Executive Summary
In the midst of the most serious financial crisis in a generation, some claim that deregulation is entirely to blame. This is simply not true and more importantly serves to grossly oversimplify a problem whose roots run deep and involve myriad actors and issues. The simple truth is that many share the blame, and pointing to just one person or organization does a disservice to the American people.
In a time of crisis, the American people cannot afford the same old partisan finger pointing; they need and deserve real, non-partisan oversight. We need a series of hearings that will focus on the root causes and how we can fix a system in order to avoid financial meltdowns in the future. This minority staff analysis attempts to objectively explore the causes of the financial crisis we are in and how companies like Lehman Brothers and AIG contributed to this crisis.
The current credit crisis is a complex phenomenon with its roots in a number of places involving a myriad of people and institutions. Key players and institutions include Members of Congress, well-respected members of Republican and Democratic administrations, the Federal Reserve Board, Fannie Mae, Freddie Mac, the Department of Housing and Urban Development (HUD), the Securities and Exchange Commission (SEC), the major private sector credit rating agencies, banks, mortgage brokers, and consumers.
There is no single issue or decision one can trace as a cause of the current financial crisis; rather it was multiple decisions and issues involving many actors over time that led us to where we are today. However, we can point to organizations that contributed greatly to the problem and how their role was the catalyst for others to become involved and eventually fail. Fannie Mae and Freddie Mac fall into this category. They were the central cancer of the mortgage market, which has now metastasized into the current financial crisis. With the help of a loose monetary policy at the Federal Reserve, an over-reliance on inaccurate risk assessment and a fractured regulatory system, this cancer spread throughout the financial industry.
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