Financial Crisis Inquiry Commission

"FCIC" redirects here.

For a division within the Risk Management Agency of the U.S. Department of Agriculture with the same initials, see Federal Crop Insurance Corporation.

For the information department within the United States government's General Services Administration, go to Federal Citizen Information Center.

The Financial Crisis Inquiry Commission (FCIC) is a ten-member commission appointed by the United States government with the goal of investigating the causes of the financial crisis of 2007–2010. The Commission has been nicknamed the Angelides Commission after the chairman, Phil Angelides. The Commission has been compared to the Pecora Commission, which investigated the causes of the Great Depression in the 1930s, and has been nicknamed the New Pecora Commission. Analogies have also been made to the 9/11 Commission, which examined the September 11 terrorist attacks. The Commission does have the ability to subpoena documents and witnesses for testimony, a power that the Pecora Commission had but the 9/11 Commission did not. The first public hearing of the Commission was held on January 13, 2010, with the presentation of testimony from various banking officials. Hearings continued during 2010 with "hundreds" of other persons in business, academia, and government testifying.

The Commission reported its findings in January 2011. It concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.“

Creation and statutory mandate

The Commission was created by section 5 of the Fraud Enforcement and Recovery Act of 2009 (Public Law 111-21), signed into law by President Barack Obama on May 20, 2009. That section of the Act:

• Set the purpose of the Commission, i.e. "to examine the causes, domestic and global, of the current financial and economic crisis in the United States."
• Set its composition of 10 members, appointed on a bipartisan and bicameral basis in consultation with relevant Committees. Six members are to be chosen by the congressional majority, the Democrats (three of these by the Speaker of the House and three by the Senate Majority Leader) and four by the congressional minority, the Republicans (two from the House Minority Leader and two from the Senate Minority Leader).
• Expressed the "sense of the Congress that individuals appointed to the Commission should be prominent United States citizens with national recognition and significant depth of experience in such fields as banking, regulation of markets, taxation, finance, economics, consumer protection, and housing" and also provided that "no member of Congress or officer or employee of the federal government or any state or local government may serve as a member of the Commission."
• Provided that Commission's chair be selected jointly by the congressional majority leadership and that the vice chair be selected jointly by the congressional minority leadership, and that the chair and vice chair may not be from the same political party.
• Set the "functions of the Commission" as:

"To examine the causes of the current financial and economic crisis in the United States, specifically the role of

(A) fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;

(B) Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;

(C) the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;

(D) monetary policy and the availability and terms of credit;

(E) accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;

(F) tax treatment of financial products and investments;

(G) capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;

(H) credit rating agencies in the financial system, including reliance on credit ratings by financial institutions and federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;

(I) lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;

(J) affiliations between insured depository institutions and securities, insurance, and other types of nonbank companies;

(K) the concept that certain institutions are 'too-big-to-fail' and its impact on market expectations;

(L) corporate governance, including the impact of company conversions from partnerships to corporations;

(M) compensation structures;

(N) changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;

(O) the legal and regulatory structure of the United States housing market;

(P) derivatives and unregulated financial products and practices, including credit default swaps;

(Q) short-selling;

(R) financial-institution reliance on numerical models, including risk models and credit ratings;

(S) the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;

(T) the legal and regulatory structure governing investor and mortgagor protection;

(U) financial institutions and government-sponsored enterprises; and

(V) the quality of due diligence undertaken by financial institutions;

(2) to examine the causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009;
(3) to submit a report under subsection (h);
(4) to refer to the Attorney General of the United States and any appropriate State attorney general any person that the Commission finds may have violated the laws of the United States in relation to such crisis; and

(5) to build upon the work of other entities, and avoid unnecessary duplication, by reviewing the record of the Committee on Banking, Housing, and Urban Affairs of the Senate, the Committee on Financial Services of the House of Representatives, other congressional committees, the Government Accountability Office, other legislative panels, and any other department, agency, bureau, board, commission, office, independent establishment, or instrumentality of the United States (to the fullest extent permitted by law) with respect to the current financial and economic crisis.

• Authorized the Commission to "hold hearings, sit and act at times and places, take testimony, receive evidence, and administer oaths" and "require, by subpoena or otherwise, the attendance and testimony of witnesses and the production of books, records, correspondence, memoranda, papers, and documents." This subpoena power was also held by the Pecora Commission, but not the 9/11 Commission.
• Provided that "a report containing the findings and conclusions of the Commission" shall be submitted to the President and to the Congress on December 15, 2010, and that at the discretion of the chairperson of the Commission, the report may include reports or specific findings on any financial institution examined by the Commission.
• Provides that the chairperson of the Commission shall, not later than 120 days after the date of submission of the final report, appear before the Senate Banking Committee and the House Financial Services Committee to testify regarding the Commission's findings.
• Provides for the termination of the Commission 60 days after the submission of the final report.

Composition

Speaker of the House Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada each made three appointments, while House Minority Leader John Boehner of Ohio and Senate Minority Leader Mitch McConnell of Kentucky each made two appointments:

• Phil Angelides (chairman) - Pelosi (jointly chosen as chair by Pelosi and Reid)
• Bill Thomas (vice chairman) - Boehner (jointly chosen as vice chair by Boehner and McConnell)
• Brooksley Born (Pelosi)
• Byron Georgiou (Reid)
• Bob Graham (Reid)
• Keith Hennessey (McConnell)
• Douglas Holtz-Eakin (McConnell)
• Heather Murren (Reid)
• John W. Thompson (Pelosi)
• Peter J. Wallison (Boehner)

Commission's investigation and public response

As part of its inquiry, the Commission will hold a series of public hearings throughout the year including, but not limited to, the following topics: avoiding future catastrophe, complex financial derivatives, credit rating agencies, excess risk and financial speculation, government-sponsored enterprises, the shadow banking system, subprime lending practices and securitization, and too big to fail.

The first meeting of the Commission took place in Washington on September 17, 2009, and consisted of opening remarks by Commissioners.

On January 13, 2010, Lloyd Blankfein testified before the Commission, that he considered Goldman Sachs' role as primarily that of a market maker, not a creator of the product (i.e.; subprime mortgage-related securities). Goldman Sachs was sued on April 16, 2010 by the SEC for the fraudulent selling of collateralized debt obligations tied to subprime mortgages, a product which Goldman Sachs had created

February 26–27 the Commission heard from academic experts and economists on issues related to the crisis. The following experts have appeared before the Commission in public or in private: Martin Baily, Markus Brunnermeier, John Geanakoplos, Pierre-Olivier Gourinchas, Gary Gorton, Dwight Jaffee, Simon Johnson, Anil Kashyap, Randall Kroszner, Annamaria Lusardi, Chris Mayer, David Moss, Carmen M. Reinhart, Kenneth T. Rosen, Hal S. Scott, Joseph E. Stiglitz, John B. Taylor, Mark Zandi and Luigi Zingales.

April 7–9, 2010, Alan Greenspan, Chuck Prince and Robert Rubin testified before the Commission on subprime lending and securitization.

May 5–6, former Bear Stearns CEO Jimmy Cayne, former SEC Chairman Christopher Cox, Tim Geithner and Hank Paulson are scheduled to appear before the Commission.

Writer Joe Nocera of the New York Times praised the commission's approach and technical expertise in understanding complex financial issues during July 2010.

July 27, The composition of the commission has changed several times since its formation. The executive director J. Thomas Greene was replaced by Wendy M. Edelberg, an economist from the Federal Reserve. Five of the initial fourteen senior staff members resigned, including Matt Cooper, a journalist who was writing the report. Darrell Issa, a top Republican on the House Oversight and Government Reform Committee, questioned the Federal Reserve's involvement as a possible conflict of interest, and there has been disagreement among some commission members on what information to make public and where to place blame. Mr. Angelides called the criticisms "silly, stupid Washington stuff," adding: "I don’t know what Mr. Issa’s agenda is, but I can tell you what ours is." In a joint interview the commission’s chairman, Phil Angelides (D), and vice chairman, Bill Thomas (R), said that the turnover’s effects had been exaggerated and that they were optimistic about a consensus.

Report

The Commission's final report was initially due to Congress on December 15, 2010, but was not released until January 27, 2011. The Commission concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.“ A dissent by Peter Wallison of the American Enterprise Institute claimed that the crisis was caused by government affordable housing policies rather than market forces. However, Wallison's views have not been supported by subsequent detailed analyses of mortgage market data.

External links

• Financial Crisis Inquiry Commission Website
• Official live streaming video of the proceedings of the Financial Crisis Inquiry Commission
• Profiles and photos of commissioners
• Testimony of Alan Greenspan - Financial Crisis Inquiry Commission - Wednesday, April 7, 2010
• Financial Crisis Inquiry Commission collected news and commentary at The New York Times

Commission Reports

• FCIC Report-Conclusions Excerpt-January 2011
• FCIC Report-Full Text-January 2011