Each day for five days, a different writer from TheStreet.com will make the case for why one of five prime culprits—the banks, Congress, irresponsible home buyers, the Federal Reserve or the rating agencies—is most to blame for the credit crisis and ensuing economic meltdown.
The financial crisis has been caused by failures at every level of the economic spectrum, from foolhardy consumers to greedy Wall Street bankers to suspiciously blind ratings agencies and a Federal Reserve that only noticed a bubble after it had burst.
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However, the legislators in charge of overseeing the housing and financial markets—and whose predecessors created the Fed and its mandate in 1913—were most responsible.
Instead of dousing the fire, lawmakers and their regulatory agencies kept adding fuel by championing policies they now bash as economically flawed. They also reaped donations from the financial firms who profited mightily from those policies, the same firms that are now receiving hundreds of billions of taxpayer dollars to prevent their collapse.
All of this comes at the cost of jobs, household wealth and higher taxes for voters who handed these legislative hypocrites the reins.
Today, members of Congress pillory regulators and the CEOs of big fallen financial firms. But their protestations of anger, shock and ignorance sound hollow when compared with statements from just a few years ago during the housing boom.
For instance, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee since 2007, characterized Fannie Mae (Stock Quote: FNM) and Freddie Mac (Stock Quote: FRE) as "fundamentally sound financially" at a hearing in September 2003, as the two entities went through major accounting scandals. Frank also said he didn't want "the same kind of focus on safety and soundness" on Fannie and Freddie as other financial firms and preferred to "roll the dice a little bit more" to support subsidized housing.
Sen. Chris Dodd (D-Conn.), chairman of the Senate Committee of Banking, Housing and Urban Affairs since 2007, called Fannie and Freddie "one of the great success stories of all time" at another hearing in 2004, noting that they brought homeownership levels up to 70% of the American populace. As recently as last July, Dodd called the two entities "viable" institutions that were "fundamentally, fundamentally strong."
Those statements came about two months before the government launched massive bailouts for the firms to avoid their collapse from souring mortgage debt. Apparently, while Congress was pushing subsidizing housing and expanded homeownership, it didn't bother to ensure that those homeowners could afford their homes, that lenders were engaging in safe practices, or that the Federal Reserve's ambitions were in line with sound economic policy.
Yet, ever since mass chaos struck last year, Congressional hearings have been filled with hostile, and sometimes bizarre, questioning from members who are far from novices at the financial oversight game. Frank has been a member of the committee since his entry into the halls of Congress in 1981, and Dodd has been on the Senate counterpart for more than a quarter century.
