Out into the mist went the eager beaver members of the Financial Crisis Inquiry Commission, created in 2009 by the US Congress as a bipartisan panel to investigate the causes of the financial crisis. Back they come with a report, delivered this week, casting blame on all and sundry, and ignoring the first of the three word descriptor GFC. That’d be global.

This was a crisis with a long and stellar cast of failures and flops, not just American.

But according to the report from the commission the crisis was avoidable.

The commission said that US Federal authorities, who failed to curb reckless behavior on Wall Street, bear much of the blame. In more than 500 pages, the Federal Reserve is accused of having “neglected its mission” by not pricking the housing bubble, while Goldman Sachs is accused of hanging on to $US3 billion it got from the US government bailout of AIG (whose journey into the wild world of financial derivatives demands a report on its own). And who would have supported the Fed back in 2005 if it had boosted rates and done so?

America certainly had a central and leading role in this crisis, but there were some some strong supporting performances.

The near collapse of banks and the Irish economy (and the role of bank guarantees that that benighted economy gave the world in October 2008), the failure of a slew of UK banks, starting with Northern Rock, well before Bear Stearns and Lehman Bros failed, the collapse of Germany’s second biggest mortgage bank (HRE), which was directly linked to the implosion in Dublin, are all missed, downplayed or completely ignored.

Questions such as why did Japan and its banks avoid most, if not all of the damage and emerge stronger than before, and Spain and Australia and their examples of strong supervision of their banks were ignored (ignore Spain’s current problems, which flow from a different cause, the inherent instability of the eurozone). Why did the UK with its vaunted strong financial supervision fail to control its banks?

Did the American disease spread, or was it homegrown? And what about the incompetence of the Irish and UK governments whose effort over the preceding five years combined to push the global financial system and economy close to the edge in the first two weeks of October as credit lines collapsed, banks failed and the short-term loans that held the whole creaky edifice together finally vanished.

Common factors: Cheap, short-term debt, leverage (and a failure to understand its downside, by bankers, the very people supposed to understand). Bankers who broke the cardinal rule of their industry by borrowing short and lending long, and company executives and individuals who compounded the error by repeating it in their personal and day-to-day business activities.

The belief, unreal as it now seems, that low interest rates would last for ever; an attitude that was made (with all the supporting intellectual arguments from a fleet of economists of Nobel Prize-winning standing) in America, to satisfy the American dream and belief that its financial and social systems were the world’s best.

But the flaws were ignored, or blame inaccurately assigned in the report. Why blame just the Fed and its leaders and not the politicians’ bankers, lawyers and others (such as social activists who wanted the poor to be able to own homes without wondering how they would pay for it) who for years in Congress lobbied on behalf of the banks and the dodgy mortgage dealers, taking their money and doing what they liked with it?

The commission’s huge report in the end resembled Casablanca. It was a case of casting your net as wide as possible to drag in as many of the usual suspects; adding some politics, a change of political sentiment, an economic recovery and a market rebound, and hey presto we get a report on the GFC (America’s version, of course), that blames one and all, offends few and tells us little that we didn’t already know.

In fact some Republicans on the committee got closer to the truth, such as pointing out the global nature of the crisis.

Next month the Commission will publish the private interviews and documents it accumulated in its inquiries. Like the list of loans made by the Fed in the depths of the GFC, these so far unseen documents will flesh out the crisis and the aftermath. In fact more width and depth to our understanding will come from these still-secret papers.

“We conclude first and foremost that this crisis was avoidable,” said Phil Angelides, the commission chairman, at a press conference in Washington.

Angelides was flanked by the five other commissioners who endorsed the report. There were four dissenters, three of whom are scheduled to hold a press conference later Thursday.

“The crisis was the result of human action and inaction,” the chairman said, warning that it could happen again “if we do not learn from history.”

“In many respects, our financial system is unchanged from the eve of this crisis,” he said. “We believe that much more needs to be done.”

“In the first official government review of the root causes of the crisis, the commission challenges the notion, expressed by many on Wall Street and in Washington, that the crisis could not have been foreseen.

“There were warning signs,” the report says. “The tragedy is that they were ignored or discounted.”

All stock standard stuff that could have been picked up from reading the various books and news articles in the past two years.

If you want a good read on the GFC and America’s central, but not sole role, The Big Short is still the best. You’d emerge better informed and more outraged than you were before you started reading.

Perhaps with the release of the Commission papers we will get what is missing from this report (at first glance) and what many Americans simplistically want, even demand (someone else to blame other themselves), a sense of outrage,  and a baddie.

Unless they pause to reflect on the past four years and wonder about the next 10, Americans in particular won’t understand the central lesson from the GFC. That it was global and therefore not only is the blame global, but so is protecting ourselves against the next, inevitable crisis.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey