The final report from the Financial Crisis Inquiry Commission hit bookstores Thursday, and by Friday it was No. 14 with a bullet on Amazon.com's bestseller list.
Impressive, given that none of the books ahead of it had a longer subtitle -- Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States -- or tackled a more depressing topic: the evaporation of $11 trillion in household wealth.
At 662 pages, the FCIC report amounts to a sweeping forensic examination of a crisis that the commission says could have been avoided. The conclusions are written with style and infused with an appropriate tone of outrage, buttressed by more than 700 interviews (including one with Minnesota lawyer Prentiss Cox) and millions of documents.
Too bad the findings are already being dismissed or ignored. Maybe this was the best to be expected, given that in Washington determining the cause of the Great Recession has seemed less important than assigning blame.
In theory, the FCIC was supposed to be a modern-day, 10-person version of Ferdinand Pecora, the crusading staff attorney whose Wall Street hearings in the wake of the Crash of 1929 led to sweeping reforms.
The FCIC's charge was to explain "the causes, domestic and global, of the current financial and economic crisis in the United States," by focusing on everything from simple explanations, such as fraud, to more complex factors, such as "lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk."
But, from the beginning, the FCIC was riven by political discord. The original chairman and lead investigator resigned in frustration, and allegations of mismanagement and overspending dogged his successor. Rep. Darrell Issa, R-Calif., the new chairman of the House Oversight and Government Reform Committee, has already demanded thousands of pages of documents from the FCIC.
Last month, four of the Republicans on the committee fired off a draft dissent that blamed the Community Reinvestment Act and the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, for forcing lenders to make riskier loans to otherwise unqualified borrowers.
This explanation for the "root cause" of financial crisis has been widely embraced by everyone from George Buckley, the CEO of 3M, to Thomas Donohue, the CEO of the U.S. Chamber of Commerce. At best, it is as simplistic as the notion that the crisis was caused solely by greedy corporate executives and hedge fund profiteers. At worst, it's laughably untrue. The CRA requires banks and thrifts to lend to low-income neighborhoods; it did not apply to many if not most of the stand-alone mortgage companies that prospered during the housing run-up.
Fannie and Freddie are case studies in mismanagement and ineptitude, but government data also show that mortgages financed by Wall Street were almost five times as likely to default as those backed by Fannie and Freddie.
Meanwhile, many of those same lenders were fraudulently representing and selling some of their most noxious loans to Fannie, Freddie and other investors.
Cox, a former Minnesota assistant attorney general, told the commission about the systematic mortgage fraud he found at Ameriquest in 2003, where borrower after borrower was described as an antiques dealer, and how federal regulators threatened to kill investigations that states sought to pursue against the mortgage operations of nationally chartered banks.
Earlier this month, Bank of America agreed to pay $2.6 billion to both Fannie and Freddie to settle claims that its Countrywide Financial unit knowingly violated underwriting standards in making the loans.
The FCIC's findings were endorsed only by the six Democrats. The four Republicans filed two separate dissents, but here's the surprise: The dissent offered by three of the Republicans, Keith Hennessey, Douglas Hotlz-Eakin and Bill Thomas, is a thoughtful critique of majority findings, which rely too heavily on the notion that this was principally a failure of regulations and regulators.
The Republican presentation includes a more nuanced examination of the global nature of the credit bubble. It adds to our understanding of the crisis.
The commission's report comes down hard on the Federal Reserve and other regulatory agencies, but there are no new bad guys. Blame is spread, not necessarily equally, among:
•Homeowners who bought houses they couldn't afford, lied about their income or relied on mortgage refinancings to live above their means.
•Mortgage brokers who suckered homeowners into ticking time-bomb loans because they came with higher commissions.
•Lenders who loosened or ignored their own underwriting standards to keep the money machine humming, knowing that they would eventually be selling the loan to someone else.
•Wall Street and its ratings agencies, which packaged these loans into giant pools that were then sold to unsuspecting investors.
More than anything, though, the book illustrates how a fantastically complex global financial system was essentially undone by the simple act, multiplied over and over, of a homeowner unwilling or unable to make a mortgage payment.
How the story ends remains to be seen, but home prices in the Twin Cities have fallen 33 percent from their peak in April 2006, back to levels last seen in March 2001. About 16 percent of the state's homeowners owe more than their houses are worth.
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