Lawmaker panel faults “reckless” banks as causing great recession

A report prepared by the Financial Crisis Inquiry Commission (FCIC) on the causes of the Great Recession due for release today faults “reckless” banks and faulty regulators as the chief source of the recent crisis.

The FCIC was created by President Obama and Congress in 2009 to investigate the near collapse of the banking industry and make recommendations for action.

The commission has referred banks and individuals to the Justice Department and state attorneys general for possible prosecution, but, “It couldn’t be learned which financial executives and companies were subject of the referrals,” writes McClatchy news.

The crisis is widely viewed as having been sparked by speculation in sub-prime mortgages targeted at African Americans, Latinos and senior citizens.

The FCIC is split along partisan lines, including Democratic and Republican lawmakers, who issued their own separate reports. The GOP report was published in December. Democrats singled out the Securities and Exchange Commission, the Federal Reserve and “former Fed Chairman Alan Greenspan for backing ’30 years of deregulation.'”

Republicans cited more long-term economic trends, including the housing bubble and the policies of both the Clinton and Bush administrations. In the 1990s, during the Clinton presidency, Citicorp, under the leadership of Robert Rubin, encouraged working-class families to take out second mortgages with the “Live Richly” campaign. The Bush administration actively encouraged the selling of sub-prime mortgages and ignored repeated warnings of the impending crisis.

“This crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire,” said Democratic lawmakers on the panel.

Testimony given to the commission notably identified the drive for maximum profits – corporate greed – as the chief factor motivating banker’s policies during the crisis. “Stock-option bonuses motivated financial firms to use leverage to boost returns, and traders were given “aggressive incentives” to dissuade them from defecting,” writes

“These pay structures had the unintended consequence of creating incentives to increase both risk and leverage, which could lead to larger jumps in a company’s stock price,” wrote the FCIC. Salaries at U.S. banks topped $137 billion in 2007, says Bloomberg.

In testimony before the committee, Mary Shapiro, head of the Securities and Exchange Commission said, “Many major financial institutions created asymmetric compensation packages that paid employees enormous sums for short-term success, even if these same decisions result in significant long-term losses or failure for investors and taxpayers.”

The sub-prime crisis resulted in the greatest wealth loss in black and Latino history in the U.S. In addition, over 11 millions jobs were lost during the Great Recession. Two years after the recession’s official end, economic growth remains sluggish with the Federal Reserve seeing little chance for significant job growth in the short-term.

The House Financial Services Commission will hold a hearing on the FCIC report on February 16th.

Photo: Flickr Code Pink


Joe Sims
Joe Sims

Joe Sims is co-chair of the Communist Party USA. He is also a senior editor of People's World and loves biking.