Sizing up the FCIC report five years later

Published by the R Street Institute.

Ongoing debates about the financial crisis of 2007 to 2009 keep reminding us that economics is not a science. It can’t be used by governments to manage economic and financial affairs to some preordained outcome. Not only is it rather poor at predicting the future, but its practitioners often are unable to agree even on how to interpret the past.

Nonetheless, accepted economic stories or myths do get established in the media and political mind. One example from a different crisis is that Herbert Hoover was a donothing president in the face of the developing depression. In fact, he was an energetic and ardent interventionist. The real question is whether his many interventions were good or bad.

What are the myths of our more recent crisis?

When it comes to the Financial Crisis Inquiry Commission, created by Congress in May 2009 to study the causes of the crisis, we must remember that the “report” the 10-member commission finally delivered in January 20112 was actually three separate reports:

• The majority report, voted for by the six Democratic-appointed commissioners and no Republican-appointed commissioners, essentially concluded the primary cause was insufficient government intervention.

• A minority dissent of three of the Republican-appointed commissioners concluded the causes of the crisis were many and interacting, with plenty of blame to go around.

• A separate dissent by Peter Wallison argued in detail that the biggest problem was too much government intervention, resulting in extreme distortions in housing-finance market.

In the five years since these reports, what more have we learned? From this distance, can we put the FCIC’s majority and dissenting reports, and the crisis itself, into a convincing overall perspective?

The R Street Institute convened panel of experts, including two former FCIC members, for a Feb. 4, 2016 conference on these issues. The gathering served to provide an informed, insightful and provocative discussion. We are pleased to present this summary of their presentations.