Financial Crisis Inquiry Commission: A Comment on Three Members' Dissenting Statement

The Financial Crisis Inquiry Commission released its final report this morning. I have briefly looked at it but have not had a chance to read all of it. I have, however, read the Dissenting Statement of Keith Hennessey, Douglas Holtz-Eakin, and Bill Thomas. The fourth Republican on the Commission, Peter Wallison, did not join in this statement, but rather appended a 96-page dissenting statement of his own, which I have not yet read. (Apparently, the full dissenting statements will not be reproduced in the commercially published version of the report. Each statement there will be limited to nine pages. That would seem to be an avoidable mistake of the majority. The full dissenting statements are included in the more expensive version published by the Government Printing Office and for free on the web.)

I am pleased that the Dissenting Statement of the three Commissioners is much better than the "Financial Crisis Primer" the four Republican Commissioners issued last month. (My negative review of that release can be found here.)

The dissenters are right to make the point that the U.S. was not the only country to experience a credit and housing bubble nor to experience problems with financial firms. They consequently conclude that it cannot just be domestic U.S. failures that need to be looked at in evaluating the causes of the crisis.

With respect to monetary policy, the Dissenting Statement is weaker. They appear to be correct in saying that "the Commission should have focused more time and energy on exploring ... questions about global capital flows, risk repricing, and monetary policy." The dissenters, though, conclude that "global capital flows and risk repricing caused the credit bubble ..." and that "U.S. monetary policy may have been an amplifying factor, but it did not by itself cause the credit bubble, nor was it essential to causing the crisis." This is an interesting assertion; unfortunately, the dissenters do not provide much in the way of analysis to support it.

There is more to the dissent, and it is all interesting. They do not go easy on Wall Street firms and do not lay all the blame, just some of it, on Fannie Mae and Freddie Mac. Unlike the primer, the dissent does not read like a partisan or ideological tract, and I give the authors credit for furthering the debate on the issues in an intelligent way.