingly globalized." BY REAGANOMICS "Technology has transformed

the eiciency, speed, and complexity of inancial instruments and transactions. There

is broader access to and lower costs of inancing than ever before. And the inancial

sector itself has become a much more dominant force in our economy"

 

"From 1978 to 2007, the amount of debt held by the inancial sector soared from

$3 trillion to $36 trillion, more than doubling as a share of gross domestic product.

The very nature of many Wall Street irms changed—from relatively staid private

partnerships to publicly traded corporations taking greater and more diverse kinds of

risks. By 2005, the 10 largest U.S. commercial banks held 55% of the industry’s assets,

more than double the level held in 1990. On the eve of the crisis in 2006, inancial

sector proits constituted 27% of all corporate proits in the United States, up from

15% in 1980. "

 

"There was an explosion in risky subprime

lending and securitization, an unsustainable rise in housing prices, widespread reports of egregious and predatory lending practices, dramatic increases in household

mortgage debt, and exponential growth in inancial irms’ trading activities, unregulated derivatives, and short-term “repo” lending markets, among many other red

lags. Yet there was pervasive permissiveness; little meaningful action was taken to

quell the threats in a timely manner. "

 

Conclusions

 

1) We conclude this financial crisis was avoidable.

The prime example is the Federal Reserve’s pivotal failure to stem the low of toxic

mortgages, which it could have done by setting prudent mortgage-lending standards.

The Federal Reserve was the one entity empowered to do so and it did not

(Under the lead of Alan Greenspan - an AynRand disciple)

 

2) We conclude widespread failures in financial regulation and supervision

proved devastating to the stability of the nation’s financial markets. The sentries

were not at their posts, in no small part due to the widely accepted faith in the selfcorrecting nature of the markets and the ability of inancial institutions to effectively

police themselves. More than 30 years of deregulation and reliance on self-regulation

by inancial institutions, championed by former Federal Reserve chairman Alan

Greenspan

 

Yet we do not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it.

To give just three examples: the Securities and Exchange Commission could have required more capital and halted risky practices at the big investment banks. It did not.

The Federal Reserve Bank of New York and other regulators could have clamped

down on Citigroup’s excesses in the run-up to the crisis. They did not. Policy makers

and regulators could have stopped the runaway mortgage securitization train. They

did not. In case after case after case, regulators continued to rate the institutions they

oversaw as safe and sound even in the face of mounting troubles, often downgrading

them just before their collapse. And where regulators lacked authority, they could

have sought it. Too often, they lacked the political will—in a political and ideological

environment that constrained it

 

3) "We conclude dramatic failures of corporate governance and risk management" (BY THE ILLUSION OF SELFREGULATING FREE MARKETS IDEOLOGY)

at many systemically important inancial institutions were a key cause of this crisis. There was a view that instincts for self-preservation inside major inancial irms

would shield them from fatal risk-taking without the need for a steady regulatory

hand, which, the irms argued, would stile innovation. Too many of these institutions" (CAPITALIST FAILURE) acted recklessly, taking on too much risk, with too little capital, and with too

much dependence on short-term funding. In many respects, this relected a fundamental change in these institutions, particularly the large investment banks and bank

holding companies, which focused their activities increasingly on risky trading activities that produced hefty proits. They took on enormous exposures in acquiring and

supporting subprime lenders and creating, packaging, repackaging, and selling trillions of dollars in mortgage-related securities, including synthetic inancial products.

Like Icarus, they never feared lying ever closer to the sun.

 

4) "We conclude the government was ill prepared for the crisis, and its inconsistent

response added to the uncertainty and panic in the inancial markets. As part of

our charge, it was appropriate to review government actions taken in response to the

developing crisis, 

(TOTALLY NEGLECTED BY THE REPUBLICAN PRESIDENT AND CONGRESS)

"not just those policies or actions that preceded it, to determine if

any of those responses contributed to or exacerbated the crisis.

As our report shows, key policy makers—the Treasury Department, the Federal

Reserve Board, and the Federal Reserve Bank of New York—who were best positioned to watch over our markets were ill prepared for the events of  and .

Other agencies were also behind the curve. They were hampered because they did

not have a clear grasp of the inancial system they were charged with overseeing, particularly as it had evolved in the years leading up to the crisis. This was in no small

measure due to the lack of transparency in key markets. They thought risk had been

diversiied when, in fact, it had been concentrated."

 

5)We conclude there was a systemic breakdown in accountability and ethics. (BY THE CAPITALIST PRIVATE LENDERS in addition to the 

REPUBLICAN ADMINISTRATION)

Lenders made loans that they knew borrowers could not afford and that could

cause massive losses to investors in mortgage securities. As early as September ,

Countrywide executives recognized that many of the loans they were originating

could result in “catastrophic consequences.” Less than a year later, they noted that

certain high-risk loans they were making could result not only in foreclosures but

also in “inancial and reputational catastrophe” for the irm. But they did not stop.

And the report documents that major inancial institutions ineffectively sampled

loans they were purchasing to package and sell to investors. They knew a signiicant

percentage of the sampled loans did not meet their own underwriting standards or

those of the originators. Nonetheless, they sold those securities to investors. The

Commission’s review of many prospectuses provided to investors found that this critical information was not disclosed.

 

 

6) We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the lame of contagion and crisis. When housing

prices fell and mortgage borrowers defaulted, the lights began to dim on Wall Street.

This report catalogues the corrosion of mortgage-lending standards and the securitization pipeline that transported toxic mortgages from neighborhoods across America to investors around the globe. 

Many mortgage lenders set the bar so low that lenders simply took eager borrowers’ qualiications on faith, often with a willful disregard for a borrower’s ability to

pay. Nearly one-quarter of all mortgages made in the irst half of 2005 were interestonly loans. During the same year,  of “option ARM” loans originated by Countrywide and Washington Mutual 

had low- or no-documentation requirements.

 

7) We conclude over-the-counter derivatives contributed signiicantly to this 

crisis. The enactment of legislation (BY THE CONSERVATIVE Testimony of Chairman Alan Greenspan

Over-the-counter derivatives

Before the Committee on Agriculture, Nutrition and Forestry, United States Senate February 10, 2000 

http://www.federalreserve.gov/boarddocs/testimony/2000/20000210.htm) in 2000 to ban the regulation by both the federal

and state governments of over-the-counter (OTC) derivatives was a key turning

point in the march toward the inancial crisis.

 

8) We conclude the failures of credit rating agencies were essential cogs in the

wheel of inancial destruction. The three credit rating agencies were key enablers of

the inancial meltdown. The mortgage-related securities at the heart of the crisis

could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened

without the rating agencies.

.

http://www.gpo.gov/fdsys/pkg/GPO-FCIC/content-detail.html

 

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