Leaked crisis report blames regulation
Friday January 28 2011 | 03:09 AM

A combination of corporate mismanagement, inept regulation and possible lawbreaking was to blame for the global financial crisis, according to a leaked official US government report.

Going as far back as to criticise deregulation changes made under the Clinton administration, the report by the Financial Crisis Inquiry Commission - obtained by the New York Times - claims that former and current Federal Reserve chairmen Alan Greenspan and Ben Bernanke are partly to blame for the crisis.

While Greenspan was part of the team advocating deregulation, ultimately regarded as a "pivotal failure to stem the flow of toxic mortgages", Bernanke's fault lay with ignoring information suggesting the crisis was coming and predicting that sub-prime mortgage collapse could be contained.

Claiming that the Fed "neglected its mission" in overseeing financial markets, and that regulators "lacked the political will" to supervise their required firms, the report is also critical of the recklessness played by individual institutions.

Insurer AIG is slammed for being blind to its $79bn exposure to credit default swaps, while executives at Merrill Lynch in particular are criticised for their ignoring that their mortgage investments could suddenly suffer huge losses.

An "inconsistent response" from the Bush administration in bailing out Bear Stearns but allowing Lehman Brothers to fail is also blamed for "adding to the uncertainty and panic in the financial markets."

It is also understood that the committee discovered several cases where financial industry figures may have broken the law in the run-up to the crisis, with legal cases set to be passed to authorities for further investigation.

Due to be published by the ten-member FCIC tomorrow, the report was endorsed by all six Democrat-appointed commission members, though three Republican members dissented, focusing on a more narrow set of causes.

Republican Peter Wallision argued that policies to promote homeownership was the major reason.

The report concludes that the crisis was a result of "human action and inaction" and could have been avoided.

"The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.

"The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again," it concludes.