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Republicans Preempt FCIC Report, Publish Views on Crisis

Melissa Klein Aguilar | December 17, 2010

The four Republican members of the high-profile panel created to investigate the causes of the financial crisis have posted their own views of what happened, a month before the full Commission is set to issue its report to Congress.

Amid reports of a rift within its ranks, four of the 10 members of the Financial Crisis Inquiry Commission, vice chairman Bill Thomas and commissioners Keith Hennessey, Douglas Holtz-Eakin and Peter Wallison, have released a 9-page “primer” on the causes of the crisis.

The financial crisis was “at its core, a financial panic that was precipitated by highly correlated mortgage-related losses concentrated at large financial firms in the United States and Europe,” the paper, “Financial Crisis Primer: Questions and Answers on the Causes of the Financial Crisis” states. The authors argue that the housing bubble wasn't a sufficient condition for the financial crisis. “The unprecedented number of subprime and other weak mortgages in this bubble set it and its effect apart from others in the past.”

The paper blames federal housing policy for causing the crisis by aggressively pushing high-risk mortgages in an effort to meet affordable housing goals. “The government subsidized and, in some cases, mandated the extension of credit to high-risk borrowers, propagating risks for financial firms, the mortgage market, taxpayers, and ultimately the financial system,” the authors wrote. The government in effect, encouraged Fannie Mae and Freddie Mac “to run two enormous monoline hedge funds that invested exclusively in mortgages and were implicitly backed by the U.S. taxpayer.”

The FCIC, led by former California State Treasurer Phil Angelides, was created in 2009 by the Fraud Enforcement and Recovery Act to investigate the domestic and global causes of the crisis. The Commission “had not previously seen or had an opportunity to review what was released,” according to a press release on its Website. “But, as it does with the views of any of its members, the Commission will review and take them into consideration.”

The Republican primer was published Dec. 15, the day the 10-member report was originally due. The FCIC's full report was delayed until Jan. 15 following a 6-4 vote along party lines last month. The postponement was a sore point with the Republican Commissioners, who aired their disagreement with that decision in a press release.

On his own blog, Hennessey characterized the document as “a primer on the issues we think will be important to cover in the final report of the commission,” but emphasized that it is “not a ‘report' or a ‘response' by the Republicans.”

At least some of the dispute among the group seems to stem from the terms of a commercial book version of the panel's upcoming report. Hennessey's blog refers to a 6-4 vote along party lines “to limit the minority's opportunity to express our views” in the book, allotting each member nine pages. 

The Commission conducted more than 700 interviews, examined hundreds of thousand of documents, and held 19 days of public hearings during the course of its work, according to a Nov. 17 letter from Angelides to members of Congress. The group will conclude operations by Feb. 13.