Last week, the Republican members of the Financial Crisis Inquiry Commission actually voted to remove the terms “Wall Street,” “Deregulation,” “Shadow Banking” and “Interconnected,” from the bipartisan report on the causes of the financial crisis. You would think it would be tricky to explain the credit crunch without mentioning those concepts but somehow, they have managed.
The Republican report came out yesterday and guess what? It was all the government’s fault. Moral hazard had nothing to do with it. Securitisation had nothing to do with it. Hedge funds creating mortgage-backed securities just to short them had nothing to do with it. Skewed incentive structures that paid big bonuses for successful risky bets but shifted any loss to the taxpayers had nothing to do with it. No, according to their considered analysis, it was the government forcing banks to make bad loans to poor people that caused the collapse of Lehman Brothers. Their big villain is the 1977 Community Reinvestment Act.
If the entire financial crisis was caused by the US government how does that explain the bubbles in Ireland, Spain, and Britain? To call the Republican committee members naïve is to flatter them. Meanwhile, the new Republican Chairman of the House Financial Services Committee told a reporter that the purpose of regulators is “to serve the banks.” Indeed. I wonder what he thinks is the purpose of the Chairman of the House Financial Services Committee?