- The Washington Times - Wednesday, April 13, 2011

The Wall Street financial crisis of 2008, which led to the deepest recession since the Great Depression, might have been prevented if not for business and regulatory corruption, according to the most extensive congressional investigation to date.

The report, “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse,” was released Wednesday and blames financial firms for taking advantage of their clients and investors, credit rating agencies for inflating the market with high-risk securities, and federal regulators for turning a blind eye.

“Surely, it would have helped avoid” the collapse, said Sen. Carl Levin, Michigan Democrat, who teamed with Sen. Tom Coburn, Oklahoma Republican, on behalf of the Senate Investigations Subcommittee. “It would have been a heck of a lot less severe.”

The 635-page report was part of a two-year investigation and the subcommittee plans to refer the findings to the Department of Justice. It includes information from Senate committee meetings and 700 new documents that tell “the inside story of an economic assault that cost millions of Americans their jobs and homes, while wiping out investors, good businesses, and markets,” Mr. Levin said.

In response to the findings, the subcommittee also issued 19 recommendations. They advocate new restrictions on conflicts of interest, an SEC ranking of the credit rating agencies, a focus on low-risk mortgages and greater transparency.

Mr. Coburn said a lack of ethics led to the fall of Wall Street. He hopes the report and recommendations will prevent these abuses from happening again.

“A lot of what we see in this report, had there been transparency would have never happened,” he said.

This happened as Wall Street bankers let “greed run wild,” Mr. Coburn explained.

Goldman Sachs, an investment bank, profited at the expense of its clients by tricking them into bad mortgage investments and then betting against the market, the report concluded. This is one example of how investment banks “contaminated” the U.S. market with “toxic mortgages” and “undermined public trust,” Mr. Levin said.

Washington Mutual also played a pivotal role in the economic collapse, issuing risky loans to homebuyers who were unlikely to repay them without full disclosure to investors. The bank’s top executives warned this “will come back to haunt us,” the report said, but it didn’t stop the sales team from issuing loans that were prone to early default.

The bank’s chief credit officer even complained that “any attempts to enforce a more disciplined underwriting approach were continuously thwarted by an aggressive, and often times abusive group of sales employees within the organization.”

But federal regulators didn’t step in soon enough, the report claimed, accusing them of ignoring their responsibilities. The Office of Thrift Supervision, for example, repeatedly failed to correct the dangerous lending choices Washington Mutual was making, despite pointing out nearly 500 serious deficiencies from 2003 to 2008. Instead, the OTS impeded the Federal Deposit Insurance Corp. from taking tougher action, and when it finally decided to do so, the OTS used an “apologetic tone” with the bank.

Credit rating agencies didn’t help, “masking the true risk” of investments, Mr. Levin said.

“The free market has helped make America great, but it only functions when people deal with each other honestly and transparently,” Mr. Coburn said. “At the heart of the financial crisis were unresolved, and often undisclosed, conflicts of interest.”

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