On regulation: We do not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it. To give just three examples: the Securities and Exchange Commission could have required more capital and halted risky practices at the big investment banks. It did not. The Federal Reserve Bank of New York and other regulators could have clamped down on Citigroup's excesses in the run-up to the crisis. They did not. Policy makers and regulators could have stopped the runaway mortgage securitization train. They did not.
On trustworthy advice: More than 200,000 new mortgage brokers began their jobs during the boom, and some were less than honorable in their dealings with borrowers. According to an investigative news report published in 2008, between 2000 and 2007, at least 10,500 people with criminal records entered the field in Florida, for example, including 4,065 who had previously been convicted of such crimes as fraud, bank robbery, racketeering, and extortion.
On lobbying power to overturn regulations: From 1999 to 2008, the financial sector expended $2.7 billion in reported federal lobbying expenses; individuals and political action committees in the sector made more than $1 billion in campaign contributions. What troubled us was the extent to which the nation was deprived of the necessary strength and independence of the oversight necessary to safeguard financial stability.
Alan Greenspan on how to stop fraud: "If there is egregious fraud, if there is egregious practice, one doesn't need supervision and regulation, what one needs is law enforcement" [said Greenspan]. But the Federal Reserve would not use the legal system to rein in predatory lenders. From 2000 to the end of Greenspan's tenure in 2006 the Fed referred to the Justice Department only three institutions for fair lending violations related to mortgage.
Better late than never: The Fed did not begin routinely examining subprime subsidiaries until a pilot program in July 2007,under new chairman Ben Bernanke. The Fed did not issue new rules ... until July 2008, a year after the subprime market had shut down. These rules banned deceptive practices in a much broader category of "higher-priced mortgage loans"; moreover, they prohibited making those loans without regard to the borrower's ability to pay, and required companies to verify income and assets. The rules would not take effect until October 1, 2009 which was too little, too late.
On being caught off guard: Charles Prince, the former chairman and chief executive officer of Citigroup Inc., called the collapse in housing prices "wholly unanticipated." Warren Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., which until 2009 was the largest single shareholder of Moody's Corporation, told the Commission that "very, very few people could appreciate the bubble," which he called a "mass delusion" shared by "300 million Americans." Lloyd Blankfein, the chairman and chief executive officer of Goldman Sachs Group, Inc., likened the financial crisis to a hurricane.
