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Financial Crisis Inquiry Commission (FCIC)
The Financial Crisis Inquiry Commission (FCIC) is a ten-member commission appointed by the United States government with the goal of investigating the causes of the financial crisis of 2007–2010. The Commission has been compared to the Pecora Commission, which investigated the causes of the Great Depression in the 1930s, and has been nicknamed the New Pecora Commission. The Commission have the ability to subpoena documents and witnesses for testimony. The first public hearing of the Commission was held on January 13, 2010, with the presentation of testimony from various banking officials. Hearings will continue during 2010 with "hundreds" of other persons in business, academia, and government testifying.
The Commission reported its findings in January 2011. It concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.“
Commission's investigation and public response
As part of its inquiry, the Commission will hold a series of public hearings throughout the year including, but not limited to, the following topics: avoiding future catastrophe, complex financial derivatives, credit rating agencies, excess risk and financial speculation, government-sponsored enterprises, the shadow banking system, subprime lending practices and securitization, and too big to fail.
The first meeting of the Commission took place in Washington on September 17, 2009, and consisted of opening remarks by Commissioners.
On January 13, 2010, Lloyd Blankfein testified before the Commission, that he considered Goldman Sachs' role as primarily that of a market maker, not a creator of the product (i.e.; subprime mortgage-related securities). Goldman Sachs was sued on April 16, 2010 by the SEC for the fraudulent selling of collateralized debt obligations tied to subprime mortgages, a product which Goldman Sachs had created.
February 26-27 the Commission heard from academic experts and economists on issues related to the crisis. The following experts have appeared before the Commission in public or in private: Martin Baily, Markus Brunnermeier, John Geanakoplos, Pierre-Olivier Gourinchas, Gary Gorton, Dwight Jaffee, Simon Johnson, Anil Kashyap, Randall Kroszner, Annamaria Lusardi, Chris Mayer, David Moss, Carmen M. Reinhart, Kenneth T. Rosen, Hal S. Scott, Joseph E. Stiglitz, John B. Taylor, Mark Zandi and Luigi Zingales.
April 7-9, 2010, Alan Greenspan, Chuck Prince and Robert Rubin testified before the Commission on subprime lending and securitization.
May 5-6, former Bear Stearns CEO Jimmy Cayne, former SEC Chairman Christopher Cox, Tim Geithner and Hank Paulson are scheduled to appear before the Commission.
Writer Joe Nocera of the New York Times praised the commission's approach and technical expertise in understanding complex financial issues during July 2010.
July 27, The composition of the commission has changed several times since its formation. The executive director J. Thomas Greene was replaced by Wendy M. Edelberg, an economist from the Federal Reserve. Five of the initial fourteen senior staff members resigned, including Matt Cooper, a journalist who was writing the report. Darrell Issa, a top Republican on the House Oversight and Government Reform Committee, questioned the Federal Reserve's involvement as a possible conflict of interest, and there has been disagreement among some commission members on what information to make public and where to place blame. Mr. Angelides called the criticisms "silly, stupid Washington stuff," adding: "I don’t know what Mr. Issa’s agenda is, but I can tell you what ours is." In a joint interview the commission’s chairman, Phil Angelides (D), and vice chairman, Bill Thomas (R), said that the turnover’s effects had been exaggerated and that they were optimistic about a consensus.
The Commission's final report was initially due to Congress on December 15, 2010, but was not released until January 27, 2011. The Commission concluded that "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels
International Monetary Fund Position on the Financial Crisis
Global fiscal stimulus is essential now to support aggregate demand and restore economic growth. The International Monetary Fund has called for fiscal stimulus in as many countries as possible, including emerging market and advanced economies. This paper uses simulations with a multi-country structural model to show that worldwide expansionary fiscal policy combined with accommodative monetary policy can have significant multiplier effects on the world economy. It also provides a framework for assessing the effects of fiscal actions needed to help counter the projected contractionary pressures in the world economy. But not all countries are in a position to implement such plans. Some countries have financing constraints—either high borrowing costs or difficulties in financing deficits at any cost—while others are constrained by high levels of debt. Source IMF
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