Sunday, March 15, 2009

12 Key Policy Decisions Led to Cataclysm

A new 231 page report outlines 12 key policy decisions that led to the current economic crisis.  Let's hope that some facts start to do a couple of things:

1. Stop the stupid right-wing chain emails that claim that this all rests on the Democrats and Fannie/Freddie.  There's plenty of blame to go around (Fannie and Freddie are # 10 on the blame list)
2. Stop the pundits that decry the "finger pointing" and hope to instead "move forward".  Excuse me, but I think that a report looking critically at pointing fingers at what got us in this mess is _kind of important_ to know how we get out of it.  Of course maybe those pundits just want us to "look busy" and "do some stuff" and hope it works.  I prefer evidence-based governing myself and the place to start is with the evidence for how we got in this mess.

Wall Street Watch
1. In 1999, Congress repealed the Glass-Steagall Act, which had prohibited the merger of commercial banking and investment banking.
2. Regulatory rules permitted off-balance sheet accounting -- tricks that enabled banks to hide their liabilities.
3. The Clinton administration blocked the Commodity Futures Trading Commission from regulating financial derivatives -- which became the basis for massive speculation.
4. Congress in 2000 prohibited regulation of financial derivatives when it passed the Commodity Futures Modernization Act.
5. The Securities and Exchange Commission in 2004 adopted a voluntary regulation scheme for investment banks that enabled them to incur much higher levels of debt.
6. Rules adopted by global regulators at the behest of the financial industry would enable commercial banks to determine their own capital reserve requirements, based on their internal "risk-assessment models."
7. Federal regulators refused to block widespread predatory lending practices earlier in this decade, failing to either issue appropriate regulations or even enforce existing ones.
8. Federal bank regulators claimed the power to supersede state consumer protection laws that could have diminished predatory lending and other abusive practices.
9. Federal rules prevent victims of abusive loans from suing firms that bought their loans from the banks that issued the original loan.
10. Fannie Mae and Freddie Mac expanded beyond their traditional scope of business and entered the subprime market, ultimately costing taxpayers hundreds of billions of dollars.
11. The abandonment of antitrust and related regulatory principles enabled the creation of too-big-to-fail megabanks, which engaged in much riskier practices than smaller banks.
12. Beset by conflicts of interest, private credit rating companies incorrectly assessed the quality of mortgage-backed securities; a 2006 law handcuffed the SEC from properly regulating the firms.

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