Divided Financial Crisis Panel Spreads the Blame

By and | January 27, 2011

A deeply divided U.S. investigative panel issued a scathing critique of the culture of deregulation championed by Former Federal Reserve Chairman Alan Greenspan, saying the government had ample power to avert the financial crisis of 2007-2009 and chose not to use it.

The 10-member Financial Crisis Inquiry Commission’s final report, released on Thursday, was endorsed only by its six Democratic members, undermining its impact as the post-crisis Dodd-Frank banking reforms are being implemented.

In the fight between pro-reform Democrats and anti-reform Republicans, the report and its accompanying dissents provide fodder for both sides, while highlighting partisan fault lines that today pervade political Washington, from financial regulation to health care to addressing the budget deficit.

A competing minority report from three Republican commission members, also released on Thursday, largely exonerates Greenspan, saying, ‘U.S. monetary policy may have contributed to the credit bubble but did not cause it.”

Another report, from the 10-member commission’s fourth Republican, focuses mostly on U.S. housing policy in explaining the origins of the crisis that rocked global markets, dragged the economy into a deep recession and unleashed reforms.

The unveiling of the three reports produced by the commission’s warring members was seen by financial markets as a non-event. ‘The market is not really going to react — the market already has a very good idea of what happened,” said Matt McCormick, portfolio manager at Bahl & Gaynor Investment Counsel Inc in Cincinnati, which owns bank shares.

The mountain of interview notes and internal documents obtained by the panel, however, contained some revelations.

For instance, Federal Reserve Chairman Ben Bernanke told the panel that the crisis put 12 of the 13 most important U.S. financial firms at risk of failure within a period of a week or two, and that it surpassed in severity even the Great Depression, a period in which he is a noted expert.

‘As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression,” said Bernanke in a November 2009 interview with the commission.

‘If you look at the firms that came under pressure in that period … only one … was not at serious risk of failure.”

It was not disclosed which of the 13 top financial institutions Bernanke thought was not at risk of failure. Bernanke did say that Goldman Sachs was not immune.

‘Even Goldman Sachs, we thought there was a real chance that they would go under,” he said.

(Additional reporting by Maria Aspan in New York; editing by John Wallace)

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