“The principle takeaway is that the crisis was avoidable,” said Byron Georgiou, one of 10 members on the commission. Georgiou, who lives in Las Vegas, has extensive business ties throughout Nevada, including as part owner of D’Andrea Golf Club in Sparks.
No act of God, no matter of fate, no inevitable force drove the country to the stark, unhappy choice of either risking complete insolvency and economic meltdown or injecting trillions of taxpayer dollars to prop up private industry and the nation’s financial markets, Georgiou explained.
“It was more than a catch-22,” he said of the decision to bail out the big banks.
Despite the public’s fury and a lot of uncertainty about what actually caused the crisis, the government moved quickly to spend its way out of the morass.
To date, nearly $410 billion have been disbursed as part of the Troubled Asset Relief Program, better known as TARP, with a total allocation limit of $475 billion, down from an original cap of $700 billion. These numbers come from a database maintained by ProPublica, a nonprofit, public interest investigative journalism outfit.
Some $270 billion of TARP money has currently been paid back, including about $35 billion in interest revenues.
Additionally, $150 billion has been handed out to shore up Fannie Mae and Freddie Mac, with only $16 billion of that total thus far repaid.
The enormous sums of money doled out to financial institutions at the behest of the Federal Reserve looked to many as if those responsible for the crisis were saying they were the only ones who could clean up the mess. And the conclusions of the FCIC seem to give credence to these notions.
While the big banks were operating with little capital, engaging in risky transactions and backing unsound mortgages, Georgiou said, the Federal Reserve and other government watchdog agencies such as the Securities and Exchange Commission were remiss in their duties, failed to take action even when problems were evident and lacked stringent underwriting standards.
These and other FCIC findings are not so much revealing as they are a certification of what went wrong.
The commission, established by Congress, interviewed more than 700 witnesses, reviewed millions of pages and held 19 days of hearings during its investigation.
“It is really the most comprehensive study of the crisis that has gone on yet,” Georgiou said.
With a nod toward bipartisanship, Democrats Harry Reid and Nancy Pelosi and Republicans Mitch McConnell and John Boehner selected the commission’s 10 members.
Georgiou was hand picked by Reid because of his pedigree as a lawyer. He spent part of his career prosecuting financial fraud and worked on a high-profile class-action suit filed against Enron.
With an independent staff and apolitical objective, Georgiou said the FCIC followed recent examples of nongovernmental study groups investigating the root causes of major crises, such as 9/11 and the BP oil spill.
“There’s a certain tendency to preserve the status quo that exists on both Wall Street and in Washington,” Georgiou said, “and to have people outside those systems (conducting inquiries), I think, is desirable.”
The commission, Georgiou said, was charged with exploring the causes of the financial crisis and drawing conclusions about how the events unfolded. It was not, however, meant to provide solutions or offer policy recommendations. Those tasks will be left to Congress and the president, Georgiou said.
But the commission’s report acknowledged that understanding in full detail the history of the crisis could help prevent a future similar occurrence.
“It’s extraordinarily important that we try to learn from the mistakes that occurred along the way,” Georgiou said.
Failures in corporate governance, lapses in regulatory oversight, a lack of transparency, lax lending practices and standards and a federal government that advocated bad housing policies and responded inconsistently all contributed to the perfect storm that resulted in the bankruptcy of Lehman Brothers, the near doom of American International Group (AIG) and other catastrophic ripples throughout the nation’s biggest banking firms.
Since the crisis, politicians have used a lot of rhetoric and made a lot of promises about ending the premise “too big to fail,” a label often applied to banks and given as an explanation for bailouts.
But Georgiou said that with the merger of several top financial institutions in recent years as a result of the crisis, and the dissolution of others, a greater percentage of financial assets are now concentrated in fewer hands.
“So we are still, in my view, not out of the woods in terms of the risk,” Georgiou said.
The FCIC report, in its summary conclusions, echoes these remarks.
“This report should not be viewed as the end of the nation’s examination of this crisis,” it reads. “There is still much to learn, much to investigate, and much to fix.”
The Financial Crisis Inquiry Report is available in most major bookstores and online at www.fcic.gov.