Financial Crisis Inquiry Commission

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The Financial Crisis Inquiry Commission was created by the U.S. Congress in May of 2009 to study how fraud, regulatory lapses, monetary policy, accounting, lending practices and executive pay contributed to the U.S. financial crisis that began in 2008.[1] A report of the commission's findings were to be reported to the U.S. Congress and President of the United States by Dec. 15, 2010.[2]

The Commission's chairman is Phil Angelides. Other members of the 10-member board are: Bill Thomas, a retired California Republican congressman who led the Ways and Means Committee, Bob Graham, a former Democratic senator from Florida, Brooksley Born, former chairman of the Commodities Futures Trading Commission, Byron S. Georgiou, Keith Hennessey, Douglas Holtz-Eakin, Heather H. Murren, CFA, John W. Thompson, and Peter J. Wallison.[3]

[4]

The panel is modeled after the Pecora Commission, a Senate panel set up during the Great Depression that investigated the causes of the 1929 Wall Street crash.

On June 2, 2010, Warren Buffett was summoned to speak in front of the Financial Crisis Inquiry Committee to give his views of the market. He sat alongside Raymond W. McDaniel, CEO of Moody's Corporation. The ratings agency has been criticized for their oversight of the financial crisis. Buffet's company, Berkshire Hathaway, owns a 13 percent stake in Moody's.[5]

In early September 2010, the Commission held a two-day hearing to discuss the government's actions during the financial crisis and if they could have done more to avert what happened in 2008. Speakers included Richard Fuld and Thomas Baxter, Jr.[6]

Issues

The commission is charged with examining 22 specific areas of inquiry related to the financial crisis, including:

  • Fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;
  • Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;
  • The global imbalance of savings, international capital flows, and fiscal imbalances of various governments;
  • Monetary policy and the availability and terms of credit;
  • Accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;
  • Tax treatment of financial products and investments;
  • Capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;
  • Credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;
  • Lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;
  • Affiliations between insured depository institutions and securities, insurance, and other types of non-banking companies;
  • The concept that certain institutions are 'too-big-to-fail' and its impact on market expectations;
  • Corporate governance, including the impact of company conversions from partnerships to corporations;
  • Compensation structures;
  • Changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;
  • The legal and regulatory structure of the United States housing market;
  • Derivatives and unregulated financial products and practices, including credit default swaps;
  • Short-selling;
  • Financial institution reliance on numerical models, including risk models and credit ratings;
  • The legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;
  • The legal and regulatory structure governing investor and mortgagor protection;
  • Financial institutions and government-sponsored enterprises; and
  • The quality of due diligence undertaken by financial institutions;

Commission Members

Resulting Report

In January of 2011 The Financial Crisis Inquiry Commission concluded that the financial crisis was avoidable. It found widespread failures in financial regulation; dramatic breakdowns in corporate governance; excessive borrowing and risk-taking by households and Wall Street; policy makers who were ill prepared for the crisis; and systemic breaches in accountability and ethics at all levels.[7]



References

  1. Nominees emerge for U.S. panel on Wall Street meltdown. Reuters.
  2. About the Commission. Financial Crisis Inquiry Commission.
  3. About the FCIC. Stanford University.
  4. Phil Angelides leads 10-member panel to probe into economic crisis. Top News.
  5. Warren Buffet Hauled Before Financial Crisis Committee. Guardian UK.
  6. Clashing Testimony Over Lehman Bankruptcy. Wall Street Journal.
  7. Press Release. Financial Crisis Inquiry Commission.