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Wall Street banks got greedy. Credit rating agencies acted as enablers. Congress and federal regulators looked the other way. It’s become the familiar refrain for those investigating what caused the financial crisis, as reported earlier on Credit.com. Now a new, authoritative report confirms it. In a 635-page tome released Wednesday, the Senate Permanent Committee on Investigations reached the same conclusions.

“Using their own words … the report discloses how financial firms deliberately took advantage of their clients and investors, how credit rating agencies assigned AAA ratings to high risk securities, and how regulators sat on their hands instead of reining in the unsafe and unsound practices all around them,” Senator Carl Levin (D – MI), the committee’s ranking Democrat, said in a press release. “Rampant conflicts of interest are the threads that run through every chapter of this sordid story.”

Unlike previous attempts by Congress to find blame that ended up mired in partisan divisions, most notably the Financial Crisis Inquiry Commission report, the investigations committee managed to hold things together. Members of both parties agreed they had uncovered evidence of widespread fraud and deceit by leaders of the nation’s largest banks and financial institutions.

[Related Article: Finally, Bank Villains Are Named]

Washington Mutual receives special attention in the report. It makes an easy target. Unlike Bank of America, Wells Fargo and other major banks that profited from the housing bubble, WaMu collapsed in 2008, and is no longer in business.

The committee found emails between the bank’s executives warning that their mortgage-backed securities were risky and overvalued, even as they continued selling them as safe investments to government-backed Fannie Mae and Freddie Mac.

“The free market has helped make America great, but it only functions when people deal with each other honestly and transparently. At the heart of the financial crisis were unresolved, and often undisclosed, conflicts of interest,” Tom Coburn (R – OK), chair of the committee, said in a press release. “Blame for this mess lies everywhere from federal regulators who cast a blind eye, Wall Street bankers who let greed run wild, and members of Congress who failed to provide oversight.”

The report goes on to blast federal regulators for enabling, and in some cases encouraging, the fraud. It goes into depth about the Office of Thrift Supervision’s repeated attempts to defend Washington Mutual from greater scrutiny by other federal regulators, despite its knowledge that the bank’s finances were in peril.

The report’s focus on OTS is no great sign of courage, either, since the agency’s failure to prevent such massive bank failures as Washington Mutual and IndyMac caused Congress to pass legislation that will close the office entirely in July 2011.

The committee goes on to advocate 19 changes to federal law that could help prevent such widespread fraud in the future. The report recommends empowering the SEC to rank credit rating agencies by the accuracy of their ratings, restrictions on conflicts of interest, and ways to encourage banks to give more low-risk mortgages.

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Image: Kevin Dooley, via Flickr

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