So Who Did Cause the Financial Crisis: clue: aka Greenspan’s Folly?

The US bipartisan Financial Crisis Inquiry Commission reported in 2011 the following guilty parties, who are not getting the credit they deserve for causing such an appalling mess through their gross incompetence and arrogance:

  1. Alan Greenspan Chairman of the Federal Reserve 1987-2006  for failing to perform his regulatory duties because he did not believe in them. They call it a ‘pivotal failure to stem the flow of toxic mortgages‘ and a ‘prime example of government negligence.’
  2. Ben Bernanke Chairman of the Federal Reserve from 2006 failure to foresee the crisis and do anything to head it off
  3. George W Bush administration’s inconsistent response to the crisis by saving Bear Stearns with allowing Lehman Brothers to fail. This added to the panic.
  4. Bush Treasury Secretary Henry Paulson Jr’s failure to understand the magnitude of the problem with sub-prime mortgages
  5. Clinton White House and Larry Summers crucial error in shielding over the counter derivatives from regulation in the Commodity Futures Modernization Act: this ‘constituted a key turning point in the march to the financial crisis
  6. NY Fed President Timothy Geithner’s failure to clamp down on Citigroup excesses in the lead up to the crisis
  7. The Fed’s maintenance of low interest rates long after the 2001 recession that created increased risks
  8. Financial sector’s spending of $2.7 billion on lobbying from 1999 to 2008 with members of Congress receiving over $1 billion in campaign contributions
  9. The Credit Rating agencies for stamping their seal of approval on securities that were highly risky because they were backed by mortgages held by people who unable to make payments on the loans
  10. The Securities and Exchange Commission’s permitting the five biggest banks to ramp up their leverage, hold insufficient capital, and engage in risky practices
  11. The US’s five largest investment banks build up of wildly excessive leverage: $1 in capital for every $40 in potential losses
  12. The Office of the Comptroller of the Currency blocking of state regulators reining in lending abuses, aka lending to folk who could never maintain the loan payments.
  13. Questionable practices by mortgage lenders and careless betting by banks (Questionable and careless here means lunatic I think)
  14. The ‘bumbling incompetence’ of corporate chiefs especially Citigroup, AIG, and Merril Lynch. ‘Stunning instances of governance breakdowns and irresponsibility
  15. I would add:
    1. Republican Senator Phil Gramm for having his hand in much of the de-regulation
    2. Freddie Mac and Fannie May for lending to high risk borrowers (that’s for Kathy A who would not forgive me for leaving it out, though the bipartisan commission could not agree on it)
    3. Congress for in 1999 repealing the Glass Steagall Act of 1933 which had kept the casino and retail sides of banking separate
    4. And most of all the Chicago School of Economics for creating the illusion that market cannot systematically fail through unbelievable folly, so ensuring the markets collapsed through unbelievable folly. (And of course who did such a stellar job for democracy in Chile in the 1970s)
    The legendary counter-meddler  Phil Gramm:
    The current cast of the musical: ‘Inspiration for the Folly’: the Chicago Department of Economics in 2010:

    And of course last but by no means least, the sine qua non of the crisis, the awful, incompetent and arrogant, Alan Greenspan. The crisis should rightfully be named after him: give credit where it’s due:

Footnote: Thanks to the amazing book ‘The End of Economic Growth: Adapting to our New Economic Reality’ by Richard Heinberg for this. I will review this book when I have finished it.

About creativeconflictwisdom

I spent 32 years in a Fortune Five company working on conflict: organizational, labor relations and senior management. I have consulted in a dozen different business sectors and the US Military. I work with a local environmental non profit. I have written a book on the neuroscience of conflict, and its implications for conflict handling called Creative Conflict Wisdom (forthcoming).
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