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Federal panel unveils report on causes of financial crisis; Republicans dissent

January 27, 2011 |  7:31 am

Angelides After 19 lengthy hearings and testimony from more than 700 witnesses, the federal commission charged with finding the causes of the financial crisis released its report Thursday.

But rather than resolving the issue, the work of the Financial Crisis Inquiry Commission simply showed how difficult it is to pinpoint the culprits.

Instead of a single bipartisan report identifying the causes, as the panel that investigated the 9/11 terrorist attacks produced, the 10-member congressionally appointed commission split into factions.

The six Democrats -- led by Chairman Phil Angelides, the former California state treasurer -- released  the official report in Washington on Thursday, concluding that the crisis was an avoidable event caused by Wall Street excesses and  U.S. regulatory failures.

The report said:

"The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble. While the business cycle cannot be repealed, a crisis of this magnitude need not have occurred. To paraphrase Shakespeare, the fault lies not in the stars, but in us."

None of the four Republicans on the panel signed on to that version.

Three of the Republicans, including the commission's vice chairman, former Bakersfield congressman Bill Thomas, released their own 29-page dissenting report on Thursday. And the fourth Republican, former Treasury official Peter Wallison, went his own way, filing a separate, 108-page solo dissent.

Wallison blamed government intervention in the housing market, largely through Fannie Mae and Freddie Mac, for triggering the crisis. He wrote in his conclusion:

"Although there were many contributing factors, the housing bubble of 1997–2007 would
not have reached its dizzying heights or lasted as long, nor would the financial crisis of
2008 have ensued, but for the role played by the housing policies of the U.S. government
over the course of two administrations."

Thomas and the other two Republicans -- former top George W. Bush economic aide Keith Hennessey and former Congressional Budget Office director Douglas Holtz-Eakin -- took what they said is a middle-of-the-road approach between Wallison, who follows the view of the crisis held by many conservatives, and the panel's Democrats, whose conclusions track with liberal views. They wrote:

"Not everything that went wrong during the financial crisis caused the crisis, and while some causes were essential, others had only a minor impact. Not every regulatory change related to housing or the financial system prior to the crisis was a cause. The majority's almost 550-page report is more an account of bad events than a focused explanation of what happened and why. When everything is important, nothing is."

-- Jim Puzzanghera

Photo: Financial Crisis Inquiry Commission Chairman Phil Angelides and Vice Chairman Bill Thomas. Credit: Bloomberg