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CommentaryJanuary 27, 2011

Thomas Hobbes, in his great thesis, Leviathan, wrote about "the privilege of absurdity; to which no living creature is subject, but man only." The statement occurs in the chapter on Reason and Science. Though Hobbes was referring to the kinds of rationalizations or "absurd assertions" we deploy to justify and deduce facts and actions, the metaphor applies to civil discourse and public policy. Premises matter.  


And a fundamental premise of our economic system is that we all agree to play by the rules!

Jonathan Foxx - Portrait
Jonathan Foxx
President and
Managing Director


Who Did Not Play By The Rules?

At a Press Conference, scheduled for 10AM-EST today, the Financial Crisis Inquiry Commission (FCIC) will release its 576-page report on the causes of the financial and economic crisis.


Some outstanding books have been written on the subject and considerable research by scholars and reporters, but this FCIC report is different: the Commission reviewed millions of pages of documents,interviewed more than 700 witnesses, and held 19 days of public hearings in New York, Washington, D.C., and communities across the country that were hit hard by the crisis.


In effect, this report is meant to be an official outline of what happened, providing a context for culpability at the highest levels of government, business, and Wall Street, and throughout all areas of the economy.

Press Conference
If you have the time, this is a press conference that may well be worth watching:

When: Thursday, January 27, 2011

When: 10am EST (expected duration 1 hour)

What: A presentation of the Commission's final report and conclusions as to the causes of the
financial and economic crisis followed by questions from the press.

Remote: Follow the press conference live at 
Conclusion: The 2008 Crisis Was Avoidable
According to an advance reading of the report by the New York Times: (Emphasis Added)

The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.


"The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done," the panel wrote in the report's conclusions, which were read by The New York Times. "If we accept this notion, it will happen again."

Most glaring is this take-away:

The majority report finds fault with two Fed chairmen: Alan Greenspan, who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke, who did not foresee the crisis but played a crucial role in the response. It criticizes Mr. Greenspan for advocating deregulation and cites a "pivotal failure to stem the flow of toxic mortgages" under his leadership as a "prime example" of negligence.


It also criticizes the Bush administration's "inconsistent response" to the crisis - allowing Lehman Brothers to collapse in September 2008 after earlier bailing out another bank, Bear Stearns, with Fed help - as having "added to the uncertainty and panic in the financial markets."


Like Mr. Bernanke, Mr. Bush's Treasury secretary, Henry M. Paulson Jr., predicted in 2007 - wrongly, it turned out - that the subprime collapse would be contained, the report notes.


Democrats also come under fire. The decision in 2000 to shield the exotic financial instruments known as over-the-counter derivatives from regulation, made during the last year of President Bill Clinton's term, is called "a key turning point in the march toward the financial crisis."


Timothy F. Geithner, who was president of the Federal Reserve Bank of New York during the crisis and is now the Treasury secretary, was not unscathed; the report finds that the New York Fed missed signs of trouble at Citigroup and Lehman, though it did not have the main responsibility for overseeing them.

What happens next?
I will review the FCIC report, in its entirety. In a future Commentary, I will offer an outline.

For the time being, it is worth considering if the Obama Administration has made the correct decision to "look forward, not back," and to allow those who did not play by the rules to now avoid civil or criminal charges for their contributory actions toward causing the financial crisis of 2008.
What do you think?

I would welcome your comments.

Please feel free to email me at any time.

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