(Here is the dissent as an Adobe PDF.)
Dissenting Statement of Commissioner Keith Hennessey, Commissioner Douglas Holtz-Eakin, and Vice Chairman Bill Thomas
CAUSES OF THE FINANCIAL AND ECONOMIC CRISIS
CONTENTS
- Introduction
- How Our Approach Differs from Others’
- Stages of the Crisis
- The Ten Essential Causes of the Financial and Economic Crisis
- The Credit Bubble: Global Capital Flows, Underpriced Risk, and Federal Reserve Policy
- The Housing Bubble
- Turning Bad Mortgages into Toxic Financial Assets
- Big Bank Bets and Why Banks Failed
- Two Types of Systemic Failure
- The Shock and the Panic
- The System Freezing
INTRODUCTION
We have identified ten causes that are essential to explaining the crisis. In this dissenting view:
- We explain how our approach differs from others’;
- We briefly describe the stages of the crisis;
- We list the ten essential causes of the crisis; and
- We walk through each cause in a bit more detail.
We find areas of agreement with the majority’s conclusions, but unfortunately the areas of disagreement are significant enough that we dissent and present our views in this report.
We wish to compliment the Commission staff for their investigative work. In many ways it helped shape our thinking and conclusions.
Due to a length limitation recently imposed upon us by six members of the Commission,1 this report focuses only on the causes essential to explaining the crisis. We regret that the limitation means that several important topics that deserve a much fuller discussion get only a brief mention here.
HOW OUR APPROACH DIFFERS FROM OTHERS’
During the course of the Commission’s hearings and investigations, we heard frequent arguments that there was a single cause of the crisis. For some it was international capital flows or monetary policy; for others, housing policy; and for still others, it was insufficient regulation of an ambiguously defined shadow banking sector, or unregulated over-the-counter derivatives, or the greed of those in the financial sector and the political influence they had in Washington.
In each case, these arguments, when used as single-cause explanations, are too simplistic because they are incomplete. While some of these factors were essential contributors to the crisis, each is insufficient as a standalone explanation.
The majority’s approach to explaining the crisis suffers from the opposite problem– it is too broad. Not everything that went wrong during the financial crisis caused the crisis, and while some causes were essential, others had only a minor impact. Not every regulatory change related to housing or the financial system prior to the crisis was a cause. The majority’s almost 550-page report is more an account of bad events than a focused explanation of what happened and why. When everything is important, nothing is.
