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FCIC Final Report Chapter 1, Crisis On The Horizon - Before Our Very Eyes

FCIC Final Report Chapter 1, Crisis On The Horizon - Before Our Very Eyes

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Published by ForeclosureG8

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Published by: ForeclosureG8 on Feb 04, 2011
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02/04/2011

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PART I
Crisis on the Horizon
 
1
BEFORE OUR VERY EYES
In examining the worst fnancial meltdown since the Great Depression, the FinancialCrisis Inquiry Commission reviewed millions o pages o documents and questionedhundreds o individuals—fnancial executives, business leaders, policy makers, regu-lators, community leaders, people rom all walks o lie—to fnd out how and why ithappened.In public hearings and interviews, many fnancial industry executives and toppublic ocials testifed that they had been blindsided by the crisis, describing it as adramatic and mystiying turn o events. Even among those who worried that thehousing bubble might burst, ew—i any—oresaw the magnitude o the crisis thatwould ensue.Charles Prince, the ormer chairman and chie executive ocer o Citigroup Inc.,called the collapse in housing prices “wholly unanticipated.”
Warren Buett, thechairman and chie executive ocer o Berkshire Hathaway Inc., which until was the largest single shareholder o Moody’s Corporation, told the Commissionthat “very, very ew people could appreciate the bubble,” which he called a “massdelusion” shared by “ million Americans.”
Lloyd Blankein, the chairman andchie executive ocer o Goldman Sachs Group, Inc., likened the fnancial crisis to ahurricane.
Regulators echoed a similar rerain. Ben Bernanke, the chairman o the FederalReserve Board since , told the Commission a “perect storm” had occurred thatregulators could not have anticipated; but when asked about whether the Fed’s lack o aggressiveness in regulating the mortgage market during the housing boom was aailure, Bernanke responded, “It was, indeed. I think it was the most severe ailure o the Fed in this particular episode.”
Alan Greenspan, the Fed chairman during thetwo decades leading up to the crash, told the Commission that it was beyond the abil-ity o regulators to ever oresee such a sharp decline. “History tells us [regulators]cannot identiy the timing o a crisis, or anticipate exactly where it will be located orhow large the losses and spillovers will be.”
In act, there were warning signs. In the decade preceding the collapse, there weremany signs that house prices were inated, that lending practices had spun out o control, that too many homeowners were taking on mortgages and debt they could illaord, and that risks to the fnancial system were growing unchecked. Alarm bells

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