U.S. Financial crisis Inquiry commission reports Thursday:Blame widespread

The American financial crisis inquiry commission will issue its nearly 600 page report Thursday and according to preliminary reports in the New York Times, it blames officials in the Clinton administration and in the Bush administration for inadequate regulation of the industry which permitted reckless and greedy risk taking by the investment banks, the mortgage industry and others for the debacle that almost destroyed the American and global economy. It apparently argues that Tim Geithner must share in some part of the blame for the mess while he served as head of the New York Fed and for being asleep at the switch when it came to the need for adequate oversight and regulation of two of the Investment banks. It faults Alan Greenspan for favouring deregulation and for having underestimated the toxicity of the home mortgage market. But it absolves him, in my view correctly, of the claim that his low interest rate policy was to blame. It also faults Ben Bernanke for initially underestimating the scope of the problem.

It also partly  blames Henry Paulson, the former U.S. treasury secretary for underestimating the scope of the housing problem. It blames the Bush administration for mishandling the bankruptcy of Lehman brothers. It also blames the Clinton administration for exempting over the counter financial derivatives from regulation.It also faults the Securities and Exchange Commission for failing to require the banks to hold adequate capital reserves to cover their risky bets.

The Commission apparently believes the collapse could have been prevented had proper regulatory oversight been exercised and faults many players for greed, incompetence and excessive risk taking citing AIG executives for not knowing that their credit default swaps subjected the firm to enormous risks and Merrill Lynch banking executives for not understanding how their mortgage products might fail. The commission also points out that the industry essentially captured the regulators through huge amounts spent on lobbying and campaign contributions.

In the light of these findings it is incredible that the banking industry is once again lobbying fiercely to exempt its industry from regulation or supporting policies that come from the discredited laissez-faire 'let the market do it, it knows best' school of thought. Can memories be this short ? The chutzpah is monumental.

Hyman Minsky and Maynard Keynes should be compulsory reading for every bank executive, every federal banking regulator and every member of congress who wants to understand the nature of risk and role of the financial markets.