Economics, Taxes and Spending

Angelides Ignores Two Elephants in the Room

In an opinion piece in the Washington Post, Phil Angelides, chairman of the Financial Crisis Inquiry Commission (FCIC), took issue with research I had undertaken. He once again went to great lengths to avoid placing any responsibility for the financial crisis at the feet of Fannie, Freddie, or government housing policies. Angelides was never one to let facts get in the way of his opinions:

1. The FCIC staff interviewed Treasury Secretary Tim Geithner in September 2009. This private interview was released to the public earlier this year. He said Fannie and Freddie were the biggest sources of “moral hazard” and “were entirely moral hazard.” While a word search of the FCIC report finds eight instances of the term “moral hazard,” none was attributed to Geithner or related to Fannie and Freddie. Bear Stearns and AIG were the only institutions mentioned by name. The commission chose to ignore Geithner’s key observation and the contributions of the two 5-ton elephants in the room. Elephants following affordable housing goals put in place by Congress and promulgated by HUD.

2. Angelides takes JP Morgan’s chief investment officer to task for placing substantial blame on government housing policies. Angelides contrasts this with a 2010 statement to the FCIC by JP Morgan CEO Jamie Dimon “blaming the failures of major financial institutions on ‘the management teams 100 percent and . . . no one else.’” Angelides’s narrow quote reveals a selective memory as it ignores statements by Dimon in a 2010 FCIC interview: “The biggest [primary cause] and at the heart of the [financial crisis] is mortgage and mortgage underwriting. Over many, many years underwriting standards had changed.” He then added: “Fannie and Freddie were the biggest disasters of all time.”

3. In 2010 I provided my forensic study to the FCIC entitled “Government Housing Policies in the Lead-up to the Financial Crisis,” which contained a detailed chronology of the dramatic decline in underwriting standards over nearly 20 years and the central role played by to government housing policies.

4. Given the myopic job done by Angelides, we are now seeing books, like Reckless Endangerment by Gretchen Morgenson and Josh Rosner, that trace the role of Fannie, Freddie, and housing policy in the financial crisis. Angelides and his staff had little interest in what happened before around 2004, since this did not fit their preconceived notions of causation. Therefore it is not surprising that the FCIC never interviewed James Johnson, Fannie’s former CEO from 1991 to 1998, and a central figure in Reckless Endangerment. Johnson is described by Morgenson and Rosner as “the architect of the public-private homeownership drive that almost destroyed the economy in 2008.”

After having spent $10 million, the taxpayers deserved better than they received from Angelides.

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