The Financial Crisis Inquiry Commission is a bipartisan commission that has been called upon to examine the causes of the financial crisis that has gripped the United States as well as the international community over the past year and a half. As has been noted many times before, the financial crisis that began in 2008 has been the worst since the Great Depression. Thanks to globalization and international connectedness, no country or region has been left unaffected. 

The Commission is to present its findings to the US Congress, the President, and the American people. Liquid assets, instantaneous communication, and capital mobility have led the American-born crisis to infiltrate economies all over the world. The series of 2008 and 2009 bank and insurance company failures were not able to be contained within US borders and quickly spread to halt global credit markets and investment.

The Commission commenced its inquiry on January 13, 2010 with a meeting of the major financial institutions representatives. This model is based on the 9/11 commission that was formed to investigate the events surrounding the September 11, 2001 attacks on the World Trade Center. A debate rages on as to whether the Commission is a sincere attempt by the government to examine the causes of the financial fallout or merely political theatre of soft chat.¹  Hearings in Washington are meant to reveal discrepancies, address gaps in public information, and instigate hope for the future that another financial meltdown can be avoided.

News from the hearings, however, has been largely dissatisfying in which “Wall Street’s finest” were reportedly left unscathed, unchallenged, and the American public under-informed. The top executives of the major institutions at the first hearing included Lloyd Blankfein of Goldman Sachs, James Dimon of JPMorgan Chase, Brian Moynihan of Bank of America, and John Mack of Morgan Stanley.

The Commission is slated to complete its inquiry by December 15, 2010 when it is required to submit a report to the President and the Congress on its findings.

The Global Financial Crisis in Review

The Commission is made up of ten members appointed by representatives from the Republican and Democratic parties. Senate Majority leader Harry Reid chose three of the appointments and House Speaker Nancy Pelosi also chose three since they represent the majority in each house of Congress respectively. House Minority leader John Boehner and Senate Minority Leader Mitch McConnell each received two appointments. These representatives were required to consult with their relevant committee, namely the House Financial Services Committee and the Senate Banking Committee. The members of the Commission cannot be Congressional representatives or government employees.

The members of the Commission and the Congressional representatives who appointed them are:²

1. (Chairman) Phil Angelides (Pelosi, chosen as Chair by Pelosi and Reid)
2. (Vice Chairman) Former Rep. Bill Thomas (Boehner, chosen as Vice-Chair by Boehner and McConnell)
3.  Brooksley Born (Pelosi)
4. Byron Georgiou (Reid)
5. Former Senator Bob Graham (D-FL) (Reid)
6. Keith Hennessey (McConnell)
7. Doug Holtz-Eakin (McConnell)
8. Heather Murren (Reid)
9. John Thompson (Pelosi)
10. Peter Wallison (Boehner)

Through testimony, hearings, and other forms of evidence, the Commission can collect the information necessary to formulate its reports and dissect the root causes of the crisis. The commission is looking to reveal fraud and abuse in the financial sector, especially abuse toward consumers in the mortgage industry with regards to the harmful sub-prime mortgage loans that have wreaked havoc on many homeowners.

Other important causes of the crisis that are to be examined are:

Federal and state financial regulations	Global savings imbalances	Tax treatment of financial products	Credit rating agencies	Corporate governance
Compensation structures	Short-selling and derivative swaps	The concept of being “too-big-to-fail”	Legal and regulatory structure investor and mortgagor protection	Quality of diligence undertaken in financial institutions

The Commission’s primary functions as outlined in Public Law 111-21, the Fraud Enforcement and Recovery Act of 2009, signed by President Obama on May 20, 2009 are:³

1. To examine the causes of the current financial and economic crisis in the United States;
2. To examine the causes of the collapse of each major financial institution that failed, including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009;
3. To submit a report to the President and the Congress on December 15, 2010.  That report should contain our findings and conclusions on the causes of the crisis. The Chairman can also include reports or specific findings on any particular financial institution that failed;
4. To build upon the work of other entities, and avoid unnecessary duplication, by reviewing the record of a host of existing bodies, including the House Financial Services and Senate Banking Committees, the GAO, and just about anybody else in government.

An Economic Meltdown of Global Proportions

According to the Honorable Attorney General Eric Holder, “The Justice Department is using every tool at our disposal, including new resources, advanced technologies and communications capabilities, and the very best talents that we have to prevent, to prosecute and to punish these crimes.”⁴ 

Attorney General Holder testified in front of the Commission on January 14, 2010 noting that the Justice Department is holding accountable all those whose conduct contributed to the financial meltdown referring to more than 2,800 cases of mortgage fraud.⁵  Mr. Holder was critical of the behavior of the financial institutions that led to the crisis. However, the magnitude of the financial crisis and the importance of this Commission have been magnified and effectively intensified by the contagion of the crisis that led to a slowing down of global markets.

The impact of the financial crisis on emerging markets (including the BRICS, namely Brazil, Russia, India, China, and South Africa) has been especially salient and alarming for the world community.⁶  The International Monetary Fund (IMF) reports that after the crisis initially hit the world’s most advanced economies and then emerging markets, a third wave has begun to damage the world’s poorest and most vulnerable states.⁷ 

Foreign Direct Investment (FDI) in developing countries fell by nearly 20 percent in 2009 reducing access to much-needed capital for development.⁸  Eastern Europe has also been earmarked as a region hit particularly hard by the crisis because of a weakening demand for commodities and exports as well as less international liquidity.

Countries hit the hardest by the crisis have understandably been those who were already struggling economically prior to the collapse of world markets including Iceland, Zambia, Pakistan, and Ireland. In addition, countries that have been international bastions of financial investment have faired the worst including the United Kingdom, the United Arab Emirates, Brazil, and of course, the United States.⁹ 

The Financial Crisis Inquiry Commission, therefore, is important not only for the United States and its financial markets, but the world at large. The findings reported by the 10-person committee will help to illuminate the causes of the meltdown domestically in the US, but also to offer information to the international community on how to prevent another crisis of this scale. The lessons learned can certainly be helpful for the international financial community.

Once the Finger-pointing is Ends: Information for the Global Economy

Although the Commission’s performance thus far has been described as lukewarm at best, the general intentions and purpose of the Commission is still imperative. The slow start of the investigation should not take away from the fact that the Commission is seeking to illuminate the causes of a crisis that affected the world’s economy, not solely that of the United States. It is essential that the Commission get to the bottom of the crisis for the future health of the global economy.

For further information, please consult:

Financial Inquiry Commission: Day-by-Day Coverage

Timeline of Events: Financial Crisis 2008

Official Website of the Commission

Commission Member Keith Hennessey

Full Witness List for the Commission

World Economic Outlook from the IMF