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The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States
The definitive report on what caused America's economic meltdown and who was responsible. The financial and economic crisis has touched the lives of millions of Americans who have lost their jobs and their homes, but many have little understanding of how it happened. Now, in this very accessible report, readers can get the facts. Formed in May 2009, the Financial Crisis Inquiry Commission (FCIC) is a panel of 10 commissioners with experience in business, regulations, economics, and housing, chosen by Congress to explain what happened and why it happened. This panel has had subpoena power that enabled them to interview people and examine documents that no reporter had access to. The FCIC has reviewed millions of pages of documents, and interviewed more than 600 leaders, experts, and participants in the financial markets and government regulatory agencies, as well as individuals and businesses affected by the crisis. In the tradition of The 9/11 Commission Report, "The Financial Crisis Inquiry Report" will be a comprehensive book for the lay reader, complete with a glossary, charts, and easy-to-read diagrams, and a timeline that includes important events. It will be read by policy makers, corporate executives, regulators, government agencies, and the American people.
575 pages, Paperback
First published December 15, 2010
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Displaying 1 - 25 of 25 reviews
April 6, 2018
The report itself is a nice, comprehensive examination of what happened with the crisis, focusing on many of the antecedents (stretching all the way back to accumulated sovereign wealth in the late 1990s and Clinton-era housing policy). It includes lots of first-person perspectives, which is also informative.
The main report (presumably drafted by the Democratic majority of the Commission) has two dissents. The first is by three Commission Republicans, and their point is that maybe the many, many causes that the main report identifies are not all equally as important. Fair enough. They do, however, go on to present the ten (10) things they believe caused the crisis.
The second, much longer dissent, is by Peter Wallison. I just started reading without figure out who this guy was. He starts by saying there was one, and only one, cause of the crisis-- US housing policy encouraging home ownership. Not anything else-- not capital inflows, not under regulated shadow banks, not securitization-- just housing policy. Weird, right? It seems like the consensus is that there multiple causes that converged to cause the crisis. A closer look, of course, reveals he is a fellow at the American Enterprise Institute. The free enterprise, personal liberty, rapidly anti-regulation conservative think tank. So I stopped reading there. I know I should not have, but I didn't think my mental state could handle 80 pages of anti-regulation propaganda.
The main report (presumably drafted by the Democratic majority of the Commission) has two dissents. The first is by three Commission Republicans, and their point is that maybe the many, many causes that the main report identifies are not all equally as important. Fair enough. They do, however, go on to present the ten (10) things they believe caused the crisis.
The second, much longer dissent, is by Peter Wallison. I just started reading without figure out who this guy was. He starts by saying there was one, and only one, cause of the crisis-- US housing policy encouraging home ownership. Not anything else-- not capital inflows, not under regulated shadow banks, not securitization-- just housing policy. Weird, right? It seems like the consensus is that there multiple causes that converged to cause the crisis. A closer look, of course, reveals he is a fellow at the American Enterprise Institute. The free enterprise, personal liberty, rapidly anti-regulation conservative think tank. So I stopped reading there. I know I should not have, but I didn't think my mental state could handle 80 pages of anti-regulation propaganda.
April 13, 2011
I enjoy economics and real estate, and this book was even too tedious for me. 550 pages in 8 point font that can be summarized with the statement, "Everyone was greedy." There's a lot of blame to go around; the crisis was caused by a number of interrelated events with greed as the cornerstone. While it is interesting reading despite being tedious, I'm positive that the reader could get the same information from a few journal articles.
January 18, 2022
riveting
September 22, 2024
After reading the Warren Commission Report, I decided that I ought to go ahead and finish the other congressional report sitting around my ancestral home. You may not be surprised to hear that the two books have little in common. The Warren Commission Report is a true-crime thriller, while the FCIC report consists of dense analysis. Simply mastering the jargon of Wall Street (which I certainly did not) is hard enough. Using said jargon to tweeze apart a historical crisis proved to be mostly beyond my piddling capabilities.
To give you an idea of the prose, here is a fairly typical example:
To be fair, the authors take care to explain every term as it is introduced, and try to flesh out their abstract analysis with concrete examples. And I think the authors did their best to write clearly about a dizzyingly complex topic. But it is still tough going for the financially illiterate.
Still, the basic story seems fairly clear. Spurred by a real-estate boom, in which the price of housing climbed ever-higher, lenders started relaxing mortgage requirements. This allowed many people to buy houses who normally wouldn’t have been able to. Meanwhile, banks pooled this debt into complex financial packages, which were foolishly deemed safe investments by ratings agencies. Leveraging allowed many huge financial institutions to acquire billions of dollars of this debt with little money down. But when the housing bubble burst, the entire house of cards built on top of it crumpled.
To further explain, I other a rather fanciful analogy. Imagine a casino where all gamblers are playing using money borrowed for pennies on the dollar from the casino itself. Meanwhile, secondary markets arise, wherein sophisticated gamblers bet on which card or slot machine player will come out ahead, and they are betting using money borrowed from the very same players. Then a tertiary market arises, betting on the betters. And so on. All this is premised on the idea that the gamblers will always outplay the casino. But when reality reasserts itself, and the house wins, and the money has to be paid back to the casino—the slot machine player asking for the money he lent to the secondary gambler, who in turn asks the tertiary gambler, etc.—the entire ecosystem falls apart as everyone finds themselves in debt to everyone else, which means the casino can’t make a profit and goes bankrupt.*
This is a very imprecise comparison. But it does capture, I think, the spirit of reckless investment—based on the idea of endless growth—which pervaded the institutions described by the commissioners. And I think it also gives a taste of how risky investments were spread around the system, to go bad in one massive avalanche. The commissioners describe (in much more precise terms) how this situation arose, and then give a blow-by-blow account of how the crisis played out, and how the government attempted to stop the bleeding.
Curiously, this report comes with two dissenting statements. It appears that the era of severe partisanship had already begun, and the Republican-appointed commissioners could not bring themselves to agree with the conclusions of their Democratic colleagues. Admittedly, the first dissenting statement, by Hennessey, Holtz-Eakin, and Thomas make the interesting point that the report examined the American scene too exclusively, while a recession was suffered by many countries around the world. This is relevant since both mortgage and finance laws can differ significantly, while the commission often cites inadequate regulation. Nevertheless, for my taste the dissenters are rather too eager to overlook the (for me) obvious abuses of the masters of finance, preferring to see the crash as something unavoidable.
(The other dissenting statement, by Wallison, makes the implausible claim that government policies promoting homeownership provoked the crisis.)
Personally, if a trader on wall street—or even his entire firm—makes a bad investment and goes bankrupt, it would not disturb my sleep. But when the casino mentality causes normal folks to lose their homes and jobs, it is more difficult to stomach. I would like to believe it is possible to create a more rational and equitable economy, though I recognize this is a very old dream, and is likely to remain a dream for some time.
_______________________
* I am dismayed to discover that this exact analogy was used in The Big Short, the movie, to explain the financial crisis. I am not original.
To give you an idea of the prose, here is a fairly typical example:
Synthetic CDOs were complex paper transactions involving credit default swaps. Unlike the traditional CDO, synthetic CDOs contained no actual tranches of mortgage-backed securities, or even tranches of other CDOs. Instead, they simply referenced these mortgaged securities and were thus bets on whether borrowers would pay their mortgages.
To be fair, the authors take care to explain every term as it is introduced, and try to flesh out their abstract analysis with concrete examples. And I think the authors did their best to write clearly about a dizzyingly complex topic. But it is still tough going for the financially illiterate.
Still, the basic story seems fairly clear. Spurred by a real-estate boom, in which the price of housing climbed ever-higher, lenders started relaxing mortgage requirements. This allowed many people to buy houses who normally wouldn’t have been able to. Meanwhile, banks pooled this debt into complex financial packages, which were foolishly deemed safe investments by ratings agencies. Leveraging allowed many huge financial institutions to acquire billions of dollars of this debt with little money down. But when the housing bubble burst, the entire house of cards built on top of it crumpled.
To further explain, I other a rather fanciful analogy. Imagine a casino where all gamblers are playing using money borrowed for pennies on the dollar from the casino itself. Meanwhile, secondary markets arise, wherein sophisticated gamblers bet on which card or slot machine player will come out ahead, and they are betting using money borrowed from the very same players. Then a tertiary market arises, betting on the betters. And so on. All this is premised on the idea that the gamblers will always outplay the casino. But when reality reasserts itself, and the house wins, and the money has to be paid back to the casino—the slot machine player asking for the money he lent to the secondary gambler, who in turn asks the tertiary gambler, etc.—the entire ecosystem falls apart as everyone finds themselves in debt to everyone else, which means the casino can’t make a profit and goes bankrupt.*
This is a very imprecise comparison. But it does capture, I think, the spirit of reckless investment—based on the idea of endless growth—which pervaded the institutions described by the commissioners. And I think it also gives a taste of how risky investments were spread around the system, to go bad in one massive avalanche. The commissioners describe (in much more precise terms) how this situation arose, and then give a blow-by-blow account of how the crisis played out, and how the government attempted to stop the bleeding.
Curiously, this report comes with two dissenting statements. It appears that the era of severe partisanship had already begun, and the Republican-appointed commissioners could not bring themselves to agree with the conclusions of their Democratic colleagues. Admittedly, the first dissenting statement, by Hennessey, Holtz-Eakin, and Thomas make the interesting point that the report examined the American scene too exclusively, while a recession was suffered by many countries around the world. This is relevant since both mortgage and finance laws can differ significantly, while the commission often cites inadequate regulation. Nevertheless, for my taste the dissenters are rather too eager to overlook the (for me) obvious abuses of the masters of finance, preferring to see the crash as something unavoidable.
(The other dissenting statement, by Wallison, makes the implausible claim that government policies promoting homeownership provoked the crisis.)
Personally, if a trader on wall street—or even his entire firm—makes a bad investment and goes bankrupt, it would not disturb my sleep. But when the casino mentality causes normal folks to lose their homes and jobs, it is more difficult to stomach. I would like to believe it is possible to create a more rational and equitable economy, though I recognize this is a very old dream, and is likely to remain a dream for some time.
_______________________
* I am dismayed to discover that this exact analogy was used in The Big Short, the movie, to explain the financial crisis. I am not original.
June 3, 2020
Good as a reference book on the recent history of U.S. financial regulation but disappointing in its lack of overall coherence. Surprisingly, the dissenting opinion at the back, written by three of the republican appointees provided much more in the way of an incisive causal narrative.
I recommend reading it in its digital form as there is no index included: https://www.govinfo.gov/content/pkg/G...
I recommend reading it in its digital form as there is no index included: https://www.govinfo.gov/content/pkg/G...
May 24, 2024
An interesting book which, given its political background, doesn’t do enough of emphasizing which of the errors were reasonable and which were not and why. Since it was effectively written by committee as an exposition on the causes of the crisis, this is not surprising but as a book it would have benefited from more emphasis on some of the actions that were either reckless, stupid or probably illegal
August 9, 2011
The book is the official report produced by the Financial Crisis Inquiry Commission on the financial crisis of 2007-2008. The book primarily provides a chronological history before, during, and briefly after the crisis. There are three different reports: one adopted by the majority i.e. 6 members of the 10 member commission which were chosen by the "Democratic leadership of Congress", which constitutes most of the book, and two separate dissenting reports adopted by 3 members and 1 member of the commission who were all chosen by the "Republican leadership of Congress." The majority report describes the various causes of the financial crisis in great detail as they happened, including inadequate corporate governance and oversight at financial institutions, a system which rewards short-term profit at all levels, and lax regulatory oversight of various financial institutions especially by the federal government. The 3 member dissenting report is similar to the majority report, except that it puts more emphasis on international factors which were not considered in detail in the majority report. The 1 member dissenting report puts the blame of the financial crisis primarily on government housing policy over the years, which facilitated reduced lending standards and encouraged the creation of toxic mortgages which the borrowers had no realistic ability to ever pay off.
The majority report at almost 400 pages is at many points difficult to read because of the various financial terminology which are not adequately discussed in the text or in the glossary, but at other points reads like a novel because of the suspense created by the impending catastrophe at the more readable portions of the book. Also, the majority report could have been much more effectively focused by condensing it into fewer pages. The majority report sometimes reads like a laundry list of the various causes and events leading to the financial crisis. More analysis throughout the report could have led to a more focused and informative understanding of the crisis. Despite the excessive length of the report and lack of sufficient discussions of financial terminology, the report still provides a good overview of the causes of the financial crisis. In this respect, the 3 member dissenting report, because of its brevity, provides a very focused and to-the-point analysis of the causes of the financial crisis. This leads to a very clear understanding of the conclusions of the dissenting report. On the other hand, the 1 member dissenting report is somewhat biased in its opinion on the causes of the crisis, placing blame primarily on the government. It is hard to imagine that something as complex as the financial crisis could have been caused primarily by government policies. This commission member seems to be politically charged and wants to place blame on big government. In this respect, the other 9 commission members give a more balanced view.
Overall, the book is rather long and dry at parts because of the technical financial terminology, but at other parts reads like a suspense novel in anticipation of the coming financial meltdown. The book describes the dire situation that Treasury Secretary Henry Paulson and New York Fed President Timothy Geithner faced when they considered the bailout of Lehman Brothers, AIG, and many other financial institutions, and makes you appreciate that the bailout was not entirely about letting those financial institutions off the hook for irresponsible activities and risk-taking, but rather about letting the world economy collapse into chaos, which would have left absolutely nobody in the world unscathed, or saving the world economy as we know it. The book provides a thorough overview of the causes of the financial crisis even for those who have little knowledge of the modern financial system.
The majority report at almost 400 pages is at many points difficult to read because of the various financial terminology which are not adequately discussed in the text or in the glossary, but at other points reads like a novel because of the suspense created by the impending catastrophe at the more readable portions of the book. Also, the majority report could have been much more effectively focused by condensing it into fewer pages. The majority report sometimes reads like a laundry list of the various causes and events leading to the financial crisis. More analysis throughout the report could have led to a more focused and informative understanding of the crisis. Despite the excessive length of the report and lack of sufficient discussions of financial terminology, the report still provides a good overview of the causes of the financial crisis. In this respect, the 3 member dissenting report, because of its brevity, provides a very focused and to-the-point analysis of the causes of the financial crisis. This leads to a very clear understanding of the conclusions of the dissenting report. On the other hand, the 1 member dissenting report is somewhat biased in its opinion on the causes of the crisis, placing blame primarily on the government. It is hard to imagine that something as complex as the financial crisis could have been caused primarily by government policies. This commission member seems to be politically charged and wants to place blame on big government. In this respect, the other 9 commission members give a more balanced view.
Overall, the book is rather long and dry at parts because of the technical financial terminology, but at other parts reads like a suspense novel in anticipation of the coming financial meltdown. The book describes the dire situation that Treasury Secretary Henry Paulson and New York Fed President Timothy Geithner faced when they considered the bailout of Lehman Brothers, AIG, and many other financial institutions, and makes you appreciate that the bailout was not entirely about letting those financial institutions off the hook for irresponsible activities and risk-taking, but rather about letting the world economy collapse into chaos, which would have left absolutely nobody in the world unscathed, or saving the world economy as we know it. The book provides a thorough overview of the causes of the financial crisis even for those who have little knowledge of the modern financial system.
March 24, 2016
The back cover notes that the report "exposes the facts, unravels myths and draws striking conclusions" about "the most devastating financial and economic crisis since the Great Depression." All that in a succinct 450 pages including over 2250 footnotes!
The book is gripping reading - a litany of missed opportunities to prevent the crisis. But sadly many of those pointing out the problems were pilloried, ridiculed or fired. Too many people turned a blind eye to outright fraud in mortgage applications with the excuse that "everyone else was doing it". At one bank problems persisted because of "delayed investment decisions and a desire to have business lines operate autonomously".
For many banks business models could "not keep up" with the changes in the market. Other banks had "little accountability for errors" and "management had delayed fixing known deficiencies".
This book should prove a sobering read of what can go wrong for those encountering similar issues in their own organisations.
There is also an abundance of regulatory turf war and regulatory arbitrage by those being regulated. The report notes that those who made the decisions to oppose the CFTS's efforts to regulate derivatives - including Rubin, Summers and Greenspan - later testify that they were not opposed but could not surmount strong industry views!
For those who work in the financial services industry, I'd have this as one book you must read.
The book is gripping reading - a litany of missed opportunities to prevent the crisis. But sadly many of those pointing out the problems were pilloried, ridiculed or fired. Too many people turned a blind eye to outright fraud in mortgage applications with the excuse that "everyone else was doing it". At one bank problems persisted because of "delayed investment decisions and a desire to have business lines operate autonomously".
For many banks business models could "not keep up" with the changes in the market. Other banks had "little accountability for errors" and "management had delayed fixing known deficiencies".
This book should prove a sobering read of what can go wrong for those encountering similar issues in their own organisations.
There is also an abundance of regulatory turf war and regulatory arbitrage by those being regulated. The report notes that those who made the decisions to oppose the CFTS's efforts to regulate derivatives - including Rubin, Summers and Greenspan - later testify that they were not opposed but could not surmount strong industry views!
For those who work in the financial services industry, I'd have this as one book you must read.
April 4, 2016
Lengthy official report on the financial crisis. It recounts the unfolding of events, which brought back many memories. It provides a generally balance view on the event and it's many causes with one massive exeception: the role of the GSEs (mainly Fannie Mae and Freddy Mac).
As pointed out in the dissent by Peter Wallison (just read this dissent if you don't have time for all 662 pages), by mid 2008 out of 54 million mortgages in the US financial system, no less than 27 million were subprime or Alt-A! Out of these, 19 million (70%) were held or guaranteed by GSEs and only 8 million (30%) had been securitized as private label MBS (PMBS). By value, the GSE were directly responsible for 60% of subprime and Alt-A mortgages and PMBS accounted for only 40%. These statistics were virtually unknown to market participants and policy makers at the time. The much bigger size of this market explains why the price drop on its unwinding was so strong. The goverment's policy to expand homeownership to people who could not afford it, was critical for the development of the subprime and Alt-A mortgage markets and their ultimate size. When lending finally ground to a halt, it had disastrous consequences.
The other dissent by three members of the committee argues that global financial flows were also to blame for the crisis, but fails to mention the low U.S. savings rate, making it read like a let's-blame-the-abroad-too dissent.
As pointed out in the dissent by Peter Wallison (just read this dissent if you don't have time for all 662 pages), by mid 2008 out of 54 million mortgages in the US financial system, no less than 27 million were subprime or Alt-A! Out of these, 19 million (70%) were held or guaranteed by GSEs and only 8 million (30%) had been securitized as private label MBS (PMBS). By value, the GSE were directly responsible for 60% of subprime and Alt-A mortgages and PMBS accounted for only 40%. These statistics were virtually unknown to market participants and policy makers at the time. The much bigger size of this market explains why the price drop on its unwinding was so strong. The goverment's policy to expand homeownership to people who could not afford it, was critical for the development of the subprime and Alt-A mortgage markets and their ultimate size. When lending finally ground to a halt, it had disastrous consequences.
The other dissent by three members of the committee argues that global financial flows were also to blame for the crisis, but fails to mention the low U.S. savings rate, making it read like a let's-blame-the-abroad-too dissent.
September 6, 2013
The report itself takes a very in-depth look at the events that happened during the financial crisis; it falls into the trap, however, of skimming over the possible causes of the crisis -- which should have been their main agenda -- and blaming most the issues on poor regulation and greed. There's a lot to be said about the factors that they do blame for causing the crisis (many are true), but the emphasis they placed on expanding on these points was to the detriment of their research into the other areas. I found the dissenting statements at the end of the book to be thought provoking, and it left me with the feeling this report could have been much more insightful had the commission used their resources properly and included a wider range of people.
Still, it does a decent job of chronicling the main areas of the crisis.
Still, it does a decent job of chronicling the main areas of the crisis.
April 11, 2012
A well written book with fluent prose. It provides information on the historical decisions that laid the ground for the onslaught of the financial crisis, points out those responsible and attempts to describe the inter-relation between them.
No easy bogeymen are used - but the ideology that advocates for unregulated and unfettered markets is strongly criticised, though no easy answers are given to the rebuttal that the private sector will always be one step ahead of the public sector in figuring out ways of avoiding regulation.
No easy bogeymen are used - but the ideology that advocates for unregulated and unfettered markets is strongly criticised, though no easy answers are given to the rebuttal that the private sector will always be one step ahead of the public sector in figuring out ways of avoiding regulation.
March 18, 2013
Well written report of the events of 2007 - 2008 with some follow through into 2010. The leadup to the crisis is well documented and the thoughts of participants with regard to the bankruptcy of Lehman is well chronicled. The report is written for a general audience and non-quantitative readers.
My main gripe is that the footnotes are not hyperlinked to their appropriate citations for the Kindle edition. Also, the graphs provided in the AEI dissenting statement are not formatted for optimum viewing.
My main gripe is that the footnotes are not hyperlinked to their appropriate citations for the Kindle edition. Also, the graphs provided in the AEI dissenting statement are not formatted for optimum viewing.
September 1, 2014
I FINALLY finished this thing! it starts off like a dime store detective novel. it becomes dry in the center but finishes strong. The dissenting opinion at the end is a great counterpoint that lends balance and perspective to the financial industry bashing that permeates most of the book. A must read!
March 2, 2015
Not as readable as the 9/11 report (which I recommend) and doesn't go a good job of explaining the arcane technical details. A bit too detailed at times, I did a lot of skimming. I did learn some things about the financial crisis, but I hope this is not the definitive history. Recommended only for financial news junkies!
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January 28, 2011Necessary reading for those interested in digging deeper into the archeology of the financial crisis...that I'm begging to see as the "tipping point" for the end of the era of American economic super power status. We're not Greece...we're us.
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March 2, 2016You won't understand it :-)
Read this before seeing The Big Short, it will help you understand the movie. Not for folks with IQs in double digits. If you can understand it, it will piss you off :-)
Read this before seeing The Big Short, it will help you understand the movie. Not for folks with IQs in double digits. If you can understand it, it will piss you off :-)
February 21, 2011
An honest first appraisal. Opening chapter with the commissions several conclusions should be required high school reading.
August 10, 2016
This is excellent. Select chapters from this book ought to be required reading for high-schoolers.
August 26, 2012
A must-read, and very readable. This report explains a lot of what happened and is invaluable to an intelligent understanding of the Financial free-fall.
October 28, 2013
Very readable, explains clearly many complex concepts. Excessively long but informative
April 13, 2016
A smart person learns from their mistakes -- a wise person learns from the mistakes of others! I hope many people read this so we don't make the same mistakes.
June 20, 2016
As others have said, lengthy and diving in more technical understanding than other reports on the crisis cover while still providing a large-scope view of events as they unfold.
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November 7, 2025Reading this book felt like labour. I like these kinds of books, but it just keeps repeating itself. Detailed and thus pretty boring to be honest.
April 5, 2011
Fun stuff!
April 19, 2014
surprisingly well written.
Displaying 1 - 25 of 25 reviews