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Financial Crisis Inquiry Report, Authorized Edition

Book Description

Official Government Edition

The definitive report on what caused America's economic meltdown— and who was responsible

The financial and economic crisis has touched the lives of millions of Americans who have lost their jobs and their homes, but many have little understanding of how it happened. Now, in this very accessible report, readers can get the facts.
  • Formed in May 2009, the Financial Crisis Inquiry Commission (FCIC) is a panel of 10 commissioners with experience in business, regulations, economics, and housing, chosen by Congress to explain what happened and why it happened. This panel has had subpoena power that enabled them to interview people and examine documents that no reporter had access to.
  • The FCIC has reviewed millions of pages of documents, and interviewed more than 600 leaders, experts, and participants in the financial markets and government regulatory agencies, as well as individuals and businesses affected by the crisis.
  • In the tradition of The 9/11 Commission Report, The Financial Crisis Inquiry Report will be a comprehensive book for the lay reader, complete with a glossary, charts, and easy-to-read diagrams, and a timeline that includes important events. It will be read by policy makers, corporate executives, regulators, government agencies, and the American people.

Table of Contents

  1. Title Page
  2. MEMBERS OF THE FINANCIAL CRISIS INQUIRY COMMISSION
  3. COMMISSION STAFF
  4. PREFACE
  5. CONCLUSIONS OF THE FINANCIAL CRISIS INQUIRY COMMISSION
  6. PART I - Crisis on the Horizon
    1. 1 - BEFORE OUR VERY EYES
  7. PART II - Setting the Stage
    1. 2 - SHADOW BANKING
      1. COMMERCIAL PAPER AND REPOS: “UNFETTERED MARKETS”
      2. THE SAVINGS AND LOAN CRISIS: “THEY PUT A LOT OF PRESSURE ON THEIR REGULATORS”
    2. 3 - SECURITIZATION AND DERIVATIVES
      1. FANNIE MAE AND FREDDIE MAC: “THE WHOLE ARMY OF LOBBYISTS”
      2. STRUCTURED FINANCE: “IT WASN’T REDUCING THE RISK”
      3. THE GROWTH OF DERIVATIVES: “BY FAR THE MOST SIGNIFICANT EVENT IN FINANCE DURING ...
    3. 4 - DEREGULATION REDUX
      1. EXPANSION OF BANKING ACTIVITIES: “SHATTERER OF GLASS-STEAGALL”
      2. LONG-TERM CAPITAL MANAGEMENT: “THAT’S WHAT HISTORY HAD PROVED TO THEM”
      3. DOT-COM CRASH: “LAY ON MORE RISK”
      4. THE WAGES OF FINANCE: “WELL, THIS ONE’S DOING IT, SO HOW CAN I NOT DO IT?”
      5. FINANCIAL SECTOR GROWTH: “I THINK WE OVERDID FINANCE VERSUS THE REAL ECONOMY”
    4. 5 - SUBPRIME LENDING
      1. MORTGAGE SECURITIZATION: “THIS STUFF IS SO COMPLICATED HOW IS ANYBODY GOING TO KNOW?”
      2. GREATER ACCESS TO LENDING: “A BUSINESS WHERE WE CAN MAKE SOME MONEY”
      3. SUBPRIME LENDERS IN TURMOIL: “ADVERSE MARKET CONDITIONS”
      4. THE REGULATORS: “OH, I SEE”
  8. PART III - The Boom and Bust
    1. 6 - CREDIT EXPANSION
      1. HOUSING: “A POWERFUL STABILIZING FORCE”
      2. SUBPRIME LOANS: “BUYERS WILL PAY A HIGH PREMIUM”
      3. CITIGROUP: “INVITED REGULATORY SCRUTINY”
      4. FEDERAL RULES: “INTENDED TO CURB UNFAIR OR ABUSIVE LENDING”
      5. STATES: “LONG-STANDING POSITION”
      6. COMMUNITY-LENDING PLEDGES: “WHAT WE DO IS REAFFIRM OUR INTENTION”
      7. BANK CAPITAL STANDARDS: “ARBITRAGE”
    2. 7 - THE MORTGAGE MACHINE
      1. FOREIGN INVESTORS: “AN IRRESISTIBLE PROFIT OPPORTUNITY”
      2. MORTGAGES: “A GOOD LOAN”
      3. FEDERAL REGULATORS: “IMMUNITY FROM MANY STATE LAWS IS A SIGNIFICANT BENEFIT”
      4. MORTGAGE SECURITIES PLAYERS: “WALL STREET WAS VERY HUNGRY FOR OUR PRODUCT”
      5. MOODY’S: “GIVEN A BLANK CHECK”
      6. FANNIE MAE AND FREDDIE MAC: “LESS COMPETITIVE IN THE MARKETPLACE”
    3. 8 - THE CDO MACHINE
      1. CDOS: “WE CREATED THE INVESTOR”
      2. BEAR STEARNS’S HEDGE FUNDS: “IT FUNCTIONED FINE UP UNTIL ONE DAY IT JUST DIDN’T FUNCTION”
      3. CITIGROUP’S LIQUIDITY PUTS: “A POTENTIAL CONFLICT OF INTEREST”
      4. AIG: “GOLDEN GOOSE FOR THE ENTIRE STREET”
      5. GOLDMAN SACHS: “MULTIPLIED THE EFFECTS OF THE COLLAPSE IN SUBPRIME”
      6. MOODY’S: “ACHIEVED THROUGH SOME ALCHEMY”
      7. SEC: “IT’S GOING TO BE AN AWFULLY BIG MESS”
    4. 9 - ALL IN
      1. THE BUBBLE: “A CREDIT-INDUCED BOOM”
      2. MORTGAGE FRAUD: “CRIME-FACILITATIVE ENVIRONMENTS”
      3. DISCLOSURE AND DUE DILIGENCE: “A QUALITY CONTROL ISSUE IN THE FACTORY”
      4. REGULATORS: “MARKETS WILL ALWAYS SELF-CORRECT”
      5. LEVERAGED LOANS AND COMMERCIAL REAL ESTATE: “YOU’VE GOT TO GET UP AND DANCE”
      6. LEHMAN: FROM “MOVING” TO “STORAGE”
      7. FANNIE MAE AND FREDDIE MAC: “TWO STARK CHOICES”
    5. 10 - THE MADNESS
      1. CDO MANAGERS: “WE ARE NOT A RENT-A-MANAGER”
      2. CREDIT DEFAULT SWAPS: “DUMB QUESTION”
      3. CITIGROUP: “I DO NOT BELIEVE WE WERE POWERLESS”
      4. AIG: “I’M NOT GETTING PAID ENOUGH TO STAND ON THESE TRACKS”
      5. MERRILL: “WHATEVER IT TAKES”
      6. REGULATORS: “ARE UNDUE CONCENTRATIONS OF RISK DEVELOPING?”
      7. MOODY’S: “IT WAS ALL ABOUT REVENUE”
    6. 11 - THE BUST
      1. DELINQUENCIES: “THE TURN OF THE HOUSING MARKET”
      2. RATING DOWNGRADES: “NEVER BEFORE”
      3. CDOS: “CLIMBING THE WALL OF SUBPRIME WORRY”
      4. LEGAL REMEDIES: “ON THE BASIS OF THE INFORMATION”
      5. LOSSES: “WHO OWNS RESIDENTIAL CREDIT RISK?”
  9. PART IV - The Unraveling
    1. 12 - EARLY 2007: SPREADING SUBPRIME WORRIES
      1. GOLDMAN : “LET’S BE AGGRESSIVE DISTRIBUTING THINGS”
      2. BEAR STEARNS’S HEDGE FUNDS: “LOOKS PRETTY DAMN UGLY”
      3. RATING AGENCIES: “IT CAN’T BE . . . ALL OF A SUDDEN”
      4. AIG: “WELL BIGGER THAN WE EVER PLANNED FOR”
    2. 13 - SUMMER 2007: DISRUPTIONS IN FUNDING
      1. IKB OF GERMANY: “REAL MONEY INVESTORS”
      2. COUNTRY WIDE: “THAT’S OUR 9/11”
      3. BNP PARIBAS: “THE RINGING OF THE BELL”
      4. SIVs: “AN OASIS OF CALM”
      5. MONEY FUNDS AND OTHER INVESTORS: “DRINK[ING] FROM A FIRE HOSE”
    3. 14 - LATE 2007 TO EARLY 2008: BILLIONS IN SUBPRIME LOSSES
      1. MERRILL LYNCH: “DAWNING AWARENESS OVER THE COURSE OF THE SUMMER”
      2. CITIGROUP: “THAT WOULD NOT IN ANY WAY HAVE EXCITED MY ATTENTION”
      3. AIG’S DISPUTE WITH GOLDMAN: “THERE COULD NEVER BE LOSSES”
      4. FEDERAL RESERVE: “THE DISCOUNT WINDOW WASN’T WORKING”
      5. MONOLINE INSURERS: “WE NEVER EXPECTED LOSSES”
    4. 15 - MARCH 2008: THE FALL OF BEAR STEARNS
      1. “I REQUESTED SOME FORBEARANCE”
      2. “WE WERE SUITABLY SKEPTICAL”
      3. “TURN INTO A DEATH SPIRA”
      4. “DUTY TO PROTECT THEIR INVESTORS”
      5. “THE GOVERNMENT WOULD NOT PERMIT A HIGHER NUMBER”
      6. “IT WAS HEADING TO A BLACK HOLE”
    5. 16 - MARCH TO AUGUST 2008: SYSTEMIC RISK CONCERNS
      1. THE FEDERAL RESERVE: “WHEN PEOPLE GOT SCARED”
      2. JP MORGAN: “REFUSING TO UNWIND . . . WOULD BE UNFORGIVABLE”
      3. THE FED AND THE SEC: “ WEAK LIQUIDITY POSITION”
      4. DERIVATIVES: “EARLY STAGES OF ASSESSING THE POTENTIAL SYSTEMIC RISK”
      5. BANKS: “THE MARKETS WERE REALLY, REALLY DICEY”
    6. 17 - SEPTEMBER 2008: THE TAKEOVER OF FANNIE MAE AND FREDDIE MAC
      1. “A GOOD TIME TO BUY”
      2. “THE ONLY GAME IN TOWN”
      3. “IT’S A TIME GAME . . . BE COOL”
      4. “THE IDEA STRIKES ME AS PERVERSE”
      5. “IT WILL INCREASE CONFIDENCE”
      6. “CRITICAL UNSAFE AND UNSOUND PRACTICES”
      7. “THEY WENT FROM ZERO TO THREE WITH NO WARNING IN BETWEEN”
      8. “THE WORST-RUN FINANCIAL INSTITUTION”
      9. “WASN’T DONE AT MY PAY GRADE”
    7. 18 - SEPTEMBER 2008: THE BANKRUPTCY OF LEHMAN
      1. “GET MORE CONSERVATIVELY FUNDED”
      2. “ THIS IS NOT SOUNDING GOOD AT ALL”
      3. “SPOOK THE MARKET”
      4. “IMAGINATION HAT”
      5. “HEADS OF FAMILY”
      6. “TELL THOSE SONS OF BITCHES TO UNWIND”
      7. “THIS DOESN’T SEEM LIKE IT IS GOING TO END PRETTY”
      8. “THE ONLY ALTERNATIVE WAS THAT LEHMAN HAD TO FAIL”
      9. “A CALAMITY”
    8. 19 - SEPTEMBER 2008: THE BAILOUT OF AIG
      1. “CURRENT LIQUIDITY POSITION IS PRECARIOUS”
      2. “SPILLOVER EFFECT”
      3. “LIKE A GNAT ON AN ELEPHANT”
    9. 20 - CRISIS AND PANIC
      1. MONEY MARKET FUNDS: “DEALERS WEREN’T EVEN PICKING UP THEIR PHONES”
      2. MORGAN STANLEY: “NOW WE’RE THE NEXT IN LINE”
      3. OVER-THE-COUNTER DERIVATIVES: “A GRINDING HALT”
      4. WASHINGTON MUTUAL: “IT’S YOURS”
      5. WACHOVIA: “AT THE FRONT END OF THE DOMINOES AS OTHER DOMINOES FELL”
      6. TARP: “COMPREHENSIVE APPROACH”
      7. AIG: “WE NEEDED TO STOP THE SUCKING CHEST WOUND IN THIS PATIENT”
      8. CITIGROUP: “LET THE WORLD KNOW THAT WE WILL NOT PULL A LEHMAN”
      9. BANK OF AMERICA: “A SHOTGUN WEDDING”
  10. PART V - The Aftershocks
    1. 21 - THE ECONOMIC FALLOUT
      1. HOUSEHOLDS: “I’M NOT EATING. I’M NOT SLEEPING”
      2. BUSINESSES: “SQUIRRELS STORING NUTS”
      3. COMMERCIAL REAL ESTATE: “NOTHING’S MOVING”
      4. GOVERNMENT: “STATES STRUGGLED TO CLOSE SHORTFALLS”
      5. THE FINANCIAL SECTOR: “ALMOST TRIPLE THE LEVEL OF THREE YEARS EARLIER”
    2. 22 - THE FORECLOSURE CRISIS
      1. FORECLOSURES ON THE RISE: “HARD TO TALK ABOUT ANY RECOVERY”
      2. INITIATIVES TO STEM FORECLOSURES: “PERSISTENTLY DISREGARD”
      3. FLAWS IN THE PROCESS: “SPECULATION AND WORST-CASE SCENARIOS”
      4. NEIGHBORHOOD EFFECTS: “I’M NOT LEAVING”
  11. Dissenting Statement of
  12. Financial Crisis Inquiry Commission Dissenting Statement
  13. APPENDIX A: GLOSSARY
  14. APPENDIX B: LIST OF HEARINGS AND WITNESSES
  15. NOTES
  16. INDEX
  17. Copyright Page