Posted on Friday, December 17, 2010
WASHINGTON — The Republican members of the commission appointed by Congress to investigate the causes of the financial crisis plan to release on Wednesday a document that assigns government housing policies substantial blame for the origins of the 2008 financial crisis.
The release of the 13-page document is an indication of a major partisan division within the 10-member Financial Crisis Inquiry Commission, which was required to deliver its report on Dec. 15 but has pushed that deadline back to January. Two people close to the work of the commission provided copies of the document to The New York Times on Tuesday.
The Republican members of the panel were angered last week when the commission voted 6 to 4, along partisan lines, to limit individual comments by the commissioners to 9 pages each in a 500-page report that the commission plans to publish next month with Public Affairs, an imprint of the Perseus Books Group, one Republican commissioner said.
The Government Printing Office will publish an official version of the report that will contain the full comments of each commissioner, but the commercially available version — which represents the view of the Democratic majority — is the one likely to get the most visibility, said the commissioner, who spoke on the condition of anonymity because he feared being deluged by calls if he were identified.
The commission has loosely modeled its work on the Pecora hearings, which the Senate held in the 1930s to investigate the causes of the Depression, and on the 9/11 Commission, whose 2004 report, published by W. W. Norton, became a best seller.
While the many causes of the financial crisis are likely to be dissected by economists and other scholars for decades, some of the causes can be arranged along a partisan spectrum.
Democrats have emphasized factors like fraudulent practices by mortgage lenders and reckless risk-taking by Wall Street banks and other financial institutions, while Republicans have focused on poor oversight of Fannie Mae and Freddie Mac, the entities that supported the secondary market for mortgages, and decades of government efforts to encourage homeownership.
“While the housing bubble, the financial crisis, and the recession are surely interrelated events, we do not believe that the housing bubble was a sufficient condition for the financial crisis,” the document states. “The unprecedented number of subprime and other weak mortgages in this bubble set it and its effect apart from others in the past.”
The document was signed by Bill Thomas, the vice chairman of the commission and a former congressman from California; Keith Hennessey, a former adviser to President George W. Bush; Douglas Holtz-Eakin, a former director of the Congressional Budget Office; and Peter J. Wallison, who was White House counsel to President Ronald Reagan and is now a fellow at the American Enterprise Institute.
Citing several government agencies, the document argues that “the government subsidized and, in some cases, mandated the extension of credit to high-risk borrowers, propagating risks for financial firms, the mortgage market, taxpayers, and ultimately the financial system.”
The document also examines the unappreciated risks that accompanied the transformation of mortgages into complex securities — like collateralized debt obligations — that could be sold to investors. “Put simply, the risk of a housing collapse was simply not appreciated,” the document states. The document also examines how the crisis intensified after the government allowed Lehman Brothers to collapse in September 2008, an event that caused bondholders to panic. It argues that the Federal Reserve and the Treasury Department acted appropriately to stanch the crisis.
“While we believe that the government deserves quite a lot of the blame for getting our financial system and our nation into trouble in the first place, we applaud the quick and decisive actions taken by our nation’s leaders during the panic,” it states.
The commissioner who discussed the document emphasized that it did not represent the full Republican perspective. “It is solely for the purpose of laying down a marker on Dec. 15 and laying out some of the basic questions that we believe must be answered in the final report,” he said.
By SEWELL CHAN