The financial crisis that wreaked havoc on the economy was "the result of human action and inaction, not of Mother nature or computer models gone haywire,'' a government commission that spent 18 months studying the crisis concluded.
The majority report of the 10-member Financial Crisis Inquiry Commission criticized the Federal Reserve for not stemming the flow of bad mortgages and the Securities and Exchange Commission for not requiring the large banks to have more capital and stop risky practices.
The report , which was released today, said a 30-year policy of deregulation "stripped away key safeguards, which could have helped avoid catastrophe.'' This caused gaps in the government's regulation of the shadow banking system and over-the-counter derivatives markets.
The majority report also faulted "dramatic failures'' in governance and risk management at key financial institutions. Many of these firms "acted recklessly and took on too much risk.''
The panel also concluded that collapsing mortgage lending standards and the mortgage securitization pipeline as well as the failures of credit rating agencies caused significant problems as well.
It also concluded that Government Sponsored Enterprises-such as Fannie Mae and Freddie Mac--had "deeply flawed'' business models and they contributed to the crisis but weren't the primary cause. They noted that delinquency rates for GSE loans were "substantially lower'' than for mortgages securitized by other entities.
A dissenting report, signed by three of the commission's members, said the majority's conclusions were too broad.
"Not everything that went wrong during the financial crisis caused the crisis, and while some causes were essential, others had had only a minor impact,'' they wrote.
In addition, they deride as "too simplistic'' the conclusion that the crisis was caused by either too much or too little regulation. They contend that the majority's conclusion that too little regulation caused the crisis ignored the global nature of the problem and that countries with tougher regulations than the United States also had difficulties.
They also criticize the majority report for ignoring the credit bubble beyond the housing market and they place more blame on Fannie and Freddie for the crisis.
Fannie and Freddie were "guarantors and securitizers, financial institutions holding enormous portfolios of housing-related assets, and the issuers of debt that was treated like government debt by the financial system.''