fcic

Back in 2009, which is the political equivalent of a geological epoch, the Financial Crisis Inquiry Commission (FCIC) was established to investigate what led to the general apocalypse of the financial markets in 2007-2008. It has long been suspected that the fix was in and the commission followed the Alice in Wonderland formula of “Sentence first! Verdict afterwards.”

In a just-released book, former FCIC member Peter Wallison says that a Democratic Congress worked with the commission’s Democratic chairman to whitewash the government’s central role in the mortgage debacle. The conspiracy helped protect some of the Democrats’ biggest stars from scrutiny and accountability while helping justify the biggest government takeover of the financial sector since the New Deal.

Wallison’s sobering, trenchantly written “Hidden in Plain Sight: What Really Caused the World’s Worst Financial Crisis and Why It Could Happen Again” reveals that the Democrat-led panel buried key data proving that the U.S. Department of Housing and Urban Development and other federal agencies pushed the housing market over the subprime cliff. The final FCIC report put the blame squarely on Wall Street.

The commission was run a long time Democrat operative, fixer, and crony of [mc_name name=’Rep. Nancy Pelosi (D-CA)’ chamber=’house’ mcid=’P000197′ ] with his own checkered history in real estate development funded by the taxpayers. Some key bullets from the book.

  • GOP members were authorized zero staff. Democrats had a staff of 80.
  • GOP not informed of witnesses, interview times, or allowed to examine or cross-examine them.
  • Democrat witnesses were not under oath (not sure what difference that makes to tell you the truth).
  • Angelides concealed information from GOP members.
  • GOP members received a 900-page draft report only eight days before it went to the printer.
  • A 43,000 word dissent was cut down to 9,000 words by Democrats.

What is most instructive is that the Dodd-Frank Act was passed in July 2010, six months before the FCIC released its report. This clearly demonstrates that the Democrats already knew what they wanted to do in way of regulating the finance industry. Even though the federal mortgage entities, Fannie and Freddie, were the epicenter of the financial market meltdown they and HUD were left untouched. Again demonstrating that this cash cow used to prop up big city Democrat machine politicians was too valuable to be reformed.

The new Congress should take a hard look at Dodd-Frank. It has become a regulatory behemoth that exerts a demonstrable drag on the economy. Fannie and Freddie are back up to their old tricks and we may be on the verge of another housing bubble bursting:

Contrary to the prevailing view that only borrowers with pristine credit records can get a mortgage these days, many risky loans are still being made. A new index published by the International Center on Housing Risk at the American Enterprise Institute measures this risk month by month, based on about three-quarters of all home-purchase loans extended across the country. And the index clearly shows that many of today’s mortgages would not perform well under stressful conditions. This conclusion holds for the nation as a whole and for nearly every state individually, California included.

Here’s why. In recent months, fully half of all the home loans covered by the risk index had a down payment of 5% or less. With so little money down, those borrowers would be underwater with only a modest decline in housing prices. In addition, for nearly half of the recent loans, borrowers’ monthly payments on their mortgage and other debt exceeded 38% of their pretax income, the traditional threshold for acceptable payment burdens. Such borrowers could find it difficult to make their monthly payments if they came under even moderate economic stress, such as a temporary layoff or a reduction in work hours.

The Federal Housing Administration is the prime source of this risk. It now guarantees more than a quarter of the newly originated home loans, and it does so with little regard for risk. Under the banner of expanding homeownership, the FHA provides risky loans to households that often lack the resources to make the payments if anything goes wrong.

Like most anything else the Democrats touch, the FCIC was corrupt to its core. It’s inquiry was deeply dishonest. The report was structured to protect Democrat interests and punish industries the Democrats wished to demagogue.