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2018 | OriginalPaper | Chapter

9. Deconstructing the Financial Crisis

Author : Elise J. Bean

Published in: Financial Exposure

Publisher: Springer International Publishing

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Abstract

This chapter recounts a two-year Levin-Coburn investigation into key causes of the financial crisis. The investigation develops four case studies involving Goldman Sachs; Washington Mutual; the Office of Thrift Supervision; and Moody’s and Standard & Poor’s. Four hearings present the case studies, followed a year later by a 750-page Levin-Coburn report, the only bipartisan analysis of the financial crisis. The chapter recounts how the investigation helped end a filibuster of the Dodd-Frank Act which enacted such reforms as curbs on high-risk bank activities and abusive mortgages, creation of the Consumer Financial Protection Bureau, and a prohibition on banks selling clients deficient financial products and then profiting from those products’ failure.

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See “Financial Regulatory Reform: Financial Crisis Losses and Potential Impacts of the Dodd-Frank Act,” Report No. GAO-13-180, Government Accountability Office (1/2013), http://www.gao.gov/assets/660/651322.pdf; “The Cost of the Crisis: $20 Trillion and Counting,” Report by Better Markets (7/2015), http://bit.ly/1jIwRXV. See also “How Bad Was It? The Costs and Consequences of the 2007–09 Financial Crisis,” Tyler Atkinson, David Luttrell and Harvey Rosenblum, Federal Reserve Bank of Dallas Staff Paper (7/2013), https://dallasfed.org/assets/documents/research/staff/staff1301.pdf.

The information in this chapter is based on the eight-volume publication of the U.S. Senate Permanent Subcommittee on Investigations containing its financial crisis hearings, report, and supporting documents. See “Wall Street and the Financial Crisis: The Role of High Risk Home Loans,” S. Hrg. 112-671 (4/13/2010), https://www.gpo.gov/fdsys/pkg/CHRG-111shrg57319/pdf/CHRG-111shrg57319.pdf; “Wall Street and the Financial Crisis: The Role of Bank Regulators,” S. Hrg. 112-672 (4/16/2010), https://www.gpo.gov/fdsys/pkg/CHRG-111shrg57320/pdf/CHRG-111shrg57320.pdf; “Wall Street and the Financial Crisis: The Role of Credit Rating Agencies,” S. Hrg. 112-673 (4/23/2010), https://www.gpo.gov/fdsys/pkg/CHRG-111shrg57321/pdf/CHRG-111shrg57321.pdf; “Wall Street and the Financial Crisis: The Role of Investment Banks,” S. Hrg. 112-674 (4/27//2010), https://www.gpo.gov/fdsys/pkg/CHRG-111shrg57322/pdf/CHRG-111shrg57322.pdf; “Wall Street and the Financial Crisis: Anatomy of a Financial Collapse,” S. Hrg. 112-675 (4/13/2011), Part I (report and documents supporting the Washington Mutual, OTS, and credit rating agency sections of the report), https://www.gpo.gov/fdsys/pkg/CHRG-112shrg57323/pdf/CHRG-112shrg57323.pdf; Part II (documents supporting the Deutsche Bank section of the report), https://www.gpo.gov/fdsys/pkg/CHRG-112shrg66050/pdf/CHRG-112shrg66050.pdf; Part III (documents supporting the Goldman Sachs section of the report), https://www.gpo.gov/fdsys/pkg/CHRG-112shrg66051/pdf/CHRG-112shrg66051.pdf; and Part IV (additional documents supporting the Goldman Sachs section of the report), https://www.gpo.gov/fdsys/pkg/CHRG-112shrg66052/pdf/CHRG-112shrg66052.pdf.

See, for example, “Berating the Raters,” New York Times, Paul Krugman (4/25/2010), http://nyti.ms/2j6yTmx.

See, for example, “Goldman Cited ‘Serious’ Profit on Mortgages,” New York Times, Louise Story, Sewell Chan and Gretchen Morgenson (4/24/2010), http://nyti.ms/2zOmcau; “Goldman’s Tourre Foresaw Subprime Chaos, Emails Show,” Wall Street Journal, Susanne Craig and John D. McKinnon (4/24/2010).

See “SEC Charges Goldman Sachs with Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages,” SEC Press Release No. 2010-59 (4/16/2010), https://www.sec.gov/news/press/2010/2010-59.htm. On July 14, 2010, Goldman agreed to pay the SEC $550 million to settle the lawsuit. SEC v. Goldman, Sachs & Co., Case No. 10-CV-3229 (BSJ), (USDC SDNY), Consent of Defendant Goldman, Sachs & Co. (7/14/2010), https://www.sec.gov/litigation/litreleases/2010/consent-pr2010-123.pdf.

H.R. 4173, Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203 (7/21/2010). The Senate version of the bill was S. 3217.

See Senate Amendment 4008, offered to Senate Amendment 3739 to S. 3217, CR S3728 (5/13/2010), cosponsored by Senators Dorgan, Levin, Cantwell, Feingold, Sanders, and Kaufman.

“Wall Street and the Financial Crisis: Anatomy of a Financial Collapse,” S. Hrg. 112-675, Volume 5, Part I (4/13/2011), at 9, https://www.gpo.gov/fdsys/pkg/CHRG-112shrg57323/pdf/CHRG-112shrg57323.pdf.

“Rules of Procedure,” U.S. Senate Permanent Subcommittee on Investigations, Rule 19.

Title: Deconstructing the Financial Crisis
Author: Elise J. Bean
Publisher: Springer International Publishing
Book: Financial Exposure
Print ISBN: 978-3-319-94387-9

Electronic ISBN: 978-3-319-94388-6

Copyright Year: 2018
DOI: https://doi.org/10.1007/978-3-319-94388-6_9