Yves Smith Reports Insiders Say FCIC was Set Up to Fail

January 30th, 2011
in Banking, econ_news

Econintersect:  Well known analyst and chronicler of the financial world, Yves Smith, has interviewed (anonymously) some purported non-partisan staff members of the FCIC (Financial Crisis Inquiry Commission).  Smith finds that these insiders feel that the commissioners came to the task with preconceived answers and each sought to find the questions that would give their politically attuned answers.

Follow up:

Smith details many of the areas in which criminal activity may have occurred as being not addressed by the commission.  She wrote that these were some of the things missed:

– How a previously benign securitization process allowed for the creation and sale of bad mortgages on a widespread basis

– How inadequate disclosure as alleged in a number of recently filed big lawsuits allowed mortgage backed bonds that contained many loans that fell below the underwriters’ promised standards to be sold to investors

– How a shadow banking system ballooned with products increasingly based on dubious financial instruments

– How CDOs that were devised by subprime shorts, most importantly the hedge fund Magnetar, drove the demand for the worst sort of subprime loans, extended the toxic phase of the subprime bubble well past its sell-by date

– How the dealer banks knowingly created toxic products, and via flawed risk management processes, allowed traders to retain significant portions of them via strategies that amounted to gaming of the banks’ bonus systems.

Smith is only one of many who have issued analysis that is very critical of the report and have taken objected to the narrow scope and delicate probing of the crisis.  It has ben reported that some commissioners wanted to elimiate the terms "Wall Street" and "shadow banking" from the report, for example.

Source: GEI Opinion



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