Make us your home page
Instagram

List of those to blame for financial meltdown nearly endless

Do we really want to know the root causes of the 2008 financial collapse? I wonder.

The bipartisan Financial Crisis Inquiry Commission last week began high-profile hearings on Capitol Hill with that precise mission. So far, the spotlight is on the wrong people.

First up was a panel of four big and popularly reviled Wall Street chiefs. They got the first-day's media attention, especially when inquiry commission chairman Phil Angelides zinged Goldman Sachs CEO Lloyd Blankfein for his investment firm's soulless strategy of selling customers financial products, then profiting by betting against them. Angelides said it was like "selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."

Good sound bite. But little insight into the '08 meltdown.

The second day focused on the Securities and Exchange Commission and Federal Deposit Insurance Corp., whose heads insisted the days of laissez-faire, lackadaisical oversight are over.

But SEC chair Mary Schapiro was not even running the regulatory agency when it missed the signs of the coming 2008 collapse (not to mention missing Bernie Madoff's immense Ponzi scheme). And FDIC chair Sheila Bair blamed the Federal Reserve for many of the bad decisions behind the market disaster.

Nobody — neither Wall Street nor Main Street banks nor regulators nor rating agencies nor elected politicians flush with campaign contributions nor consumers — saw any good reason to interrupt what looked like a wildly successful financial era.

Boy, were we dupes.

To me, the in-the-trenches witnesses most ignored by mainstream media last week possessed the most enlightening comments.

Veteran bank analyst Mike Mayo testified that banking became an "industry on steroids" by prodigious and reckless lending with "little skin in the game." Flush with so many new loans to package into exotic securities, Wall Street concocted arcane investments like CDOs (collateralized debt obligations) and even "CDO-squared" that "amplified leverage in untested forms."

Amazingly, the FDIC stopped charging banks for deposit insurance back then because everybody felt so flush. And consumers, Mayo says, went right along on the easy-money ride by borrowing more heavily than ever.

To Julia Gordon, Center for Responsible Lending policy counsel, the sad joke was that "subprime lending" did not even increase homeownership. The only reason to mass market such loans to consumers, she testified, was for Wall Street and mortgage companies to push basic lending aside and make quick money by selling (and flipping) large numbers of loans with minimal underwriting.

Says Gordon: "Never have so many toxic loan products been aggressively marketed on such a large scale with such loose lending rules."

And where were the financial police? After the attacks of Sept. 11, 2001, many were reassigned to anti-terror duty, leaving a skeletal law enforcement crew too thin to deal with financial scams.

The FBI is now working more than 2,800 mortgage fraud investigations. Of those, 1,842 are classified as major cases, which means each involves over $1 million in losses. In 2004, just as the housing frenzy grew so intense, the FBI's investigations in this arena numbered only 534.

So, do we really want to know the root causes of the 2008 financial collapse? None of this financial free-for-all would have happened without blessings bestowed by White House administrations, the Congress and an American public only too eager to ride the gravy train of cheap, abundant and unsupervised money for sale.

We're barely scratching the surface so far.

Robert Trigaux can be reached at trigaux@sptimes.com.

List of those to blame for financial meltdown nearly endless 01/16/10 [Last modified: Friday, January 15, 2010 8:16pm]
Photo reprints | Article reprints

© 2017 Tampa Bay Times

    

Join the discussion: Click to view comments, add yours

Loading...
  1. SeaWorld shares drop Monday to 2017 low after disclosure of federal subpoena

    Tourism

    The Orlando parent company of SeaWorld and Busch Gardens theme parks saw its stock drop 3.5 percent Monday to $15.10, its lowest price of this year.

    Killer whales perform at Shamu Stadium at SeaWorld in Orlando in 2011, before public pressure was placed on the theme park company to curtail its orca shows.SeaWorld has since announced an end to the traditional killer whale entertainment  at its theme parks. [AP Photo/Phelan M. Ebenhack]
  2. Rick Scott appoints longtime ally Jimmy Patronis as Florida CFO

    State Roundup
    Rick Scott appoints Jimmy Patronis (background) as CFO. [STEVE BOUSQUET | Tampa Bay Times]
  3. Local gas prices plummet as Fourth of July holiday travel approaches

    Tourism

    TAMPA — Local gas prices are enjoying an unseasonal dip around the $2 mark just in time for the hectic Fourth of July holiday travel weekend.

    The price of regular unleaded gasoline has dropped to $1.99 at a Rally station on Pasadena Ave. South and Gulfport Boulevard South, South Pasadena.
[SCOTT KEELER   |   Times]

  4. Air bag recalls, lawsuits lead Takata to file for bankruptcy

    Autos

    Shattered by recall costs and lawsuits, Japanese air bag maker Takata Corp. filed Monday for bankruptcy protection in Tokyo and the U.S., saying it was the only way it could keep on supplying replacements for faulty air bag inflators linked to the deaths of at least 16 people.

    Japanese air bag maker Takata Corp. CEO Shigehisa Takada bows during a press conference in Tokyo on Monday. Takata has filed for bankruptcy protection in Tokyo and the U.S., overwhelmed by lawsuits and recall costs related to its production of defective air bag inflators.
[(AP Photo/Shizuo Kambayashi]
  5. Airbag maker Takata bankruptcy filing expected in Japan, U.S.

    Corporate

    DETROIT — Japanese airbag maker Takata Corp. has filed for bankruptcy protection in Tokyo and the U.S., overwhelmed by lawsuits and recall costs related to its production of faulty air bag inflators.