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So far, only the New York Times has the story — nothing from the WSJ or Bloomberg yet:

The FCIC found that the crisis was caused by “widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street” — but I expect this to be explosive in advance of the actual FCIC release on Thursday.

The many causal factors highlighted in the FCIC report:

• Alan Greenspan’s malfeasance — his refusal to perform his regulatory duties because he did not believe in them — allowed the credit bubble to expand, driving housing prices to dangerously unsustainable levels; Greenspan’s advocacy for financial deregulation was a “pivotal failure to stem the flow of toxic mortgages” and “the prime example” of government negligence;

• Ben S. Bernanke failed to foresee the crisis;

• The Bush administration’s “inconsistent response” — saving Bear, but allowing Lehman to crater — “added to the uncertainty and panic in the financial markets.”

• Bush Treasury secretary Henry M. Paulson Jr. wrongly predicted in 2007 that subprime meltdown would be contained.

• The Clinton White House, including then Treasury Secretary Lawrence Summers, made a crucial error in “shielding over-the-counter derivatives from regulation [CFMA]. This was “a key turning point in the march toward the financial crisis.”

• Then NY Fed President, now Treasury secretary Timothy F. Geithner failed to “clamp down on excesses by Citigroup in the lead-up to the crisis;” Further, a month before Lehman’s collapse, Geithner was still in the dark about Lehman’s derivative exposure;

• Low interest rates brought about by the Fed after the 2001 recession “created increased risks” but were not chiefly to blame, according to the FCIC (I place some more weight on Ultra-low rates than they do);

• The financial sector spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with the industry made more than $1 billion in campaign contributions. The impact of which an incestuous relationship between bankers and regulators, Congress and bankers, and classic regulatory capture by the industry.

• The credit-rating agencies “cogs in the wheel of financial destruction.”

• The Securities and Exchange Commission allowed the 5 biggest banks to ramp up their leverage, hold insufficient capital, and engage in risky practices.

• Leverage at the nation’s five largest investment banks was wildly excessive: They kept only $1 in capital to cover losses for about every $40 in assets;

• The Office of the Comptroller of the Currency along with the Office of Thrift Supervision, “federally pre-empted” (blocked) state regulators from reining in lending abuses;

• The report documents “questionable practices by mortgage lenders and careless betting by banks;”

• The report portrays the “bumbling incompetence among corporate chieftains” as to the risk and operations of their own firms:
-Citigroup executives admitting that they paid little attention to the risks associated with mortgage securities.
-AIG executives were blind to its $79 billion exposure to credit default swaps;
-Merrill Lynch top managers were surprised when mortgage investments suddenly resulted in billions of dollars in losses;
• Fannie Mae and Freddie Mac “contributed to the crisis but were not a primary cause.” (Or as I called them, they were just two more crappy banks) The various home ownership goals set by the government were not culprits either.

I feel terrifically vindicated by what I have seen so far. About 90% of Bailout Nation is in accordance with the commission’s findings. The 10% difference being the impact of Ultra low rates as the spark that lit the fire, sending managers scrambling to buy all of this junk paper.

Source:
Financial Crisis Was ‘Avoidable,’ Inquiry Concludes
SEWELL CHAN
NYT January 25, 2011

http://www.nytimes.com/2011/01/26/business/economy/26inquiry.html

More to come after I digest this, but so far it looks spectacular . . .

Highlights from the NYT:

“The 2008 financial crisis was an “avoidable” disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street, according to the conclusions of a Congressional inquiry.”

The government commission that investigated the financial crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors, and risky bets on securities backed by the loans.

“The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done,” the panel wrote in the report’s conclusions. “If we accept this notion, it will happen again.”

And then there is this:

“The report itself finds fault with two Fed chairmen: Alan Greenspan, a skeptic of regulation who led the central bank as the housing bubble expanded, and his successor, Ben S. Bernanke . . . It criticizes Mr. Greenspan for advocating financial deregulation and cites a “pivotal failure to stem the flow of toxic mortgages” under his leadership as “the prime example” of government negligence.

The World Economic Forum in Davos, Switzerland is a lot like a socialite’s charity ball. Everyone publicly announces that they’re attending for the good the event will do even as they privately focus on how the party will enhance their status, display their wealth and confirm their importance. The similarities only grow when you contemplate the competition over who found a better way to travel to the mountaintop–it’s not a question of flying private but whose plane you were invited on board (call it tail number envy)–and which parties, after-parties and after-after parties one goes to.

Judging from the press coverage of this year, the only difference between Davos and the season in Gstaad would appear to be the presence of journalists. And looking at what they’ve written, most don’t seem terribly happy to be going.

Andrew Ross Sorkin dwells  on the costs of attending the event while hinting that the WEF is making a killing from it’s $185 million in revenue–half of which goes to the staff in compensation, just like an investment bank–before quoting a Davos stalwart who feels the bloom is off the rose:

As one attendee, the author David Rothkopf, recently wrote on his blog, “The entire endeavor is fading for several reasons, all associated with the inadequacy of Davos as a networking forum.”

The Financial Times’s Gillian Tett  likens the event to a CEO support group:

Davos had become a “self-help” group, where CEOs trade information and feel solidarity in a hostile world. “It’s a bit like Weight Watchers,” he quips. “A place where CEOs can get support.”

Reuter’s Felix Salmon had a debate with his colleague Chrystia Freeland over the value of going to Davos and Henry Blodget  has turned his first trip to Switzerland into a reality-based blog project where he professes to show what Davos is really like! His conclusion: it’s high school! (Thankfully Blodget didn’t add the now hackneyed simile “It’s like high school with money.”)

The big surprise here isn’t the doubts about Davos’s efficacy, importance or value to the attendees. An event that has received this much media attention–(does Blodget really think there’s any mystery left to what happens at Davos?)–was bound to get a big backlash. Reporters who think they’re going to get some direct benefit from making the trek to Davos are sadly mistaken. As news, Davos is a fake event best suited to CNBC stand-ups and anodyne CEO interviews.

As a non-news event, a place to actually talk and interact, Davos may be gaining in importance.

Parag Khanna has an excellent piece in the Wall Street Journal explaining why Davos remains relevant to its attendees even if it might have lost some of its appeal as a networking event:

The reason is that in our ever more complex diplomatic eco-system, relations among governments represent only one slice of the total picture. Beyond the traditional “public-public” relations of embassies and multilateraism, there are also the “public-private” partnerships sprouting across sectors and issues. [...] The WEF does what no U.N. agency would ever do: allow “coalitions of the willing” to organically “grow and go”—incubating them but also quickly spinning them off into self-sustaining entities; but importantly also letting projects die that fail to attain sufficient support from participants. In this sense the WEF is both a space for convening but also a driver of new agendas.

To Khanna, Davos is neutral space for relations between governments, corporations and regional actors, both larger than the state and smaller. With so much about the world economy–and the financial crisis–falling beyond the traditional borders of state power, it’s essential that there be a meeting ground where public and private are on an equal footing.

The discomfort that the media may have with Davos isn’t that it is boring, lacking in news or they don’t rate high enough in the status food chain. Most of the media just can’t seem to figure out their own role at the event.

Most, but not all, Google knows it’s an important player on the world stage. And the company understands that it is a media entity. That’s why it holds top social spot with its now-annual party. (Incidentally, this is the party Henry Blodget is most miffed not to have been invited to.) A few other intrepid media figures who are less anxious about their own status also recognize that Davos is a place for them to be among their peers–the figures they cover at length.

The truth is that the media should better represented. There are few who will benefit greatly from being at Davos, not for the news that comes out of the event but for the same reasons that the corporate, NGO and governmental attendees are there.

Indeed, everything that’s valuable about Davos is not worth covering as news. Klaus Schwab’s decision to cultivate the media, promote the event as an oasis for conversation and contemplation away from the pressures of the works and bring in reporters as “media fellows” might have been clever marketing but long since lost its value.

If Khanna is right that Davos is now a venue for multi-lateral diplomacy, the media play a role as another peer group. Davos should be their chance to lose the pose of neutral observer and become full participants but behind closed doors. Since nothing really happens at Davos–it’s an enormous backgrounder–there should be no problem with the press checking their laptops at the bottom of the mountain.

Besides, there’s plenty of ways to see the public aspects of Davos if you’re really interested. The events are broadcast on Facebook by Livestream here. Twitter is already bristling with the #Davos, #WEF and #Davos11 hashtags. Of course you could also just follow @reformedbroker and get the best of what’s happening from one who is truly there.

Hat tip Paul K

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Economics correspondent Paul Solman reports on the ongoing fallout from Europe’s debt crisis, which has led to political woes and bank bailouts among other problems. His update is park of his ongoing series on Making Sen$e of financial news.

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The Consumer Confidence # at 60.6 was well above estimates of 54, up from 53.3 in Dec and the best level since May ’10. Both the Present Situation and Expectations components rose nicely. Importantly, there were improvements in the answers to the labor market questions. Those that said jobs were Plentiful rose 1 pt to the highest since May ’09 and those that said jobs were Hard To Get fell to the lowest since Jan ’09. Those that see better Business Conditions over the next 6 mo’s rose and those that think they will get worse fell. Those that plan to buy a home within 6 mo’s rose .3 pts, anemic still but at a 3 month high. Those that plan to buy a car also rose to a 3 month high. The one fly and disconcerting for the Fed, 1 year inflation expectations rose to 5.5% from 5.3%, to the highest since July ’09. Net-net, an improving labor market is the catalyst boost to consumer confidence while inflation expectations unfortunately continue to rise.

Data through November 2010 shows negative annual growth rates in 17 of the 20 MSAs and the 10- and 20-City Composites compared to what was reported for October 2010.

The 10-City Composite was down 0.4% and the 20-City Composite fell 1.6% from their November 2009 levels. Home prices fell in 19 of 20 MSAs and both Composites in November from their October levels.

Only four regions – Los Angeles, San Diego, San Francisco and Washington DC – showed year-over-year gains. Eight markets – Atlanta, Charlotte, Detroit, Las Vegas, Miami, Portland (OR), Seattle and Tampa – hit their lowest levels since home prices peaked in 2006 and 2007, meaning that average home prices in those markets have fallen even further than the lows set in the spring of 2009.

Your CS Housing chart round up:

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click for larger graphics:

Chart courtesy of Calculated Risk

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Invictus adds: One area — San Diego — eked out a miniscule month-over-month NSA gain, and was the only area that prevented all 20 from declining on a month-over-month basis. And yes, I will be pissed if Detroit eventually breaks below 65 and forces me to recalibrate my y-axis.

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Source:
U.S. Home Prices Keep Weakening as Eight Cities Reach New Lows
S&P, January 25, 2011

http://bit.ly/erp5m0

The Nov S&P/CS 20 city home price index fell to the lowest since March, falling 1.6% y/o/y, in line with expectations. Seasonally adjusted, the m/o/m fall was .54%, a touch better than the forecasted drop of .80%. Prices have fallen for 5 straight months m/o/m. Washington DC for a 2nd straight month saw the best y/o/y gain, of 3.5% as that’s unfortunately where the most jobs are. Also seeing gains were the major cities in California (San Diego, LA, SF). The biggest y/o/y declines were seen in Atlanta, Chicago, and Detroit with drops of more than 7%. Prices in Nevada, one of the poster boys for the housing mess over the past 4 yrs, fell 3.5% y/o/y. Bottom line, the headline index is just 3.3% above the Apr ’09 low and 3.4% below the July ’10 tax credit high, thus pointing to the growing double dip possibility in pricing. Nov prices are down 30% from the July ’06 record high.

Stagflation is back, at least in the UK. One week after reporting Dec y/o/y CPI of 3.7%, the UK economy unexpectedly contracted in Q4 by .5% q/o/q vs an expected gain of +.5%. The pound is down sharply in response and the data highlights the dilemma the BoE is now facing as they have their benchmark rate at .5%. While the US economy is showing much better resilience, the FOMC today and tomorrow still shouldn’t ignore growing inflation pressures as their current policy is like driving 200 mph on now icy roads. Also, they must get us out of this monetary policy fantasyland of zero interest rates and massive money printing sooner rather than later and let our economy walk on its own two feet without them. The US economy is getting better but how much is real and how much is monetary induced illusion? Please Fed, let us find out.

The Shanghai index by a hair closed at its lowest level since late Sept on a move higher in short term interest rates and continued talk of the introduction of property taxes in Shanghai. Copper is falling to a 5 week low. India raised rates by 25bps as expected to 6.5% but also raised their March inflation forecast to 7% from 5.5%, thus implying more rate hikes are to come. Europe’s EFSF sale of 5b euro’s of AAA paper to finance the bailout of Ireland was wildly successful as the bid to cover was 8.6. Germany’s consumer confidence GFK figure rose to the best level since Oct ’07.