The 10-member Financial Crisis Inquiry Commission, made up of a number of financial experts from the public and private sectors, found that the type of risky mortgage lending that led to the financial crisis was the result of government deregulation, according to a report from the New York Times. While under the direction of former Chairman Alan Greenspan, the Federal Reserve Board did little to set industry-wide lending standards to prevent banks from continuing to grant mortgages to less-qualified buyers.
“The Federal Reserve was clearly the steward of lending standards in this country,” commission member John Thompson, a technology executive, told the newspaper. “They chose not to act.”
[Resource: Buying A Home in a Crazy Market: A Step-by-Step Guide]
However, Alabama Representative Spencer Bachus, the newly appointed chairman of the House Financial Services Committee, said of the 10 members on the commission, four – all Republicans – dissented with these findings. Bachus noted in particular that the report downplayed the role of both Fannie Mae and Freddie Mac, which relaxed their standards for underwriting home loans and bought riskier loans ahead of the meltdown.
These mortgage lending practices caused more homeowners to be unable to afford their monthly payments, leading to foreclosure and eviction. As a result, property values around the country sank as many neighborhoods dealt with empty homes that no one could or wanted to buy.
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Leave it to the Republicans to put the onus on the wrong agency. The supposed watchdog in the financial market is the rating agency. It is supposed to evaluate the creditworthiness of a given security. In the case of the mortgages the AAA ratings were “sold” by the three rating agencies, Standard and Poor, Moodys, and Fitch, to the the mortgages brokers as they competed for their business.
Right there the “red light” should have shone brightly. It would have stopped the debacle in its tracks. Being carried along in the feeding frenzy of selling those toxic mortgages the rating agencies prostituted themselves, actually committed fraud, for their own profit and at the expense of the entire financial system. They should be prosecuted for that fraud and made to pay restitution for the chaos they created. So far they have only suffered the derision they so miserably earned.
Commission inquiries can be good, as long as they do something to prevent the problems from recurring.