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Monday, February 07, 2011

New federal report makes clear corrupt government insiders partnering with financial sector predators responsible for economic collapse

The burying of the Financial Crisis Inquiry report

( -- by Andre Damon --

Late last month, the US Financial Crisis Inquiry Commission issued the first official report on the causes of the 2008 financial meltdown.

The report is devastating. The commission interviewed over 700 witnesses, held 19 days of public hearings, and investigated millions of documents. Based on this research, it gives a fairly accurate picture of the fraud and criminality that led to the greatest financial catastrophe since the Great Depression.

The report implicates corporate executives, regulators, and politicians in the conversion of the US economy into a Wall Street casino. It ties the unethical, irresponsible, and often blatantly illegal practices of the financiers to the impoverishment and suffering of millions.

As significant as its contents, however, is the speed with which the report has been buried by the media and political establishment. Within hours, articles on it were dropped from the front pages of the New York Times and Wall Street Journal web sites. Printed stories were relegated to inside pages. The Financial Times, which focuses its coverage on global economic news and developments, did not put the findings on its printed front page on either the release day or the day after.

As for the Obama administration, the report was conveniently released the day after the State of the Union address. While the president no doubt had advance word of its findings, he made no mention of its imminent release. Indeed, none of the report’s themes, from the dramatic increase of the weight of the financial system in the US economy, to the breakdown of regulation and corporate accountability, made their way into his speech.

The commissioners—including six Democrats and four Republicans, chaired by former California Treasurer Phil Angelides—sought to downplay the conclusions contained in their report. At the press conference held to announce their findings, the commissioners used more equivocal language than that of the findings, with one noting that responsibility for the crisis “stretched from the living room to the boardroom,” meaning that the American population shared equal responsibility with the banks for the financial crisis. When asked by multiple reporters whether their report unveiled criminality, the commissioners refused to answer.

Regardless of the intentions of the authors, however, the act of systematically detailing the causes of the financial crisis constitutes a telling indictment of the banks, politicians, and regulators. This was no doubt sensed by the commissioners, four of whom supported dissenting versions of the report that sought to undermine the connection between deregulation, the loosening of lending standards, and the ensuing financial collapse.

Commentary that trickled into the editorial pages of major newspapers over several days largely disregarded the report’s devastating conclusions, either focusing on tangential issues or openly denouncing the committee’s methods.

The report implicates nearly everyone holding a responsible position in the finance sector. It clearly demonstrates that the heads of banks and security rating firms took part in a conspiracy to create the financial bubble of 2005-2007—often for direct personal enrichment. This was facilitated by the transformation of politicians into little more than cheerleaders for the financial bubble and regulators into the impotent facilitators of bank fraud.

As the report points out, “From 1999 to 2008, the financial sector expended $2.7 billion in reported federal lobbying expenses; individuals and political action committees in the sector made more than $1 billion in campaign contributions.” This inflow of bank cash to campaign coffers deprived regulators of “the necessary strength and independence of oversight necessary to safeguard financial stability.”

With the ensuing deregulation, and fueled by the cheap cash provided by the central banks, financial firms turned to a spree of speculation, primarily in the housing market, which the commission claimed “lit and spread the flame of contagion and crisis.”...

Regulators, including the Securities and Exchange Commission and the Office of Thrift Supervision, failed to take any action to contain the pervasive fraud that was creeping into the financial system. “The Federal Reserve,” the commissioners write, “failed to meet its statutory obligation to establish and maintain prudent mortgage lending standards.”

This resulted in the “rising incidence of mortgage fraud, which flourished in an environment of collapsing lending standards and lax regulation.”

In 2006, when billions of dollars in fraudulent securities began to collapse in value, officials in charge of the US economy were taken completely unawares. Ben Bernanke, the chairman of the Federal Reserve, underestimated the impact of the financial crisis by many orders of magnitude, while insisting that the crisis would stay confined to subprime mortgages.

The big banks, meanwhile, took a more prudent stance, continuing to distribute garbage securities while betting that they would fall in value. Goldman Sachs in particular specialized in this practice, which one expert compared to “buying fire insurance on someone else’s house and then committing arson.”

By October 2008, the sparks of the subprime mortgage crisis had ignited what Federal Reserve Chairman Ben Bernanke told the panel was “the worst financial crisis in global history, including the Great Depression.” He added that of the “13 … most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.”

The collapse of Lehman Brothers and the subsequent bank panic precipitated an unprecedented transfer of wealth into the coffers of the banks, under the guise that this was the only way to prevent a general collapse of the economy. The government shoveled money to the financial companies through every means at its disposal—from the Federal Reserve to the Treasury to the FDIC—both in the form of handouts and in loans.

In the bailout of failed insurer AIG alone, the US government gave $180 billion to the world’s largest banks, of which $124.8 billion is still outstanding. The report notes that $2.9 billion of this money made its way directly into the coffers of Goldman Sachs, one of AIG’s largest partners.

Yet despite the immensity of the crisis and the social devastation it has wrought, nothing has been done to prevent its repeat. As the commission has concluded, “Our financial system is, in many respects, still unchanged from what existed on the eve of the crisis. Indeed, in the wake of the crisis, the U.S. financial sector is now more concentrated than ever in the hands of a few large, systemically significant institutions.”

The report concludes that “the greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again.”...MORE...LINK

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