The financial crisis was foreseeable, and was caused by the widespread failings of firms, regulators and policymakers, concludes a report by the U.S. Financial Crisis Inquiry Commission.

In its report issued Thursday, the FCIC conclude that the crisis was avoidable and that it was caused by a variety of factors:
> too many financial firms acting recklessly and taking on too much risk;
> excessive borrowing and risk taking by households and Wall Street;
> failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages;
> policymakers that were ill prepared for the crisis; and
> systemic breaches in accountability and ethics at all levels.

“Despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again,” said Phil Angelides, chairman of the commission.

The report also found that falling mortgage-lending standards and the practice of mortgage securitization “lit and spread the flame of contagion and crisis, over-the-counter derivatives contributed significantly to the crisis, and, the failures of credit rating agencies also contributed.

The commission found that the government sponsored enterprises contributed to the crisis but were not a primary cause, noting that they suffered from many of the same failures of corporate governance and risk management seen in other financial firms, but that ultimately they followed, rather than led, Wall Street and other lenders in purchasing subprime and other risky mortgages.

IE