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GOP omits ‘derivatives’ from crisis report
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GOP omits ‘derivatives’ from crisis report - Republicans say Fannie contributed to crisis by encouraging risky loans
15 December 2010, by Ronald D. Orol - Washington (MarketWatch)
For those of you thinking the GOP will be the answer to all cures...best of luck!
[link to www.marketwatch.com]
Excerpt:
Republicans omitted the words “derivatives” and “deregulation” from their report released Wednesday on the cause of the financial crisis that shook the economy to the brink in 2008.
Instead, the report, released by GOP members of a bipartisan Financial Crisis Inquiry Commission, concentrates much of its 13 pages on how mortgage refinance giants Fannie Mae and Freddie Mac, as public companies, contributed to the crisis by investing in and guaranteeing mortgages of “increasingly lower quality and higher risk to the taxpayer.” It also argues that mortgage-related losses at big banks that were undercapitalized all led to a financial panic. Read the report PDF
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Fannie and Freddie were both taken under government conservatorship and could need as much as $363 billion in assistance. See earlier story on Fannie Mae needs.
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“The credit rating agencies made many of the same mistakes as mortgage investors, and their ratings on MBS proved to be severely inflated—an important reason that these credit and liquidity risks were not appreciated by financial firms,” the report said. McGraw-Hill’s Standard & Poor’s, Moody’s and Fimalac-held Fitch Ratings are the main credit-rating agencies.
Democrats call report ‘revisionist whitewash’
Democrats quickly lashed out at the report, criticizing it for failing to focus on deregulation and derivatives. Tom McMahon, Executive Director, Americans United for Change, argued that Republicans are “just trying to protect their bank buddies.”
“It was Wall Street that made bad bets with our money in the shadow banking system, which led to the lost of 8 million jobs and billions in retirement savings,” McMahon said in a statement.
Democratic members of the FCIC are likely to focus some of their much anticipated report on a lack of regulation for one type of over-the-counter derivatives, credit-default swaps, arguing it had a role in the financial crisis.
A major purveyor of these swaps, American International Group Inc., required a government injection of $180 billion to keep it afloat to prevent the crisis from widening. In one hearing, Democrats explored the relationship between Goldman Sachs and American International Group Inc., questioning Goldman’s valuation of its contracts with the insurance giant during the height of the crisis and whether the valuation helped drive the crisis and added to questions about AIG’s future.
As expected, top Republicans backed the report.
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