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Unraveling the Financial Crisis

By Ki Gray

Real Estate Agent

January 24, 2010 05:42 PM

Getting to the bottom of the financial crisis of the last two years has begun in earnest. The bipartisan Financial Crisis Inquiry Commission, made up of private citizens with extensive financial sector backgrounds, has been given the job of unraveling the cause of the biggest financial meltdown since the Great Depression.

The blame lies not only at the feet of the banking and investment industry, but also the U.S. regulators who were supposed to be watching out for such a disaster. To discover the extent that each group is culpable, the commission will seek testimony from a wide range of financial players, including former Federal Reserve Chairman Alan Greenspan, among other current and former regulators.

Commission chairman Phil Angelides has promised to scrutinize and question the regulators as much as the private sector. One of the early people in the hot seat, Federal Deposit Insurance Corp Chairman Sheila Bair, admitted that mistakes were made. "Not only did market discipline fail to prevent the excesses of the last few years, but the regulatory system also failed in its responsibilities," she said. (Reuters) Bair admitted, as others are likely to do so, that when the profits are sky high, it's hard to look for the cracks in the foundation.

As Time magazine pointed out recently, Congressional investigations after a crisis are not rare, though it's been a long time since one investigated a financial crisis. In 1912 the Pujo Committee was followed by the Pecora Commission in 1932. The current commission could become known as the Phil Commission after the chairman, to keep the alliteration going.

As an extension of the Fraud Enforcement and Recovery Act of 2009, the ten members of the commission have been charged with scrutinizing 22 specific areas. According to the government website set up for the commission, the inquiry will include investigating fraud in the private sector, particularly in terms of the abuse of mortgage products. Also, the failure of state and federal regulators will be examined, as well monetary policy, credit ratings and global impact.

So far, those who have come before the commission have been regretful, but not necessarily apologetic. Bankers have acknowledged taking too much risk, but are quick to defend the structure of their companies and the size of their pay packages. This comes in the midst of the Obama administration trying to get banks to payback taxpayers for every penny of the bailout, to the tune of $117 billion.

Regulators have admitted that programs at many levels failed to do what they were intended to do. Key regulators like Bair, reportedly an early critic of subprime mortgages, are working to change the system, along with legislation now in Congress. The role the commission will play in the future of the financial markets may take some time to be determined, but it is likely to have a lasting impact. After all, the SEC was created from the findings of the Pecora Commission.

In Austin, Texas, Ki set up his real estate office three years ago. He also has a website with a free, dedicated search of available Austin Texas real estate. It lists procurable Austin homes for sale. Ki also writes regularly on his blog covering Austin real estate.

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Tony Cordi

Tony Cordi, Broker (Beachtime Realty) - Hermosa Beach, CA

Nice recap of this. I find the whole subject very intriguing...

Jan 24, 2010 05:58 PM

Mark VanBuskirk

Cassidon Realty - Lehighton, PA

PA REALTOR Specializing in Carbon & Monroe County

Intriguing hmm... Really I find it quite sickening... I hope they unravel the mess

Jan 24, 2010 06:51 PM

David Saks

Memphis, TN

Broker / Industry Analyst

TheInquiry Commission needs to begin with the artificial inflation of market value executed by property tax assessors nationwide who found a smooth con that would tap the artificially inflated, misrepresented values for more tax revenue and give the homeowner a phony sense of additional equity in the house. The psychology behind the move is that county and city leaders didn't have to request property tax increases and face the wailing and nashing of teeth from their constituencies. That's where it started, circa 2000. Millions ran to the bank to cash in on the new equity. When the values tanked, crashed and burned the rest is history. No mystery here. I saw it coming twelve years ago.

Jan 24, 2010 07:08 PM

Ron Brown NMLS #270845

NMLS ID: 40831 - Federal Way, WA

The trail begins at the Federal Reserve, and is not hard to follow. However, if Congress continues to allow the Fed to run behind the curtain, and not open their books (despite a bill requesting this that has 317 co-sponsors!) nothing but more expense, and a few meaningless pawns seeing their heads put on public display will result.

Why don't they begin by asking Tim Geithner a few hard questions about why he did not exercise his authority to regulate investment banks while he was heading the NY Fed?

Jan 26, 2010 12:25 PM

Bob Libby

Delray Beach, FL

This is an excellent summary of the past. Without more vigilent regulation of the financial industry however, we will soon end up with another MBA concocted financial scheme to make money from nothing.

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Mar 03, 2010 05:40 AM

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Intriguing hmm... Really I find it quite sickening... I hope they unravel the mess

Ki Gray

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