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Financial crisis final report suggests cutting regulation may haunt us

Every so often, something so traumatic happens that it defies immediate understanding. The terrorist attacks on Sept. 11, 2001, was such an event. It eventually prompted the 9/11 Commission Report, a riveting multi-hundred-page assessment of what happened.

Our more recent disaster was the near-financial collapse of Wall Street and the bursting of the housing bubble. Those events combined to drive the United States into an economic downturn so deep that we are only now starting to crawl out of the near-depression. Like 9/11, the financial crisis altered America. And like 9/11, a commission was formed to figure out what happened to bring the U.S. economy to its knees.

The final report of the Financial Crisis Inquiry Commission was unveiled last week with little fanfare. Most major media gave the report short shrift, but its sale on Amazon is brisk. (You can read it online for free at tinyurl.com/6y23c6z.)

It's a compelling read. I can't tell all in a short column. But I'll cite a few references to what happened in Florida.

First, kudos to analyst Mike Mayo at Calyon Securities (USA) Inc., who offers the most colorful and best overall quote in the entire report.

In testimony before the commission, Mayo said that all the go-for-broke Wall Street and home loan products — from securitized mortgages to mortgage loans requiring no documentation of the borrower's ability to repay — were a lot "like cheap sangria" made of "a lot of cheap ingredients repackaged to sell at a premium."

Said Mayo: "It might taste good for a while, but you get headaches later and you have no idea what's really inside."

That sangria hangover hit us full force in the form of millions of lost jobs, millions of homeowners whose mortgages are now bigger than the still-declining values of their houses, and a line of homes in foreclosure that stretches to the horizon.

In Florida, the report points out the Miami Herald's investigative work that showed between 2000 and 2007, an astonishing 10,500-plus people with criminal records entered the mortgage broker business field in Florida, including 4,065 who had previously been convicted of such crimes as fraud, bank robbery, racketeering and extortion.

Tom Cardwell, commissioner of the Florida Office of Financial Regulation, told the commission that "lax lending standards" and a "lack of accountability … created a condition in which fraud flourished." Ya think?

The report also notes how real estate appraisers, as the housing bubble started to weaken, felt pressured to fabricate high home values. Lenders, one appraiser group warned, were "blacklisting honest appraisers" and instead assigning business only to appraisers who would hit desired price targets.

"The powers-that-be cannot claim ignorance," Florida appraiser Dennis J. Black of Port Charlotte told the panel.

Now there's an indictment. The overseers blinked.

Note to Tallahassee: Don't let your new "get rid of regulatory red tape" fixation undermine this state's need to upgrade its history of lousy oversight of financial fraud.

Let's not go through this again sooner than we must.

Contact Robert Trigaux at trigaux@sptimes.com.

Financial crisis final report suggests cutting regulation may haunt us 01/31/11 [Last modified: Tuesday, February 1, 2011 7:08am]
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