Congressional Commission Spreads Financial Crisis Blame Around

The report said, "We conclude a combination of excessive borrowing, risky investments and lack of transparency put the financial system on a collision course with crisis.

"Clearly, this vulnerability was related to failures of corporate governance and regulation…," the report said.

The conclusions were only supported by the six Democratic members of the Commission. Republicans cited other causes of the crisis.

Noting that unregulated trading in derivatives that insured mortgage-backed securities was a key cause of the crisis, the majority report said, "Finally, when the housing bubble popped and crisis followed, derivatives were in the center of the storm."

It said that "AIG, which had not been required to put aside capital reserves as a cushion for the protection it was selling, was bailed out when it could not meet its obligations."

The report said that "the existence of millions of derivatives contracts of all types between systemically important financial institutions—unseen and unknown in this unregulated market—added to uncertainty and escalated panic, helping to precipitate government assistance to those institutions."

The majority report also said that its "examination revealed stunning instances of governance breakdowns and irresponsibility."

The FCIC report also said, "In addition, the government's inconsistent handling of major financial institutions during the crisis—the decision to rescue Bear Stearns and then to place Fannie Mae and Freddie Mac into conservatorship, followed by its decision not to save Lehman Brothers and then to save AIG—increased uncertainty and panic in the market."

Republicans on the panel dissented on the report through two separate statements, one of which acknowledged AIG's problems but called it an "outlier."

A dissent joined in by three Republicans, led by Bob Thomas, a California Republican and former chairman of the House Ways and Means Committee, said the majority's approach "is too broad."

This dissent said, "Not everything that went wrong during the financial crisis caused the crisis, and while some causes were essential, others had only a minor impact."

 The dissent added, "The majority's almost report is more an account of bad events than a focused explanation of what happened and why. When everything is important, nothing is."

The second Republican dissent, by Peter Wallison, a former Reagan administration official now with the American Enterprise Institute, cited the multi-decade policy of pushing homeownership for everyone as a primary cause of the crisis.

In mentioning AIG, it discounted the role of derivatives trading as a cause of the crisis.

"Despite a diligent search, the FCIC never uncovered evidence that unregulated derivatives, and particularly credit default swaps, was a significant contributor to the financial crisis through 'interconnections'," Mr. Wallison said.

"The only company known to have failed because of its CDS obligations was AIG, and that firm appears to have been an outlier," he added. "Blaming CDS for the financial crisis because one company did not manage its risks properly is like blaming lending generally when a bank fails."