Report: Since Everyone Caused the Crisis, No One is to Blame

The Financial Crisis Inquiry Commission spent a year and a half investigating what caused the Great Recession of 2007-2010. They interviewed more than 700 people, and last week released a book-length report purporting to be the final word on what caused the financial meltdown.

And yet many readers and reviewers come away feeling . . . unsatisfied. The final report, issued Jan. 27, cast blame far and wide, finding fault with everyone from Bill Clinton to Alan Greenspan to the CEO of Citigroup.

But never in the report’s 545 pages does the commission pull together a coherent story of who caused the recession, or how. It reads instead like a laundry list of unrelated factors, including the Federal Reserve’s “pivotal failure to stem the flow of toxic mortgages,” and failure by major financial institutions to limit risky investments.

And because the 10-member commission divided into three factions – the panel’s Democrats wrote most of the report, with a dissent from three Republicans and a dissent-from-the-dissent by Republican Peter J. Wallison – many people believe the commission’s efforts to prevent a similar meltdown in the future ultimately will be wasted.

“It adds color to the fraudulent actions, regulatory missteps and Wall Street mendacity that we’ve long known about,” Joe Nocera, a business reporter for The New York Times, wrote. “What it doesn’t do, though, is propose a satisfying theory that explains why so many people did so many wrong, and wrong-headed, things in the years leading up to the financial crisis.”

The three Republicans who co-wrote a dissent agreed, saying the report was “too broad. When everything is important, nothing is.”

But if you go for laundry lists, here goes, with a quick summary of what the commission found to have caused the crisis:

– Lobbyists for financial institutions, who successfully pushed to deregulate the financial services industry.

– Big financial conglomerates that grew too quickly, and that reaped huge short-term profits on risky investment schemes using too much borrowed money, which threatened to kill their own companies.

– Failure by regulators including the Federal Reserve and the Securities and Exchange Commission to use their power to stop conflicts of interest, and to stop the crisis once it had begun.

– Ratings agencies including Moody’s, which failed to see obvious risks in mortgage-backed securities.

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