The Financial Crisis Inquiry Report ppsx

-4-color process CMYK -gritty matte UV THE FINANCIAL CRISIS INQUIRYREPORT THE FINANCIAL CRISIS INQUIRYREPORT • OFFICIAL GOVERNMENT EDITION • OFFICIAL GOVERNMENT EDITION Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States ISBN 978-0-16-087727-8 9780160 877278 90000 FC_cover.indd 1FC_cover.indd 1 1/20/11 2:07 PM1/20/11 2:07 PM THE FINANCIAL CRISIS INQUIRY REPORT ∞ THE FINANCIAL CRISIS INQUIRY REPORT FINAL REPORT OF THE NATIONAL COMMISSION ON THE CAUSES OF THE FINANCIAL AND ECONOMIC CRISIS IN THE UNITED STATES OFFICIAL GOVERNMENT EDITION THE FINANCIAL CRISIS INQUIRY COMMISSION Submitted by Pursuant to Public Law 111-21 January 2011 eciff O gn itnirP tnemnr evo G . S.U ,s tn e mu co D fo tn edn e tn i r epu S eh t yb e l as ro F 0081 -215 )202 ( a e r a C D ;0081 -215 )668 ( e e rf l lot : enoh P vog.opg. e ro tskoob :t en retnI notgnihsa W , C C D I potS : l i aM 4012 -215 )202 ( :x a F 1000 -20402 C D , I S B N 978-0-16-087727-8 CONTENTS Commissioners vii Commissioner Votes viii Commission Staff List ix Preface xi CONCLUSIONS OF THE FINANCIAL CRISIS INQUIRY COMMISSION xv PART I: CRISIS ON THE HORIZON Chapter  Before Our Very Eyes  PART II : SETTING THE STAGE Chapter  Shadow Banking  Chapter  Securitization and Derivatives  Chapter  Deregulation Redux  Chapter  Subprime Lending  PART III: THE BOOM AND BUST Chapter  Credit Expansion  Chapter  The Mortgage Machine  Chapter  The CDO Machine  Chapter  All In  Chapter  The Madness  Chapter  The Bust  v PART IV: THE UNRAVELING Chapter  Early : Spreading Subprime Worries  Chapter  Summer : Disruptions in Funding  Chapter  Late  to Early : Billions in Subprime Losses  Chapter  March : The Fall of Bear Stearns  Chapter  March to August : Systemic Risk Concerns  Chapter  September : The Takeover of Fannie Mae and Freddie Mac  Chapter  September : The Bankruptcy of Lehman  Chapter  September : The Bailout of AIG  Chapter  Crisis and Panic  PART V: THE AFTERSHOCKS Chapter  The Economic Fallout  Chapter  The Foreclosure Crisis  DISSENTING VIEWS By Keith Hennessey, Douglas Holtz-Eakin, and Bill Thomas  By Peter J. Wallison  Appendix A: Glossary Appendix B: List of Hearings and Witnesses Notes Index available online at www.publicaffairsbooks.com/fcicindex.pdf vi CONTENTS 539 545 553 Phil Angelides Chairman Brooksley Born Commissioner Byron Georgiou Commissioner Senator Bob Graham Commissioner Keith Hennessey Commissioner Douglas Holtz-Eakin Commissioner Heather H. Murren, CFA Commissioner John W. Thompson Commissioner Peter J. Wallison Commissioner Hon. Bill Thomas Vice Chairman MEMBERS OF THE FINANCIAL CRISIS INQUIRY COMMISSION COMMISSIONERS VOTING TO ADOPT THE REPORT: Phil Angelides, Brooksley Born, Byron Georgiou, Bob Graham, Heather H. Murren, John W. Thompson COMMISSIONERS DISSENTING FROM THE REPORT: Keith Hennessey, Douglas Holtz-Eakin, Bill Thomas, Peter J. Wallison Shaista I. Ahmed Hilary J. Allen Jonathan E. Armstrong Rob Bachmann Barton Baker Susan Baltake Bradley J. Bondi Sylvia Boone Tom Borgers Ron Borzekowski Mike Bryan Ryan Bubb Troy A. Burrus R. Richard Cheng Jennifer Vaughn Collins Matthew Cooper Alberto Crego Victor J. Cunicelli Jobe G. Danganan Sam Davidson Elizabeth A. Del Real Kirstin Downey Karen Dubas Desi Duncker Bartly A. Dzivi Michael E. Easterly Alice Falk Megan L. Fasules Michael Flagg Sean J. Flynn, Jr. Scott C. Ganz Thomas Greene Maryann Haggerty Robert C. Hinkley Anthony C. Ingoglia Ben Jacobs Peter Adrian Kavounas Michael Keegan Thomas J. Keegan Brook L. Kellerman Sarah Knaus Thomas L. Krebs Jay N. Lerner Jane E. Lewin Susan Mandel Julie A. Marcacci Alexander Maasry Courtney Mayo Carl McCarden Bruce G. McWilliams Menjie L. Medina Joel Miller Steven L. Mintz Clara Morain Girija Natarajan Gretchen Kinney Newsom Dixie Noonan Donna K. Norman Adam M. Paul Jane D. Poulin Andrew C. Robinson Steve Sanderford Ryan Thomas Schulte Lorretto J. Scott Skipper Seabold Kim Leslie Shafer  Gordon Shemin Stuart C. P. Shroff Alexis Simendinger Mina Simhai Jeffrey Smith Thomas H. Stanton Landon W. Stroebel Brian P. Sylvester Shirley Tang Fereshteh Z. Vahdati Antonio A. Vargas Cornejo Melana Zyla Vickers George Wahl Tucker Warren Cassidy D. Waskowicz Arthur E. Wilmarth, Jr. Sarah Zuckerman ix COMMISSION STAFF Wendy Edelberg,Executive Director Gary J. Cohen,General Counsel Chris Seefer, Director of Investigations Greg Feldberg, Director of Research [...]...PREFACE The Financial Crisis Inquiry Commission was created to “examine the causes of the current financial and economic crisis in the United States.” In this report, the Commission presents to the President, the Congress, and the American people the results of its examination and its conclusions as to the causes of the crisis More than two years after the worst of the financial crisis, our economy,... have found in the hope that readers can use this report to reach their own conclusions, even as the comprehensive historical record of this crisis continues to be written CONCLUSIONS OF THE FINANCIAL CRISIS INQUIRY COMMISSION The Financial Crisis Inquiry Commission has been called upon to examine the financial and economic crisis that has gripped our country and explain its causes to the American people... launch and expand the market and, in turn, to further fuel the housing bubble Second, CDS were essential to the creation of synthetic CDOs These synthetic CDOs were merely bets on the performance of real mortgage-related securities They amplified the losses from the collapse of the housing bubble by allowing multiple bets on the same securities and helped spread them throughout the financial system... in their homes and has created further uncertainty about the health of the housing market and financial institutions • We conclude over -the- counter derivatives contributed significantly to this crisis The enactment of legislation 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 financial crisis. .. alternatives—either risk the total collapse of our financial system and economy or inject trillions of taxpayer dollars into the financial system and an array of companies, as millions of Americans still lost their jobs, their savings, and their homes? In this report, we detail the events of the crisis But a simple summary, as we see it, is useful at the outset While the vulnerabilities that created the potential... of , the Treasury Department had provided  billion in financial support to keep them afloat We conclude that these two entities contributed to the crisis, but were not a primary cause Importantly, GSE mortgage securities essentially maintained their value throughout the crisis and did not contribute to the significant financial firm losses that were central to the financial crisis The GSEs... destruction The three credit rating agencies were key enablers of the financial 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... such as the shadow banking system and over -the- counter derivatives markets In addition, the government permitted financial firms to pick their preferred regulators in what became a race to the weakest supervisor 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. .. 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 financial system they were charged with overseeing, particularly as it had evolved in the years leading up to the crisis. .. stabilize our financial system and our economy in the most chaotic and challenging of circumstances • We conclude there was a systemic breakdown in accountability and ethics The integrity of our financial markets and the public’s trust in those markets are essential to the economic well-being of our nation The soundness and the sustained prosperity of the financial system and our economy rely on the notions . UV THE FINANCIAL CRISIS INQUIRYREPORT THE FINANCIAL CRISIS INQUIRYREPORT • OFFICIAL GOVERNMENT EDITION • OFFICIAL GOVERNMENT EDITION Final Report of the National Commission on the Causes of the. REPORT ∞ THE FINANCIAL CRISIS INQUIRY REPORT FINAL REPORT OF THE NATIONAL COMMISSION ON THE CAUSES OF THE FINANCIAL AND ECONOMIC CRISIS IN THE UNITED STATES OFFICIAL GOVERNMENT EDITION THE FINANCIAL. Research PREFACE The Financial Crisis Inquiry Commission was created to “examine the causes of the current nancial and economic crisis in the United States.” In this report, the Com- mission presents to the