New York Times: A Political Divide over Inquiry into Financial Crisis
by Sewell Chan
The government inquiry into the causes of the 2008 financial crisis was the focus of intense partisan bickering Wednesday at a House hearing.
Republicans called the final 545-page report a political exercise whose findings were mostly preordained, while Democrats defended its main conclusion: that Wall Street risk-taking and regulatory negligence combined to produce an avoidable disaster.
The final report of the panel, the Financial Crisis Inquiry Commission, has become a modest best seller; the original print run of 25,000 paperback copies has sold out. But the partisan argument over its findings could blunt its lasting impact.
The divisions within the House Financial Services Committee, which summoned 6 of the commission's 10 members to testify, mirrored the panel itself: Six members appointed by Democrats endorsed the conclusions, which were released last month, while the 4 named by Republicans produced two separate dissents.
"From the beginning, I thought that the commission was created for political purposes, with a partisan structure and a partisan agenda," the panel's vice chairman, Bill Thomas, a Republican, testified.
The commission's chairman, Phil Angelides, a Democrat, tried to play down the differences. "While commissioners were not unanimous on all issues or on the emphasis we placed on the key causes of the crisis, there were, in fact, many areas of agreement," Mr. Angelides said, while also calling the document "a valuable and accurate historical account" of the crisis and the events leading to it.
Republicans lambasted the report as flawed. Representative Ed Royce of California said the document did not place sufficient blame on Fannie Mae and Freddie Mac, the government finance entities. (The report found that they were not central to the crisis.)
Representative Patrick T. McHenry of North Carolina called the document "a clipping service" of material culled from books, articles and other published material, and Representative Francisco R. Canseco of Texas said the report was merely "a step-by-step accounting of the crisis." (Though most of its findings were no surprise, the commission held 19 days of hearings, conducted 700 interviews and gathered millions of pages of documents, partly by using its subpoena powers.)
Representative Robert Dold, Republican of Illinois, said Democrats had used the report "to support pre-established political philosophies," and Representative Michael Grimm, Republican of New York, said some commissioners were "more interested in following an ideological agenda than in producing a report that would assist Congress."
Democrats defended the commission's findings, though in less spirited terms.
Representative Stephen Lynch of Massachusetts, praised the report's "honesty and clarity," and Representative Maxine Waters of California suggested that the critics were trying to detract attention from the panel's scathing findings. "My fear is that some of my colleagues will try to rewrite history and perhaps some of those in the public, listening to their messages, will forget the true cause of how we got here," she said.
Of the four Republicans who dissented, three, including Mr. Thomas, did not substantially disagree with the Democratic majority. Mr. Thomas said the main differences were a focus on a global credit bubble fueled by capital flows across borders, which the majority did not emphasize; less emphasis on the structure of the mortgage finance system in the United States, since other countries with very different mortgage systems also experienced housing crashes; and an emphasis on problems financial services firms shared — like concentrated exposure to housing and poor risk management — rather than the failures of individual executives and regulators.
"However, when you are looking for victims and villains, rather than essential causes, you can examine the same set of facts and arrive at diametrically different conclusions," Mr. Thomas said.
Mr. Angelides said the majority did not pull its punches or shape its conclusions for partisan purposes. For example, he noted that the report assailed as inadequate the Federal Reserve Bank of New York's oversight of Citigroup, the banking giant that ultimately needed a federal bailout.
At the time, the New York Fed was led by Timothy F. Geithner, who is now Treasury secretary. The New York Fed was Citigroup's primary regulator, though it shared duties with other regulators whose failings were also cited.
"We found, without regard to party, without regard to private sector/public sector, that this crisis was avoidable, both in failures of regulation and failures of corporate risk management," Mr. Angelides said.
Mr. Thomas questioned that conclusion, citing testimony by the financier Warren E. Buffett, who said that no one had anticipated a nationwide fall in home prices. "If Warren Buffett didn't know it was coming, how can you say, very nonchalantly, it all could have been avoided?" Mr. Thomas said.
The impact of the report was already blunted by the fact that the Dodd-Frank Act, a far-reaching overhaul of financial regulation, was signed into law in July — six months before the commission delivered its findings.
Mr. Angelides offered a strong endorsement of the new law, saying it had addressed many of the failings examined by the commission, which was responsible for examining causes, not for recommending solutions. Mr. Thomas, in contrast, called the law a case of "regulatory overreach."
That the report was recording healthy sales — even though it is available for free at fcic.gov — was nearly the only development that was not met with partisan rancor. Though the proceeds will go to the government, one skeptic, Representative David Schweikert, Republican of Arizona, quipped, "I'm really beginning to question Americans' reading habits."