The author is a Reuters columnist. The opinions expressed are his own.
KANSAS CITY, Mo. — The U.S. politician-businessman that Congress put in charge of determining the reasons for the 2008 financial crisis has a sobering message for us: “It’s going to happen again.”
Phil Angelides, the real estate developer and former California state treasurer who chaired the Financial Crisis Inquiry Commission, said on Friday that “all across the marketplace the warning signs were there” of a coming disaster but the mechanisms and political will to stop it were not.
He and I both spoke at a University of Missouri-Kansas City Law School symposium on the financial crisis and the commission set up to examine it.
Angelides warned of a recurring economic nightmare unless Congress and the next president start paying attention to the facts and stop listening to the people who caused, profited from or failed to detect the crisis.
While Wall Street and laissez faire Republicans have attacked the commission’s final report — all 22 footnoted chapters of it — Angelides boasted that not one fact had been proven wrong.
Statements from the leading Republican presidential candidates, as well as the tepid actions of President Barack Obama, show an active interest not in fixing the problems, but rather in enabling Wall Street to go on doing business pretty much as it chooses.
SQUELCHED OR IGNORED
For months now, a canard has gained popular currency through mere repetition: no one could have seen the meltdown coming.
The commission’s report shows that a number of people did see what was coming but they were squelched or ignored. Clear back in 1998, four months before the Long-Term Capital Management collapse, Brooksley Born, then chairwoman of the Commodity Futures Trading Commission, wrote a paper predicting that disaster would flow from the unregulated sale of derivatives. Congress responded by making sure derivatives were not regulated.
Then there were the internal reports at failed mortgage banker Countrywide Financial, which warned there was little-to-no hope that many borrowers would ever repay. Freddie Mac and Fannie Mae tried to resist these shaky mortgages, but they had to keep taking them after Countrywide founder Angelo Mozilo applied political pressure.
In early 2004, after detecting a mortgage bubble in the data, I wrote two pieces for the New York Times warning of the problems. If a mere journalist who was not even reporting on real estate could discern the problem, what excuse was there for those whose job it was to monitor the situation?
Wendy Edelberg, who was the commission’s executive director, said on Friday that “while you can never predict all panics, the flip side is this crisis was caused by human actions and was avoidable.”
Edelberg presented charts showing that loan delinquencies “were lower by an order of magnitude” for government-sponsored Fannie and Freddie than for Wall Street’s mortgage-backed securities. Delinquencies at one point were 15 percent for Fannie and Freddie versus 40 percent for Wall Street.
Edelberg also outlined who bought the obviously bad loans. No one did.
She compared the bad loans to soup with so much fat no one wants it, so it is put in the refrigerator. Once the mixture chills the fat rises to the top and is skimmed off.
By 2006 more than 80 percent of the sure-to-fail loans were inside collateralized debt obligations that were being repackaged and resold like so much excess fat. “No one was actually buying the risk,” she said. “It was just being recycled.”
This is exactly what Washington politicians in both political parties, with their eye on donations from Wall Street, do not want to hear.
One of the best proofs of official lack of interest in learning the facts is the size of the commission budget Congress authorized: $9.8 million.
That is a tiny fraction of the $175 million spent investigating the Space Shuttle Challenger disaster in 1986, and that was in 1980s dollars. It is less than a quarter of what Kenneth Starr spent investigating President Bill Clinton‘s dalliance with an intern.
And then there is the official hostility to the commission. When the report was issued in January, Representative Darrell Issa, a California Republican and one of the richest self-made men in Congress, mounted an investigation.
Angelides characterized the move as a search for just one email showing the inquiry was motivated by ideology rather than truth-seeking. Issa came up dry, but his message was loud and clear: don’t mess with Wall Street.
What the commission’s report has shown is that leaving Wall Street alone will ensure a future of continuing panics, to the detriment of everyone who is not part of Wall Street.