Four Republican commissioners on the FCIC (Financial Crisis Inquiry Commission) have issued their report, a nine page document entitled "Financial Crisis Primer".
Barry Ritholtz has written a critique at The Big Picture, as well as hard data from the Federal reserve that the commissioners did not include in their primer.
1. The GSEs had traditionally only purchased or guaranteed the highest-quality mortgagesfrom low-risk borrowers. But from 1993 to 2007, the government-established affordable housinggoals grew beyond the GSEs’ ability to meet them. Shrinking their quantity of prime purchases,thus increasing the proportion of “goals” investments, would have violated their mission of providing liquidity to the mortgage market. Further, as publicly traded companies, they had afiduciary duty to their stockholders. The only option available was to invest in mortgages of increasingly lower quality and higher risk to the taxpayer. That is precisely what they did.During the inflation of the housing bubble, the GSEs lowered their standards and began investingin subprime and Alt-A mortgages—and to great fanfare, as the national homeownership rate averaged 68.7 percent from 2003 to 2006.
2. The GSEs were not the only means by which the government supported the financing of high-risk mortgages. Through the GSEs, FHA loans, VA loans, the Federal Home Loan Banks,and the Community Reinvestment Act, among other programs, the government subsidized and,in some cases, mandated the extension of credit to high-risk borrowers, propagating risks forfinancial firms, the mortgage market, taxpayers, and ultimately the financial system.
3. Reinhart and Rogoff also find that financial crises often precede sovereign debt crises, giventhe rapid increase in public debt. To this end, it is not by pure coincidence that our Commission was set up at roughly the same time as the National Commission on Fiscal Responsibility and Reform, which recently presented its report on the looming fiscal crisis in our country. In their panoramic study of financial crises and the debt crises that follow, Reinhart and Rogoff identify perhaps the four most dangerous words expressed by investors, regulators, andpolicymakers before a crash: “This time is different.” We could not agree more. We caution ournation’s leaders to learn the appropriate lessons from history and take seriously the need to reduce our federal deficit.