CONCLUSIONS_NNP OF_IN THE_DT FINANCIAL_NNP CRISIS_NNP INQUIRY_NN COMMISSION_NNP The_DT Financial_NNP Crisis_NNP Inquiry_NNP Commission_NNP has_VBZ been_VBN called_VBN upon_IN to_TO examine_VB the_DT financial_JJ and_CC economic_JJ crisis_NN that_WDT has_VBZ gripped_VBD our_PRP$ country_NN and_CC explain_VB its_PRP$ causes_NNS to_TO the_DT American_JJ people_NNS ._. 
We_PRP are_VBP keenly_RB aware_JJ of_IN the_DT significance_NN of_IN our_PRP$ charge_NN ,_, given_VBN the_DT economic_JJ damage_NN that_IN America_NNP has_VBZ suffered_VBN in_IN the_DT wake_NN of_IN the_DT greatest_JJS financial_JJ crisis_NN since_IN the_DT Great_NNP Depression_NNP ._. 
Our_PRP$ task_NN was_VBD first_JJ to_TO determine_VB what_WP happened_VBD and_CC how_WRB it_PRP happened_VBD so_IN that_IN we_PRP could_MD understand_VB why_WRB it_PRP happened_VBD ._. 
Here_RB we_PRP present_JJ our_PRP$ conclusions_NNS ._. 
We_PRP encourage_VBP the_DT American_JJ people_NNS to_TO join_VB us_PRP in_IN making_VBG their_PRP$ own_JJ assessments_NNS based_VBN on_IN the_DT evidence_NN gathered_VBD in_IN our_PRP$ inquiry_NN ._. 
If_IN we_PRP do_VBP not_RB learn_VB from_IN history_NN ,_, we_PRP are_VBP unlikely_JJ to_TO fully_RB recover_VB from_IN it_PRP ._. 
Some_DT on_IN Wall_NNP Street_NNP and_CC in_IN Washington_NNP with_IN a_DT stake_NN in_IN the_DT status_NN quo_NN may_MD be_VB tempted_VBN to_TO wipe_VB from_IN memory_NN the_DT events_NNS of_IN this_DT crisis_NN ,_, or_CC to_TO suggest_VB that_IN no_DT one_PRP could_MD have_VB foreseen_VBN or_CC prevented_VBD them_PRP ._. 
This_DT report_NN endeavors_NNS to_TO expose_VB the_DT facts_NNS ,_, identify_VB responsibility_NN ,_, unravel_VB myths_NNS ,_, and_CC help_VB us_PRP understand_VB how_WRB the_DT crisis_NN could_MD have_VB been_VBN avoided_VBN ._. 
It_PRP is_VBZ an_DT attempt_NN to_TO record_VB history_NN ,_, not_RB to_TO rewrite_VB it_PRP ,_, nor_CC allow_VB it_PRP to_TO be_VB rewritten_VBN ._. 
To_TO help_VB our_PRP$ fellow_NN citizens_NNS better_JJR understand_VB this_DT crisis_NN and_CC its_PRP$ causes_NNS ,_, we_PRP also_RB present_JJ specific_JJ conclusions_NNS at_IN the_DT end_NN of_IN chapters_NNS in_IN Parts_NNP III_NNP ,_, IV_NNP ,_, and_CC V_NNP of_IN this_DT report_NN ._. 
The_DT subject_NN of_IN this_DT report_NN is_VBZ of_IN no_DT small_JJ consequence_NN to_TO this_DT nation_NN ._. 
The_DT profound_JJ events_NNS of_IN 2007_CD and_CC 2008_CD were_VBD neither_DT bumps_NNS in_IN the_DT road_NN nor_CC an_DT accentuated_JJ dip_NN in_IN the_DT financial_JJ and_CC business_NN cycles_NNS we_PRP have_VBP come_VBN to_TO expect_VB in_IN a_DT free_JJ market_NN economic_JJ system_NN ._. 
This_DT was_VBD a_DT fundamental_JJ disruption—a_NN financial_JJ upheaval_NN ,_, if_IN you_PRP will—that_NN wreaked_VBD havoc_NN in_IN communities_NNS and_CC neighborhoods_NNS across_IN this_DT country_NN ._. 
As_IN this_DT report_NN goes_VBZ to_TO print_VB ,_, there_EX are_VBP more_JJR than_IN 26_CD million_CD Americans_NNPS who_WP are_VBP out_IN of_IN work_NN ,_, can_MD not_RB find_VB full-time_JJ work_NN ,_, or_CC have_VBP given_VBN up_RP looking_VBG for_IN work_NN ._. 
About_IN four_CD million_CD families_NNS have_VBP lost_VBN their_PRP$ homes_NNS to_TO foreclosure_NN and_CC another_DT four_CD and_CC a_DT half_NN million_CD have_VBP slipped_VBN into_IN the_DT foreclosure_NN process_NN or_CC are_VBP seriously_RB behind_IN on_IN their_PRP$ mortgage_NN payments_NNS ._. 
Nearly_RB $11_NN trillion_CD in_IN household_NN wealth_NN has_VBZ vanished_VBN ,_, with_IN retirement_NN accounts_NNS and_CC life_NN savings_NNS swept_VBD away_RB ._. 
Businesses_NNS ,_, large_JJ and_CC small_JJ ,_, have_VBP felt_VBN the_DT sting_NN of_IN a_DT deep_JJ recession_NN ._. 
There_EX is_VBZ much_JJ anger_NN about_IN what_WP has_VBZ transpired_JJ ,_, and_CC justifiably_RB so_RB ._. 
Many_JJ people_NNS who_WP abided_JJ by_IN all_PDT the_DT rules_NNS now_RB find_VBP themselves_PRP out_IN of_IN work_NN and_CC uncertain_JJ about_IN their_PRP$ future_JJ prospects_NNS ._. 
The_DT collateral_NN damage_NN of_IN this_DT crisis_NN has_VBZ been_VBN real_JJ people_NNS and_CC real_JJ communities_NNS ._. 
The_DT impacts_NNS of_IN this_DT crisis_NN are_VBP likely_JJ to_TO be_VB felt_VBN for_IN a_DT generation_NN ._. 
And_CC the_DT nation_NN faces_VBZ no_DT easy_JJ path_NN to_TO renewed_VBN economic_JJ strength_NN ._. 
Like_IN so_RB many_JJ Americans_NNPS ,_, we_PRP began_VBD our_PRP$ exploration_NN with_IN our_PRP$ own_JJ views_NNS and_CC some_DT preliminary_JJ knowledge_NN about_IN how_WRB the_DT world_NN ’_NN s_VBZ strongest_JJS financial_JJ system_NN came_VBD to_TO the_DT brink_NN of_IN collapse_NN ._. 
Even_RB at_IN the_DT time_NN of_IN our_PRP$ appointment_NN to_TO this_DT independent_JJ panel_NN ,_, much_RB had_VBD already_RB been_VBN written_VBN and_CC said_VBN about_IN the_DT crisis_NN ._. 
Yet_RB all_DT of_IN us_PRP have_VBP been_VBN deeply_RB affected_VBN by_IN what_WP we_PRP have_VBP learned_VBN in_IN the_DT course_NN of_IN our_PRP$ inquiry_NN ._. We_PRP have_VBP been_VBN at_IN various_JJ times_NNS fascinated_VBN ,_, surprised_VBN ,_, and_CC even_RB shocked_VBN by_IN what_WP we_PRP saw_VBD ,_, heard_VBN ,_, and_CC read_VB ._. 
Ours_NNP has_VBZ been_VBN a_DT journey_NN of_IN revelation_NN ._. 
Much_JJ attention_NN over_IN the_DT past_JJ two_CD years_NNS has_VBZ been_VBN focused_VBN on_IN the_DT decisions_NNS by_IN the_DT federal_JJ government_NN to_TO provide_VB massive_JJ financial_JJ assistance_NN to_TO stabilize_VB the_DT financial_JJ system_NN and_CC rescue_VB large_JJ financial_JJ institutions_NNS that_WDT were_VBD deemed_VBN too_RB systemically_RB important_JJ to_TO fail_VB ._. 
Those_DT decisions—and_NN the_DT deep_JJ emotions_NNS surrounding_VBG them—will_NN be_VB debated_VBN long_RB into_IN the_DT future_NN ._. 
But_CC our_PRP$ mission_NN was_VBD to_TO ask_VB and_CC answer_VB this_DT central_JJ question_NN :_: how_WRB did_VBD it_PRP come_VBP to_TO pass_VB that_IN in_IN 2008_CD our_PRP$ nation_NN was_VBD forced_VBN to_TO choose_VB between_IN two_CD stark_JJ and_CC painful_JJ alternatives—either_NN risk_NN the_DT total_JJ collapse_NN of_IN our_PRP$ financial_JJ system_NN and_CC economy_NN or_CC inject_VB trillions_NNS of_IN taxpayer_NN dollars_NNS into_IN the_DT financial_JJ system_NN and_CC an_DT array_NN of_IN companies_NNS ,_, as_IN millions_NNS of_IN Americans_NNPS still_RB lost_VBD their_PRP$ jobs_NNS ,_, their_PRP$ savings_NNS ,_, and_CC their_PRP$ homes_NNS ?_. 
In_IN this_DT report_NN ,_, we_PRP detail_NN the_DT events_NNS of_IN the_DT crisis_NN ._. 
But_CC a_DT simple_JJ summary_NN ,_, as_IN we_PRP see_VBP it_PRP ,_, is_VBZ useful_JJ at_IN the_DT outset_NN ._. 
While_IN the_DT vulnerabilities_NNS that_WDT created_VBD the_DT potential_NN for_IN crisis_NN were_VBD years_NNS in_IN the_DT making_NN ,_, it_PRP was_VBD the_DT collapse_NN of_IN the_DT housing_NN bubble—fueled_JJ by_IN low_JJ interest_NN rates_NNS ,_, easy_JJ and_CC available_JJ credit_NN ,_, scant_JJ regulation_NN ,_, and_CC toxic_JJ mortgages—_NN that_WDT was_VBD the_DT spark_NN that_WDT ignited_VBD a_DT string_NN of_IN events_NNS ,_, which_WDT led_VBD to_TO a_DT full-blown_JJ crisis_NN in_IN the_DT fall_NN of_IN 2008_CD ._. 
Trillions_NNP of_IN dollars_NNS in_IN risky_JJ mortgages_NNS had_VBD become_VBN embedded_VBN throughout_IN the_DT financial_JJ system_NN ,_, as_IN mortgage-related_JJ securities_NNS were_VBD packaged_VBN ,_, repackaged_VBN ,_, and_CC sold_VBD to_TO investors_NNS around_IN the_DT world_NN ._. 
When_WRB the_DT bubble_NN burst_NN ,_, hundreds_NNS of_IN billions_NNS of_IN dollars_NNS in_IN losses_NNS in_IN mortgages_NNS and_CC mortgage-related_JJ securities_NNS shook_VBD markets_NNS as_RB well_RB as_IN financial_JJ institutions_NNS that_WDT had_VBD significant_JJ exposures_NNS to_TO those_DT mortgages_NNS and_CC had_VBD borrowed_VBN heavily_RB against_IN them_PRP ._. 
This_DT happened_VBD not_RB just_RB in_IN the_DT United_NNP States_NNPS but_CC around_IN the_DT world_NN ._. 
The_DT losses_NNS were_VBD magnified_VBN by_IN derivatives_NNS such_JJ as_IN synthetic_JJ securities_NNS ._. 
The_DT crisis_NN reached_VBD seismic_JJ proportions_NNS in_IN September_NNP 2008_CD with_IN the_DT failure_NN of_IN Lehman_NNP Brothers_NNPS and_CC the_DT impending_JJ collapse_NN of_IN the_DT insurance_NN giant_NN American_NNP International_NNP Group_NNP (_( AIG_NNP )_) ._. Panic_NN fanned_VBD by_IN a_DT lack_NN of_IN transparency_NN of_IN the_DT balance_NN sheets_NNS of_IN major_JJ financial_JJ institutions_NNS ,_, coupled_VBN with_IN a_DT tangle_NN of_IN interconnections_NNS among_IN institutions_NNS perceived_VBN to_TO be_VB “_NN too_RB big_JJ to_TO fail_VB ,_, ”_NN caused_VBD the_DT credit_NN markets_NNS to_TO seize_VB up_RP ._. 
Trading_NN ground_NN to_TO a_DT halt_NN ._. 
The_DT stock_NN market_NN plummeted_VBD ._. 
The_DT economy_NN plunged_VBD into_IN a_DT deep_JJ recession_NN ._. 
The_DT financial_JJ system_NN we_PRP examined_VBD bears_VBZ little_JJ resemblance_NN to_TO that_DT of_IN our_PRP$ parents_NNS ’_NN generation_NN ._. 
The_DT changes_NNS in_IN the_DT past_JJ three_CD decades_NNS alone_RB have_VBP been_VBN remarkable_JJ ._. 
The_DT financial_JJ markets_NNS have_VBP become_VBN increasingly_RB globalized_JJ ._. 
Technology_NNP has_VBZ transformed_VBN the_DT efficiency_NN ,_, speed_NN ,_, and_CC complexity_NN of_IN financial_JJ instruments_NNS and_CC transactions_NNS ._. There_EX is_VBZ broader_JJR access_NN to_TO and_CC lower_JJR costs_NNS of_IN financing_NN than_IN ever_RB before_RB ._. 
And_CC the_DT financial_JJ sector_NN itself_PRP has_VBZ become_VBN a_DT much_RB more_RBR dominant_JJ force_NN in_IN our_PRP$ economy_NN 
._. From_IN 1978_CD to_TO 2007_CD ,_, the_DT amount_NN of_IN debt_NN held_VBN by_IN the_DT financial_JJ sector_NN soared_VBD from_IN $3_NN trillion_CD to_TO $36_NN trillion_CD ,_, more_JJR than_IN doubling_VBG as_IN a_DT share_NN of_IN gross_JJ domestic_JJ product_NN ._. 
The_DT very_JJ nature_NN of_IN many_JJ Wall_NNP Street_NNP firms_NNS changed—from_NN relatively_RB staid_JJ private_JJ partnerships_NNS to_TO publicly_RB traded_VBN corporations_NNS taking_VBG greater_JJR and_CC more_RBR diverse_JJ kinds_NNS of_IN risks_NNS ._. 
By_IN 2005_CD ,_, the_DT 10_CD largest_JJS U.S._NNP commercial_JJ banks_NNS held_VBD 55_CD %_NN of_IN the_DT industry_NN ’_NN s_VBZ assets_NNS ,_, more_RBR than_IN double_VB the_DT level_NN held_VBN in_IN 1990_CD ._. 
On_IN the_DT eve_NN of_IN the_DT crisis_NN in_IN 2006_CD ,_, financial_JJ sector_NN profits_NNS constituted_VBD 27_CD %_NN of_IN all_DT corporate_JJ profits_NNS in_IN the_DT United_NNP States_NNPS ,_, up_RB from_IN 15_CD %_NN in_IN 1980_CD ._. 
Understanding_NNP this_DT transformation_NN has_VBZ been_VBN critical_JJ to_TO the_DT Commission_NNP ’_NN s_VBZ analysis_NN ._. 
Now_RB to_TO our_PRP$ major_JJ findings_NNS and_CC conclusions_NNS ,_, which_WDT are_VBP based_VBN on_IN the_DT facts_NNS contained_VBD in_IN this_DT report_NN :_: they_PRP are_VBP offered_VBN with_IN the_DT hope_NN that_IN lessons_NNS may_MD be_VB learned_VBN to_TO help_VB avoid_VB future_JJ catastrophe_NN ._. 
We_PRP conclude_VBP this_DT financial_JJ crisis_NN was_VBD avoidable_JJ ._. 
The_DT crisis_NN was_VBD the_DT result_NN of_IN human_JJ action_NN and_CC inaction_NN ,_, not_RB of_IN Mother_NNP Nature_NNP or_CC computer_NN models_NNS gone_VBN haywire_NN ._. 
The_DT captains_NNS of_IN finance_NN and_CC the_DT public_JJ stewards_NNS of_IN our_PRP$ financial_JJ system_NN ignored_VBD warnings_NNS and_CC failed_VBD to_TO question_VB ,_, understand_VB ,_, and_CC manage_VB evolving_VBG risks_NNS within_IN a_DT system_NN essential_JJ to_TO the_DT well-being_NN of_IN the_DT American_JJ public_NN ._. 
Theirs_NNP was_VBD a_DT big_JJ miss_VB ,_, not_RB a_DT stumble_NN ._. 
While_IN the_DT business_NN cycle_NN can_MD not_RB be_VB repealed_VBN ,_, a_DT crisis_NN of_IN this_DT magnitude_NN need_VBP not_RB have_VB occurred_VBN ._. 
To_TO paraphrase_VBP Shakespeare_NNP ,_, the_DT fault_NN lies_VBZ not_RB in_IN the_DT stars_NNS ,_, but_CC in_IN us_PRP ._. 
Despite_IN the_DT expressed_JJ view_NN of_IN many_JJ on_IN Wall_NNP Street_NNP and_CC in_IN Washington_NNP that_IN the_DT crisis_NN could_MD not_RB have_VB been_VBN foreseen_VBN or_CC avoided_VBN ,_, there_EX were_VBD warning_VBG signs_NNS ._. 
The_DT tragedy_NN was_VBD that_IN they_PRP were_VBD ignored_VBN or_CC discounted_VBN ._. 
There_EX was_VBD an_DT explosion_NN in_IN risky_JJ subprime_NN lending_NN and_CC securitization_NN ,_, an_DT unsustainable_JJ rise_NN in_IN housing_NN prices_NNS ,_, widespread_JJ reports_NNS of_IN egregious_JJ and_CC predatory_NN lending_NN practices_NNS ,_, dramatic_JJ increases_NNS in_IN household_NN mortgage_NN debt_NN ,_, and_CC exponential_NN growth_NN in_IN financial_JJ firms_NNS ’_NN trading_NN activities_NNS ,_, unregulated_JJ derivatives_NNS ,_, and_CC short-term_JJ “_NN repo_NN ”_NN lending_NN markets_NNS ,_, among_IN many_JJ other_JJ red_JJ flags_NNS ._. 
Yet_RB there_EX was_VBD pervasive_JJ permissiveness_NNS ;_: little_RB meaningful_JJ action_NN was_VBD taken_VBN to_TO quell_VB the_DT threats_NNS in_IN a_DT timely_JJ manner_NN ._. 
The_DT prime_JJ example_NN is_VBZ the_DT Federal_NNP Reserve_NNP ’_NN s_VBZ pivotal_JJ failure_NN to_TO stem_VB the_DT flow_NN of_IN toxic_JJ mortgages_NNS ,_, which_WDT it_PRP could_MD have_VB done_VBN by_IN setting_VBG prudent_JJ mortgage-lending_JJ standards_NNS ._. 
The_DT Federal_NNP Reserve_NNP was_VBD the_DT one_CD entity_NN empowered_VBN to_TO do_VB so_RB and_CC it_PRP did_VBD not_RB ._. 
The_DT record_NN of_IN our_PRP$ examination_NN is_VBZ replete_JJ with_IN evidence_NN of_IN other_JJ failures_NNS :_: financial_JJ institutions_NNS made_VBN ,_, bought_VBD ,_, and_CC sold_VBD mortgage_NN securities_NNS they_PRP never_RB examined_VBD ,_, did_VBD not_RB care_VB to_TO examine_VB ,_, or_CC knew_VBD to_TO be_VB defective_JJ ;_: firms_NNS depended_VBD on_IN tens_NNS of_IN billions_NNS of_IN dollars_NNS of_IN borrowing_NN that_WDT had_VBD to_TO be_VB renewed_VBN each_DT and_CC every_DT night_NN ,_, secured_VBN by_IN subprime_NN mortgage_NN securities_NNS ;_: and_CC major_JJ firms_NNS and_CC investors_NNS blindly_RB relied_VBN on_IN credit_NN rating_NN agencies_NNS as_IN their_PRP$ arbiters_NNS of_IN risk_NN ._. 
What_WP else_RB could_MD one_CD expect_VB on_IN a_DT highway_NN where_WRB there_EX were_VBD neither_DT speed_NN limits_NNS nor_CC neatly_RB painted_VBN lines_NNS ?_. 
We_PRP conclude_VBP widespread_JJ failures_NNS in_IN financial_JJ regulation_NN and_CC supervision_NN proved_VBD devastating_VBG to_TO the_DT stability_NN of_IN the_DT nation_NN ’_NN s_VBZ financial_JJ markets_NNS ._. 
The_DT sentries_NNS were_VBD not_RB at_IN their_PRP$ posts_NNS ,_, in_IN no_DT small_JJ part_NN due_JJ to_TO the_DT widely_RB accepted_VBN faith_NN in_IN the_DT self-_NN correcting_VBG nature_NN of_IN the_DT markets_NNS and_CC the_DT ability_NN of_IN financial_JJ institutions_NNS to_TO effectively_RB police_VB themselves_PRP ._. 
More_JJR than_IN 30_CD years_NNS of_IN deregulation_NN and_CC reliance_NN on_IN self-regulation_NN by_IN financial_JJ institutions_NNS ,_, championed_VBN by_IN former_JJ Federal_NNP Reserve_NNP chairman_NN Alan_NNP Greenspan_NNP and_CC others_NNS ,_, supported_VBN by_IN successive_JJ administrations_NNS and_CC Congresses_NNP ,_, and_CC actively_RB pushed_VBN by_IN the_DT powerful_JJ financial_JJ industry_NN at_IN every_DT turn_NN ,_, had_VBD stripped_VBN away_RB key_JJ safeguards_NNS ,_, which_WDT could_MD have_VB helped_VBN avoid_VB catastrophe_NN ._. 
This_DT approach_NN had_VBD opened_VBN up_RP gaps_NNS in_IN oversight_NN of_IN critical_JJ areas_NNS with_IN trillions_NNS of_IN dollars_NNS at_IN risk_NN ,_, such_JJ as_IN the_DT shadow_NN banking_NN system_NN and_CC over-the-counter_JJ derivatives_NNS markets_NNS ._. In_IN addition_NN ,_, the_DT government_NN permitted_VBD financial_JJ firms_NNS to_TO pick_VB their_PRP$ preferred_JJ regulators_NNS in_IN what_WP became_VBD a_DT race_NN to_TO the_DT weakest_JJS supervisor_NN ._. 
Yet_CC we_PRP do_VBP not_RB accept_VB the_DT view_NN that_IN regulators_NNS lacked_VBD the_DT power_NN to_TO protect_VB the_DT financial_JJ system_NN ._. 
They_PRP had_VBD ample_JJ power_NN in_IN many_JJ arenas_NNS and_CC they_PRP chose_VBD not_RB to_TO use_VB it_PRP ._. 
To_TO give_VB just_RB three_CD examples_NNS :_: the_DT Securities_NNPS and_CC Exchange_NNP Commission_NNP could_MD have_VB required_VBN more_JJR capital_NN and_CC halted_VBN risky_JJ practices_NNS at_IN the_DT big_JJ investment_NN banks_NNS ._. 
It_PRP did_VBD not_RB ._. 
The_DT Federal_NNP Reserve_NNP Bank_NNP of_IN New_NNP York_NNP and_CC other_JJ regulators_NNS could_MD have_VB clamped_VBN down_RB on_IN Citigroup_NNP ’_NN s_VBZ excesses_NNS in_IN the_DT run-up_NN to_TO the_DT crisis_NN ._. 
They_PRP did_VBD not_RB ._. 
Policy_NNP makers_NNS and_CC regulators_NNS could_MD have_VB stopped_VBN the_DT runaway_JJ mortgage_NN securitization_NN train_NN ._. 
They_PRP did_VBD not_RB ._. 
In_IN case_NN after_IN case_NN after_IN case_NN ,_, regulators_NNS continued_VBD to_TO rate_NN the_DT institutions_NNS they_PRP oversaw_VBD as_IN safe_NN and_CC sound_NN even_RB in_IN the_DT face_NN of_IN mounting_VBG troubles_NNS ,_, often_RB downgrading_NN them_PRP just_RB before_IN their_PRP$ collapse_NN ._. 
And_CC where_WRB regulators_NNS lacked_VBD authority_NN ,_, they_PRP could_MD have_VB sought_VBN it_PRP ._. 
Too_RB often_RB ,_, they_PRP lacked_VBD the_DT political_JJ will—in_NN a_DT political_JJ and_CC ideological_JJ environment_NN that_WDT constrained_VBN it—as_NNS well_RB as_IN the_DT fortitude_NN to_TO critically_RB challenge_VB the_DT institutions_NNS and_CC the_DT entire_JJ system_NN they_PRP were_VBD entrusted_VBN to_TO oversee_VB ._. 
Changes_NNS in_IN the_DT regulatory_JJ system_NN occurred_VBD in_IN many_JJ instances_NNS as_IN financial_JJ markets_NNS evolved_VBD ._. 
But_CC as_IN the_DT report_NN will_MD show_VB ,_, the_DT financial_JJ industry_NN itself_PRP played_VBD a_DT key_JJ role_NN in_IN weakening_VBG regulatory_JJ constraints_NNS on_IN institutions_NNS ,_, markets_NNS ,_, and_CC products_NNS ._. 
It_PRP did_VBD not_RB surprise_VB the_DT Commission_NNP that_IN an_DT industry_NN of_IN such_JJ wealth_NN and_CC power_NN would_MD exert_VB pressure_NN on_IN policy_NN makers_NNS and_CC regulators_NNS ._. 
From_IN 1999_CD to_TO 2008_CD ,_, the_DT financial_JJ sector_NN expended_VBN $2.7_NN billion_CD in_IN reported_VBD federal_JJ lobbying_NN expenses_NNS ;_: individuals_NNS and_CC political_JJ action_NN committees_NNS in_IN the_DT sector_NN made_VBN more_JJR than_IN $1_NN billion_CD in_IN campaign_NN contributions_NNS ._. 
What_WP troubled_JJ us_PRP was_VBD the_DT extent_NN to_TO which_WDT the_DT nation_NN was_VBD deprived_VBN of_IN the_DT necessary_JJ strength_NN and_CC independence_NN of_IN the_DT oversight_NN necessary_JJ to_TO safeguard_VB financial_JJ stability_NN ._. 
We_PRP conclude_VBP dramatic_JJ failures_NNS of_IN corporate_JJ governance_NN and_CC risk_NN management_NN at_IN many_JJ systemically_RB important_JJ financial_JJ institutions_NNS were_VBD a_DT key_JJ cause_NN of_IN this_DT crisis_NN ._. 
There_EX was_VBD a_DT view_NN that_IN instincts_NNS for_IN self-preservation_JJ inside_IN major_JJ financial_JJ firms_NNS would_MD shield_VB them_PRP from_IN fatal_JJ risk-taking_NN without_IN the_DT need_NN for_IN a_DT steady_JJ regulatory_JJ hand_NN ,_, which_WDT ,_, the_DT firms_NNS argued_VBD ,_, would_MD stifle_VB innovation_NN ._. 
Too_RB many_JJ of_IN these_DT institutions_NNS acted_VBD recklessly_RB ,_, taking_VBG on_IN too_RB much_JJ risk_NN ,_, with_IN too_RB little_JJ capital_NN ,_, and_CC with_IN too_RB much_JJ dependence_NN on_IN short-term_JJ funding_NN ._. 
In_IN many_JJ respects_NNS ,_, this_DT reflected_VBD a_DT fundamental_JJ change_NN in_IN these_DT institutions_NNS ,_, particularly_RB the_DT large_JJ investment_NN banks_NNS and_CC bank_NN holding_VBG companies_NNS ,_, which_WDT focused_VBD their_PRP$ activities_NNS increasingly_RB on_IN risky_JJ trading_NN activities_NNS that_WDT produced_VBD hefty_JJ profits_NNS ._. 
They_PRP took_VBD on_IN enormous_JJ exposures_NNS in_IN acquiring_VBG and_CC supporting_VBG subprime_NN lenders_NNS and_CC creating_VBG ,_, packaging_NN ,_, repackaging_VBG ,_, and_CC selling_VBG trillions_NNS of_IN dollars_NNS in_IN mortgage-related_JJ securities_NNS ,_, including_VBG synthetic_JJ financial_JJ products_NNS ._. 
Like_IN Icarus_NNP ,_, they_PRP never_RB feared_VBD flying_VBG ever_RB closer_JJR to_TO the_DT sun_NN ._. 
Many_JJ of_IN these_DT institutions_NNS grew_VBD aggressively_RB through_IN poorly_RB executed_VBN acquisition_NN and_CC integration_NN strategies_NNS that_WDT made_VBD effective_JJ management_NN more_JJR challenging_VBG ._. 
The_DT CEO_NNP of_IN Citigroup_NNP told_VBD the_DT Commission_NNP that_IN a_DT $40_NN billion_CD position_NN in_IN highly_RB rated_VBN mortgage_NN securities_NNS would_MD “_NN not_RB in_IN any_DT way_NN have_VBP excited_VBN my_PRP$ attention_NN ,_, ”_NN and_CC the_DT cohead_NN of_IN Citigroup_NNP ’_NN s_VBZ investment_NN bank_NN said_VBD he_PRP spent_VBD “_NN a_DT small_JJ fraction_NN of_IN 1_CD %_NN ”_NN of_IN his_PRP$ time_NN on_IN those_DT securities_NNS ._. 
In_IN this_DT instance_NN ,_, too_RB big_JJ to_TO fail_VB meant_VBN too_RB big_JJ to_TO manage_VB ._. 
Financial_NNP institutions_NNS and_CC credit_NN rating_NN agencies_NNS embraced_VBD mathematical_JJ models_NNS as_IN reliable_JJ predictors_NNS of_IN risks_NNS ,_, replacing_VBG judgment_NN in_IN too_RB many_JJ instances_NNS ._. 
Too_RB often_RB ,_, risk_NN management_NN became_VBD risk_NN justification_NN ._. 
Compensation_NNP systems—designed_JJ in_IN an_DT environment_NN of_IN cheap_JJ money_NN ,_, intense_JJ competition_NN ,_, and_CC light_JJ regulation—too_NN often_RB rewarded_VBN the_DT quick_JJ deal_NN ,_, the_DT short-term_JJ gain—without_NN proper_JJ consideration_NN of_IN long-term_JJ consequences_NNS ._. 
Often_RB ,_, those_DT systems_NNS encouraged_VBD the_DT big_JJ bet—where_NN the_DT payoff_NN on_IN the_DT upside_NN could_MD be_VB huge_JJ and_CC the_DT downside_NN limited_JJ ._. 
This_DT was_VBD the_DT case_NN up_RB and_CC down_RP the_DT line—from_NN the_DT corporate_JJ boardroom_NN to_TO the_DT mortgage_NN broker_NN on_IN the_DT street_NN ._. 
Our_PRP$ examination_NN revealed_VBD stunning_JJ instances_NNS of_IN governance_NN breakdowns_NNS and_CC irresponsibility_NN ._. 
You_PRP will_MD read_VB ,_, among_IN other_JJ things_NNS ,_, about_IN AIG_NNP senior_JJ management_NN ’_NN s_VBZ ignorance_NN of_IN the_DT terms_NNS and_CC risks_NNS of_IN the_DT company_NN ’_NN s_VBZ $79_NN billion_CD derivatives_NNS exposure_NN to_TO mortgage-related_JJ securities_NNS ;_: Fannie_NNP Mae_NNP ’_NN s_VBZ quest_NN for_IN bigger_JJR market_NN share_NN ,_, profits_NNS ,_, and_CC bonuses_NNS ,_, which_WDT led_VBD it_PRP to_TO ramp_VB up_RP its_PRP$ exposure_NN to_TO risky_JJ loans_NNS and_CC securities_NNS as_IN the_DT housing_NN market_NN was_VBD peaking_VBG ;_: and_CC the_DT costly_JJ surprise_NN when_WRB Merrill_NNP Lynch_NNP ’_NN s_VBZ top_JJ management_NN realized_VBD that_IN the_DT company_NN held_VBD $55_NN billion_CD in_IN “_NN super-senior_JJ ”_NN and_CC supposedly_RB “_NN super-safe_JJ ”_NN mortgage-related_JJ securities_NNS that_WDT resulted_VBD in_IN billions_NNS of_IN dollars_NNS in_IN losses_NNS ._. 
We_PRP conclude_VBP a_DT combination_NN of_IN excessive_JJ borrowing_NN ,_, risky_JJ investments_NNS ,_, and_CC lack_NN of_IN transparency_NN put_VBD the_DT financial_JJ system_NN on_IN a_DT collision_NN course_NN with_IN crisis_NN ._. 
Clearly_RB ,_, this_DT vulnerability_NN was_VBD related_VBN to_TO failures_NNS of_IN corporate_JJ governance_NN and_CC regulation_NN ,_, but_CC it_PRP is_VBZ significant_JJ enough_RB by_IN itself_PRP to_TO warrant_VB our_PRP$ attention_NN here_RB ._. 
In_IN the_DT years_NNS leading_VBG up_RP to_TO the_DT crisis_NN ,_, too_RB many_JJ financial_JJ institutions_NNS ,_, as_RB well_RB as_RB too_RB many_JJ households_NNS ,_, borrowed_VBN to_TO the_DT hilt_NN ,_, leaving_VBG them_PRP vulnerable_JJ to_TO financial_JJ distress_NN or_CC ruin_VB if_IN the_DT value_NN of_IN their_PRP$ investments_NNS declined_VBD even_RB modestly_RB ._. 
For_IN example_NN ,_, as_IN of_IN 2007_CD ,_, the_DT five_CD major_JJ investment_NN banks—_NN Bear_NNP Stearns_NNP ,_, Goldman_NNP Sachs_NNP ,_, Lehman_NNP Brothers_NNPS ,_, Merrill_NNP Lynch_NNP ,_, and_CC Morgan_NNP Stanley—were_NNP operating_VBG with_IN extraordinarily_RB thin_JJ capital_NN ._. 
By_IN one_CD measure_NN ,_, their_PRP$ leverage_NN ratios_NNS were_VBD as_RB high_JJ as_IN 40_CD to_TO 1_CD ,_, meaning_VBG for_IN every_DT $40_NN in_IN assets_NNS ,_, there_EX was_VBD only_RB $1_NN in_IN capital_NN to_TO cover_VB losses_NNS ._. 
Less_RBR than_IN a_DT 3_CD %_NN drop_NN in_IN asset_NN values_NNS could_MD wipe_VB out_RP a_DT firm_NN ._. 
To_TO make_VB matters_NNS worse_JJR ,_, much_JJ of_IN their_PRP$ borrowing_NN was_VBD short-term_JJ ,_, in_IN the_DT overnight_JJ market—meaning_VBG the_DT borrowing_NN had_VBD to_TO be_VB renewed_VBN each_DT and_CC every_DT day_NN ._. 
For_IN example_NN ,_, at_IN the_DT end_NN of_IN 2007_CD ,_, Bear_NNP Stearns_NNP had_VBD $11.8_NN billion_CD in_IN equity_NN and_CC $383.6_NN billion_CD in_IN liabilities_NNS and_CC was_VBD borrowing_VBG as_RB much_JJ as_IN $70_NN billion_CD in_IN the_DT overnight_JJ market_NN ._. 
It_PRP was_VBD the_DT equivalent_NN of_IN a_DT small_JJ business_NN with_IN $50,000_NN in_IN equity_NN borrowing_NN $1.6_NN million_CD ,_, with_IN $296,750_NN of_IN that_DT due_JJ each_DT and_CC every_DT day_NN ._. 
One_PRP can_MD ’_NN t_NN really_RB ask_VB “_NN What_WP were_VBD they_PRP thinking_VBG ?_. ”_NN when_WRB it_PRP seems_VBZ that_IN too_RB many_JJ of_IN them_PRP were_VBD thinking_VBG alike_RB ._. 
And_CC the_DT leverage_NN was_VBD often_RB hidden—in_NN derivatives_NNS positions_NNS ,_, in_IN off-balance-sheet_JJ entities_NNS ,_, and_CC through_IN “_NN window_NN dressing_VBG ”_NN of_IN financial_JJ reports_NNS available_JJ to_TO the_DT investing_VBG public_JJ ._. 
The_DT kings_NNS of_IN leverage_NN were_VBD Fannie_NNP Mae_NNP and_CC Freddie_NNP Mac_NNP ,_, the_DT two_CD behemoth_NN government-_NN sponsored_VBD enterprises_NNS (_( GSEs_NNP )_) ._. 
For_IN example_NN ,_, by_IN the_DT end_NN of_IN 2007_CD ,_, Fannie_NNP ’_NN s_VBZ and_CC Freddie_NNP ’_NN s_VBZ combined_VBN leverage_NN ratio_NN ,_, including_VBG loans_NNS they_PRP owned_VBD and_CC guaranteed_VBN ,_, stood_VBD at_IN 75_CD to_TO 1_CD ._. 
But_CC financial_JJ firms_NNS were_VBD not_RB alone_RB in_IN the_DT borrowing_NN spree_NN :_: from_IN 2001_CD to_TO 2007_CD ,_, national_JJ mortgage_NN debt_NN almost_RB doubled_VBD ,_, and_CC the_DT amount_NN of_IN mortgage_NN debt_NN per_IN household_NN rose_VBD more_JJR than_IN 63_CD %_NN from_IN $91,500_NN to_TO $149,500_NN ,_, even_RB while_IN wages_NNS were_VBD essentially_RB stagnant_JJ ._. 
When_WRB the_DT housing_NN downturn_NN hit_VBD ,_, heavily_RB indebted_JJ financial_JJ firms_NNS and_CC families_NNS alike_RB were_VBD walloped_JJ ._. 
The_DT heavy_JJ debt_NN taken_VBN on_IN by_IN some_DT financial_JJ institutions_NNS was_VBD exacerbated_VBN by_IN the_DT risky_JJ assets_NNS they_PRP were_VBD acquiring_VBG with_IN that_DT debt_NN ._. 
As_IN the_DT mortgage_NN and_CC real_JJ estate_NN markets_NNS churned_JJ out_IN riskier_JJR and_CC riskier_JJR loans_NNS and_CC securities_NNS ,_, many_JJ financial_JJ institutions_NNS loaded_VBN up_RP on_IN them_PRP ._. 
By_IN the_DT end_NN of_IN 2007_CD ,_, Lehman_NNP had_VBD amassed_VBN $111_NN billion_CD in_IN commercial_JJ and_CC residential_JJ real_JJ estate_NN holdings_NNS and_CC securities_NNS ,_, which_WDT was_VBD almost_RB twice_RB what_WP it_PRP held_VBD just_RB two_CD years_NNS before_RB ,_, and_CC more_JJR than_IN four_CD times_NNS its_PRP$ total_JJ equity_NN ._. 
And_CC again_RB ,_, the_DT risk_NN wasn_NN ’_NN t_NN being_VBG taken_VBN on_IN just_RB by_IN the_DT big_JJ financial_JJ firms_NNS ,_, but_CC by_IN families_NNS ,_, too_RB ._. 
Nearly_RB one_CD in_IN 10_CD mortgage_NN borrowers_NNS in_IN 2005_CD and_CC 2006_CD took_VBD out_IN “_NN option_NN ARM_NNP ”_NN loans_NNS ,_, which_WDT meant_VBD they_PRP could_MD choose_VB to_TO make_VB payments_NNS so_RB low_JJ that_IN their_PRP$ mortgage_NN balances_NNS rose_VBD every_DT month_NN ._. 
Within_IN the_DT financial_JJ system_NN ,_, the_DT dangers_NNS of_IN this_DT debt_NN were_VBD magnified_VBN because_IN transparency_NN was_VBD not_RB required_VBN or_CC desired_VBN ._. 
Massive_JJ ,_, short-term_JJ borrowing_NN ,_, combined_VBN with_IN obligations_NNS unseen_JJ by_IN others_NNS in_IN the_DT market_NN ,_, heightened_VBD the_DT chances_NNS the_DT system_NN could_MD rapidly_RB unravel_VB ._. 
In_IN the_DT early_JJ part_NN of_IN the_DT 20th_JJ century_NN ,_, we_PRP erected_VBD a_DT series_NN of_IN protections—_NN the_DT Federal_NNP Reserve_NNP as_IN a_DT lender_NN of_IN last_JJ resort_NN ,_, federal_JJ deposit_NN insurance_NN ,_, ample_JJ regulations—to_NN provide_VBP a_DT bulwark_NN against_IN the_DT panics_NNS that_WDT had_VBD regularly_RB plagued_VBN America_NNP ’_NN s_VBZ banking_NN system_NN in_IN the_DT 19th_JJ century_NN ._. Yet_RB ,_, over_IN the_DT past_JJ 30_CD -_: plus_CC years_NNS ,_, we_PRP permitted_VBD the_DT growth_NN of_IN a_DT shadow_NN banking_NN system—opaque_NN and_CC laden_JJ with_IN short-_NN term_NN debt—that_NN rivaled_JJ the_DT size_NN of_IN the_DT traditional_JJ banking_NN system_NN ._. Key_NNP components_NNS of_IN the_DT market—for_NN example_NN ,_, the_DT multitrillion-dollar_JJ repo_NN lending_NN market_NN ,_, off-balance-_JJ sheet_NN entities_NNS ,_, and_CC the_DT use_NN of_IN over-the-counter_JJ derivatives—were_NN hidden_VBN from_IN view_NN ,_, without_IN the_DT protections_NNS we_PRP had_VBD constructed_VBN to_TO prevent_VB financial_JJ meltdowns_NNS ._. 
We_PRP had_VBD a_DT 21_CD st-century_JJ financial_JJ system_NN with_IN 19_CD th-century_JJ safeguards_NNS ._. 
When_WRB the_DT housing_NN and_CC mortgage_NN markets_NNS cratered_JJ ,_, the_DT lack_NN of_IN transparency_NN ,_, the_DT extraordinary_JJ debt_NN loads_NNS ,_, the_DT short-term_JJ loans_NNS ,_, and_CC the_DT risky_JJ assets_NNS all_DT came_JJ home_NN to_TO roost_VB ._. 
What_WP resulted_VBD was_VBD panic_NN ._. 
We_PRP had_VBD reaped_VBN what_WP we_PRP had_VBD sown_NN ._. 
We_PRP conclude_VBP the_DT government_NN was_VBD ill_RB prepared_VBN for_IN the_DT crisis_NN ,_, and_CC its_PRP$ inconsistent_JJ response_NN added_VBD to_TO the_DT uncertainty_NN and_CC panic_NN in_IN the_DT financial_JJ markets_NNS ._. 
As_IN part_NN of_IN our_PRP$ charge_NN ,_, it_PRP was_VBD appropriate_JJ to_TO review_VB government_NN actions_NNS taken_VBN in_IN response_NN to_TO the_DT developing_VBG crisis_NN ,_, not_RB just_RB those_DT policies_NNS or_CC actions_NNS that_WDT preceded_VBN it_PRP ,_, to_TO determine_VB if_IN any_DT of_IN those_DT responses_NNS contributed_VBD to_TO or_CC exacerbated_VBD the_DT crisis_NN ._. 
As_IN our_PRP$ report_NN shows_NNS ,_, key_JJ policy_NN makers—the_NN Treasury_NNP Department_NNP ,_, the_DT Federal_NNP Reserve_NNP Board_NNP ,_, and_CC the_DT Federal_NNP Reserve_NNP Bank_NNP of_IN New_NNP York—who_NNP were_VBD best_RBS positioned_VBN to_TO watch_VB over_IN our_PRP$ markets_NNS were_VBD ill_RB prepared_VBN for_IN the_DT events_NNS of_IN 2007_CD and_CC 2008_CD ._. 
Other_JJ agencies_NNS were_VBD also_RB behind_IN the_DT curve_NN ._. 
They_PRP were_VBD hampered_VBN because_IN they_PRP did_VBD not_RB have_VB a_DT clear_JJ grasp_NN of_IN the_DT financial_JJ system_NN they_PRP were_VBD charged_VBN with_IN overseeing_VBG ,_, particularly_RB as_IN it_PRP had_VBD evolved_VBN in_IN the_DT years_NNS leading_VBG up_RP to_TO the_DT crisis_NN ._. 
This_DT was_VBD in_IN no_DT small_JJ measure_NN due_JJ to_TO the_DT lack_NN of_IN transparency_NN in_IN key_JJ markets_NNS ._. 
They_PRP thought_VBD risk_NN had_VBD been_VBN diversified_JJ when_WRB ,_, in_IN fact_NN ,_, it_PRP had_VBD been_VBN concentrated_VBN ._. 
Time_NNP and_CC again_RB ,_, from_IN the_DT spring_NN of_IN 2007_CD on_IN ,_, policy_NN makers_NNS and_CC regulators_NNS were_VBD caught_VBN off_IN guard_NN as_IN the_DT contagion_NN spread_VBD ,_, responding_VBG on_IN an_DT ad_NN hoc_FW basis_NN with_IN specific_JJ programs_NNS to_TO put_VB fingers_NNS in_IN the_DT dike_NN ._. 
There_EX was_VBD no_DT comprehensive_JJ and_CC strategic_JJ plan_NN for_IN containment_NN ,_, because_IN they_PRP lacked_VBD a_DT full_JJ understanding_NN of_IN the_DT risks_NNS and_CC interconnections_NNS in_IN the_DT financial_JJ markets_NNS ._. 
Some_DT regulators_NNS have_VBP conceded_VBN this_DT error_NN ._. 
We_PRP had_VBD allowed_VBN the_DT system_NN to_TO race_NN ahead_RB of_IN our_PRP$ ability_NN to_TO protect_VB it_PRP ._. 
While_IN there_EX was_VBD some_DT awareness_NN of_IN ,_, or_CC at_IN least_JJS a_DT debate_NN about_IN ,_, the_DT housing_NN bubble_NN ,_, the_DT record_NN reflects_VBZ that_IN senior_JJ public_JJ officials_NNS did_VBD not_RB recognize_VB that_IN a_DT bursting_VBG of_IN the_DT bubble_NN could_MD threaten_VB the_DT entire_JJ financial_JJ system_NN ._. 
Throughout_IN the_DT summer_NN of_IN 2007_CD ,_, both_DT Federal_NNP Reserve_NNP Chairman_NNP Ben_NNP Bernanke_NNP and_CC Treasury_NNP Secretary_NNP Henry_NNP Paul-_NNP son_NN offered_VBD public_JJ assurances_NNS that_IN the_DT turmoil_NN in_IN the_DT subprime_NN mortgage_NN markets_NNS would_MD be_VB contained_VBN ._. 
When_WRB Bear_NNP Stearns_NNP ’_NN s_VBZ hedge_VB funds_NNS ,_, which_WDT were_VBD heavily_RB invested_VBN in_IN mortgage-related_JJ securities_NNS ,_, imploded_JJ in_IN June_NNP 2007_CD ,_, the_DT Federal_NNP Reserve_NNP discussed_VBD the_DT implications_NNS of_IN the_DT collapse_NN ._. 
Despite_IN the_DT fact_NN that_IN so_RB many_JJ other_JJ funds_NNS were_VBD exposed_VBN to_TO the_DT same_JJ risks_NNS as_IN those_DT hedge_NN funds_NNS ,_, the_DT Bear_NNP Stearns_NNP funds_NNS were_VBD thought_VBN to_TO be_VB “_NN relatively_RB unique_JJ ._. ”_NN Days_NNS before_IN the_DT collapse_NN of_IN Bear_NNP Stearns_NNP in_IN March_NNP 2008_CD ,_, SEC_NNP Chairman_NNP Christopher_NNP Cox_NNP expressed_VBD “_NN comfort_NN about_IN the_DT capital_NN cushions_NNS ”_NN at_IN the_DT big_JJ investment_NN banks_NNS ._. 
It_PRP was_VBD not_RB until_IN August_NNP 2008_CD ,_, just_RB weeks_NNS before_IN the_DT government_NN takeover_NN of_IN Fannie_NNP Mae_NNP and_CC Freddie_NNP Mac_NNP ,_, that_IN the_DT Treasury_NNP Department_NNP understood_VBD the_DT full_JJ measure_NN of_IN the_DT dire_JJ financial_JJ conditions_NNS of_IN those_DT two_CD institutions_NNS ._. 
And_CC just_RB a_DT month_NN before_IN Lehman_NNP ’_NN s_VBZ collapse_NN ,_, the_DT Federal_NNP Reserve_NNP Bank_NNP of_IN New_NNP York_NNP was_VBD still_RB seeking_VBG information_NN on_IN the_DT exposures_NNS created_VBN by_IN Lehman_NNP ’_NN s_VBZ more_JJR than_IN 900,000_CD derivatives_NNS contracts_NNS ._. 
In_IN addition_NN ,_, the_DT government_NN ’_NN s_VBZ inconsistent_JJ handling_NN of_IN major_JJ financial_JJ institutions_NNS during_IN the_DT crisis—the_NN decision_NN to_TO rescue_VB Bear_NNP Stearns_NNP and_CC then_RB to_TO place_VB Fannie_NNP Mae_NNP and_CC Freddie_NNP Mac_NNP into_IN conservatorship_NN ,_, followed_VBN by_IN its_PRP$ decision_NN not_RB to_TO save_VB Lehman_NNP Brothers_NNPS and_CC then_RB to_TO save_VB AIG—increased_NNP uncertainty_NN and_CC panic_NN in_IN the_DT market_NN ._. 
In_IN making_VBG these_DT observations_NNS ,_, we_PRP deeply_RB respect_NN and_CC appreciate_VB the_DT efforts_NNS made_VBN by_IN Secretary_NNP Paulson_NNP ,_, Chairman_NNP Bernanke_NNP ,_, and_CC Timothy_NNP Geithner_NNP ,_, formerly_RB president_NN of_IN the_DT Federal_NNP Reserve_NNP Bank_NNP of_IN New_NNP York_NNP and_CC now_RB treasury_NN secretary_NN ,_, and_CC so_RB many_JJ others_NNS who_WP labored_JJ to_TO stabilize_VB our_PRP$ financial_JJ system_NN and_CC our_PRP$ economy_NN in_IN the_DT most_RBS chaotic_JJ and_CC challenging_VBG of_IN circumstances_NNS ._. 
We_PRP conclude_VBP there_EX was_VBD a_DT systemic_JJ breakdown_NN in_IN accountability_NN and_CC ethics_NNS ._. 
The_DT integrity_NN of_IN our_PRP$ financial_JJ markets_NNS and_CC the_DT public_JJ ’_NN s_VBZ trust_NN in_IN those_DT markets_NNS are_VBP essential_JJ to_TO the_DT economic_JJ well-being_NN of_IN our_PRP$ nation_NN ._. 
The_DT soundness_NN and_CC the_DT sustained_JJ prosperity_NN of_IN the_DT financial_JJ system_NN and_CC our_PRP$ economy_NN rely_VB on_IN the_DT notions_NNS of_IN fair_JJ dealing_NN ,_, responsibility_NN ,_, and_CC transparency_NN ._. 
In_IN our_PRP$ economy_NN ,_, we_PRP expect_VBP businesses_NNS and_CC individuals_NNS to_TO pursue_VB profits_NNS ,_, at_IN the_DT same_JJ time_NN that_IN they_PRP produce_VBP products_NNS and_CC services_NNS of_IN quality_NN and_CC conduct_VB themselves_PRP well_RB ._. 
Unfortunately—as_NNP has_VBZ been_VBN the_DT case_NN in_IN past_JJ speculative_JJ booms_NNS and_CC busts—we_NN witnessed_VBN an_DT erosion_NN of_IN standards_NNS of_IN responsibility_NN and_CC ethics_NNS that_WDT exacerbated_VBD the_DT financial_JJ crisis_NN ._. 
This_DT was_VBD not_RB universal_JJ ,_, but_CC these_DT breaches_NNS stretched_VBN from_IN the_DT ground_NN level_NN to_TO the_DT corporate_JJ suites_NNS ._. 
They_PRP resulted_VBD not_RB only_RB in_IN significant_JJ financial_JJ consequences_NNS but_CC also_RB in_IN damage_NN to_TO the_DT trust_NN of_IN investors_NNS ,_, businesses_NNS ,_, and_CC the_DT public_NN in_IN the_DT financial_JJ system_NN ._. 
For_IN example_NN ,_, our_PRP$ examination_NN found_VBD ,_, according_VBG to_TO one_CD measure_NN ,_, that_IN the_DT percentage_NN of_IN borrowers_NNS who_WP defaulted_VBD on_IN their_PRP$ mortgages_NNS within_IN just_RB a_DT matter_NN of_IN months_NNS after_IN taking_VBG a_DT loan_NN nearly_RB doubled_VBD from_IN the_DT summer_NN of_IN 2006_CD to_TO late_JJ 2007_CD ._. 
This_DT data_NNS indicates_VBZ they_PRP likely_RB took_VBD out_RP mortgages_NNS that_IN they_PRP never_RB had_VBD the_DT capacity_NN or_CC intention_NN to_TO pay_VB ._. 
You_PRP will_MD read_VB about_IN mortgage_NN brokers_NNS who_WP were_VBD paid_VBN “_NN yield_NN spread_NN premiums_NNS ”_NN by_IN lenders_NNS to_TO put_VB borrowers_NNS into_IN higher-cost_JJ loans_NNS so_IN they_PRP would_MD get_VB bigger_JJR fees_NNS ,_, often_RB never_RB disclosed_VBN to_TO borrowers_NNS ._. 
The_DT report_NN catalogues_NNS the_DT rising_VBG incidence_NN of_IN mortgage_NN fraud_NN ,_, which_WDT flourished_VBD in_IN an_DT environment_NN of_IN collapsing_VBG lending_NN standards_NNS and_CC lax_JJ regulation_NN ._. 
The_DT number_NN of_IN suspicious_JJ activity_NN reports—reports_NNS of_IN possible_JJ financial_JJ crimes_NNS filed_VBN by_IN depository_NN banks_NNS and_CC their_PRP$ affiliates—related_JJ to_TO mortgage_VB fraud_NN grew_VBD 20_CD -_: fold_VB between_IN 1996_CD and_CC 2005_CD and_CC then_RB more_RBR than_IN doubled_VBD again_RB between_IN 2005_CD and_CC 2009_CD ._. 
One_CD study_NN places_VBZ the_DT losses_NNS resulting_VBG from_IN fraud_NN on_IN mortgage_NN loans_NNS made_VBN between_IN 2005_CD and_CC 2007_CD at_IN $112_NN billion_CD ._. 
Lenders_NNS made_VBD loans_NNS that_IN they_PRP knew_VBD borrowers_NNS could_MD not_RB afford_VB and_CC that_DT could_MD cause_VB massive_JJ losses_NNS to_TO investors_NNS in_IN mortgage_NN securities_NNS ._. 
As_RB early_RB as_IN September_NNP 2004_CD ,_, Countrywide_NNP executives_NNS recognized_VBN that_IN many_JJ of_IN the_DT loans_NNS they_PRP were_VBD originating_VBG could_MD result_VB in_IN “_NN catastrophic_JJ consequences_NNS ._. ”_NN 
Less_RBR than_IN a_DT year_NN later_RB ,_, they_PRP noted_VBD that_IN certain_JJ high-risk_JJ loans_NNS they_PRP were_VBD making_VBG could_MD result_VB not_RB only_RB in_IN foreclosures_NNS but_CC also_RB in_IN “_NN financial_JJ and_CC reputational_NN catastrophe_NN ”_NN for_IN the_DT firm_NN ._. 
But_CC they_PRP did_VBD not_RB stop_VB ._. 
And_CC the_DT report_NN documents_NNS that_IN major_JJ financial_JJ institutions_NNS ineffectively_RB sampled_VBN loans_NNS they_PRP were_VBD purchasing_VBG to_TO package_VB and_CC sell_VB to_TO investors_NNS ._. 
They_PRP knew_VBD a_DT significant_JJ percentage_NN of_IN the_DT sampled_JJ loans_NNS did_VBD not_RB meet_VB their_PRP$ own_JJ underwriting_NN standards_NNS or_CC those_DT of_IN the_DT originators_NNS ._. 
Nonetheless_RB ,_, they_PRP sold_VBD those_DT securities_NNS to_TO investors_NNS ._. 
The_DT Commission_NNP ’_NN s_VBZ review_NN of_IN many_JJ prospectuses_NNS provided_VBN to_TO investors_NNS found_VBD that_IN this_DT critical_JJ information_NN was_VBD not_RB disclosed_VBN ._. 
THESE_NNP CONCLUSIONS_NNP must_MD be_VB viewed_VBN in_IN the_DT context_NN of_IN human_JJ nature_NN and_CC individual_NN and_CC societal_NN responsibility_NN ._. 
First_CD ,_, to_TO pin_VB this_DT crisis_NN on_IN mortal_NN flaws_NNS like_IN greed_NN and_CC hubris_NNS would_MD be_VB simplistic_JJ ._. 
It_PRP was_VBD the_DT failure_NN to_TO account_VB for_IN human_JJ weakness_NN that_WDT is_VBZ relevant_JJ to_TO this_DT crisis_NN ._. 
Second_JJ ,_, we_PRP clearly_RB believe_VBP the_DT crisis_NN was_VBD a_DT result_NN of_IN human_JJ mistakes_NNS ,_, misjudgments_NNS ,_, and_CC misdeeds_NNS that_WDT resulted_VBD in_IN systemic_JJ failures_NNS for_IN which_WDT our_PRP$ nation_NN has_VBZ paid_VBN dearly_RB ._. 
As_IN you_PRP read_VBP this_DT report_NN ,_, you_PRP will_MD see_VB that_IN specific_JJ firms_NNS and_CC individuals_NNS acted_VBD irresponsibly_RB ._. 
Yet_RB a_DT crisis_NN of_IN this_DT magnitude_NN can_MD not_RB be_VB the_DT work_NN of_IN a_DT few_JJ bad_JJ actors_NNS ,_, and_CC such_JJ was_VBD not_RB the_DT case_NN here_RB ._. 
At_IN the_DT same_JJ time_NN ,_, the_DT breadth_NN of_IN this_DT crisis_NN does_VBZ not_RB mean_VB that_DT “_NN everyone_NN is_VBZ at_IN fault_NN ”_NN ;_: many_JJ firms_NNS and_CC individuals_NNS did_VBD not_RB participate_VB in_IN the_DT excesses_NNS that_WDT spawned_VBD disaster_NN ._. 
We_PRP do_VBP place_VB special_JJ responsibility_NN with_IN the_DT public_JJ leaders_NNS charged_VBN with_IN protecting_VBG our_PRP$ financial_JJ system_NN ,_, those_DT entrusted_VBN to_TO run_VB our_PRP$ regulatory_JJ agencies_NNS ,_, and_CC the_DT chief_NN executives_NNS of_IN companies_NNS whose_WP$ failures_NNS drove_VBD us_PRP to_TO crisis_NN ._. 
These_DT individuals_NNS sought_VBN and_CC accepted_VBN positions_NNS of_IN significant_JJ responsibility_NN and_CC obligation_NN ._. 
Tone_NNP at_IN the_DT top_JJ does_VBZ matter_NN and_CC ,_, in_IN this_DT instance_NN ,_, we_PRP were_VBD let_VBN down_RB ._. 
No_DT one_NN said_VBD “_NN no_UH ._. ”_NN 
But_CC as_IN a_DT nation_NN ,_, we_PRP must_MD also_RB accept_VB responsibility_NN for_IN what_WP we_PRP permitted_VBD to_TO occur_VB ._. 
Collectively_RB ,_, but_CC certainly_RB not_RB unanimously_RB ,_, we_PRP acquiesced_VBD to_TO or_CC embraced_VBD a_DT system_NN ,_, a_DT set_NN of_IN policies_NNS and_CC actions_NNS ,_, that_WDT gave_VBD rise_NN to_TO our_PRP$ present_JJ predicament_NN ._. 
THIS_NNP REPORT_NNP DESCRIBES_NNP THE_DT EVENTS_NNP and_CC the_DT system_NN that_WDT propelled_VBD our_PRP$ nation_NN toward_IN crisis_NN ._. 
The_DT complex_JJ machinery_NN of_IN our_PRP$ financial_JJ markets_NNS has_VBZ many_JJ essential_JJ gears—some_NN of_IN which_WDT played_VBD a_DT critical_JJ role_NN as_IN the_DT crisis_NN developed_VBN and_CC deepened_VBD ._. 
Here_RB we_PRP render_VB our_PRP$ conclusions_NNS about_IN specific_JJ components_NNS of_IN the_DT system_NN that_IN we_PRP believe_VBP contributed_VBN significantly_RB to_TO the_DT financial_JJ meltdown_NN ._. 
We_PRP conclude_VBP collapsing_VBG mortgage-lending_JJ standards_NNS and_CC the_DT mortgage_NN securitization_NN pipeline_NN lit_VBD and_CC spread_VB the_DT flame_NN of_IN contagion_NN and_CC crisis_NN ._. 
When_WRB housing_NN prices_NNS fell_VBD and_CC mortgage_NN borrowers_NNS defaulted_VBD ,_, the_DT lights_NNS began_VBD to_TO dim_NN on_IN Wall_NNP Street_NNP ._. 
This_DT report_NN catalogues_NNS the_DT corrosion_NN of_IN mortgage-lending_JJ standards_NNS and_CC the_DT securitization_NN pipeline_NN that_WDT transported_VBD toxic_JJ mortgages_NNS from_IN neighborhoods_NNS across_IN America_NNP to_TO investors_NNS around_IN the_DT globe_NN ._. 
Many_JJ mortgage_NN lenders_NNS set_VBD the_DT bar_NN so_RB low_JJ that_IN lenders_NNS simply_RB took_VBD eager_JJ borrowers_NNS ’_NN qualifications_NNS on_IN faith_NN ,_, often_RB with_IN a_DT willful_JJ disregard_NN for_IN a_DT borrower_NN ’_NN s_VBZ ability_NN to_TO pay_VB ._. 
Nearly_RB one-quarter_NN of_IN all_DT mortgages_NNS made_VBN in_IN the_DT first_JJ half_NN of_IN 2005_CD were_VBD interest-_NN only_RB loans_VBZ ._. 
During_IN the_DT same_JJ year_NN ,_, 68_CD %_NN of_IN “_NN option_NN ARM_NNP ”_NN loans_NNS originated_VBN by_IN Countrywide_NNP and_CC Washington_NNP Mutual_NNP had_VBD low-_JJ or_CC no-documentation_JJ requirements_NNS ._. 
These_DT trends_NNS were_VBD not_RB secret_JJ ._. 
As_IN irresponsible_JJ lending_NN ,_, including_VBG predatory_NN and_CC fraudulent_JJ practices_NNS ,_, became_VBD more_RBR prevalent_JJ ,_, the_DT Federal_NNP Reserve_NNP and_CC other_JJ regulators_NNS and_CC authorities_NNS heard_VBD warnings_NNS from_IN many_JJ quarters_NNS ._. 
Yet_RB the_DT Federal_NNP Reserve_NNP neglected_VBD its_PRP$ mission_NN “_NN to_TO ensure_VB the_DT safety_NN and_CC soundness_NN of_IN the_DT nation_NN ’_NN s_VBZ banking_NN and_CC financial_JJ system_NN and_CC to_TO protect_VB the_DT credit_NN rights_NNS of_IN consumers_NNS ._. ”_NN 
It_PRP failed_VBD to_TO build_VB the_DT retaining_VBG wall_NN before_IN it_PRP was_VBD too_RB late_RB ._. 
And_CC the_DT Office_NNP of_IN the_DT Comptroller_NNP of_IN the_DT Currency_NNP and_CC the_DT Office_NNP of_IN Thrift_NNP Supervision_NNP ,_, caught_VBD up_RP in_IN turf_NN wars_NNS ,_, preempted_JJ state_NN regulators_NNS from_IN reining_VBG in_IN abuses_NNS ._. 
While_IN many_JJ of_IN these_DT mortgages_NNS were_VBD kept_VBN on_IN banks_NNS ’_NN books_NNS ,_, the_DT bigger_JJR money_NN came_VBD from_IN global_JJ investors_NNS who_WP clamored_VBD to_TO put_VB their_PRP$ cash_NN into_IN newly_RB created_VBN mortgage-related_JJ securities_NNS ._. 
It_PRP appeared_VBD to_TO financial_JJ institutions_NNS ,_, investors_NNS ,_, and_CC regulators_NNS alike_RB that_DT risk_NN had_VBD been_VBN conquered_JJ :_: the_DT investors_NNS held_VBN highly_RB rated_VBN securities_NNS they_PRP thought_VBD were_VBD sure_JJ to_TO perform_VB ;_: the_DT banks_NNS thought_VBD they_PRP had_VBD taken_VBN the_DT riskiest_JJS loans_NNS off_RP their_PRP$ books_NNS ;_: and_CC regulators_NNS saw_VBD firms_NNS making_VBG profits_NNS and_CC borrowing_NN costs_NNS reduced_VBN ._. 
But_CC each_DT step_NN in_IN the_DT mortgage_NN securitization_NN pipeline_NN depended_VBD on_IN the_DT next_JJ step_NN to_TO keep_VB demand_NN going_NN ._. 
From_IN the_DT speculators_NNS who_WP flipped_VBD houses_NNS to_TO the_DT mortgage_NN brokers_NNS who_WP scouted_JJ the_DT loans_NNS ,_, to_TO the_DT lenders_NNS who_WP issued_VBD the_DT mortgages_NNS ,_, to_TO the_DT financial_JJ firms_NNS that_WDT created_VBD the_DT mortgage-backed_JJ securities_NNS ,_, collateralized_JJ debt_NN obligations_NNS (_( CDOs_NNP )_) ,_, CDOs_NNP squared_VBD ,_, and_CC synthetic_JJ CDOs_NNP :_: no_DT one_CD in_IN this_DT pipeline_NN of_IN toxic_JJ mortgages_NNS had_VBD enough_JJ skin_NN in_IN the_DT game_NN ._. 
They_PRP all_DT believed_VBN they_PRP could_MD off-load_JJ their_PRP$ risks_NNS on_IN a_DT moment_NN ’_NN s_VBZ notice_NN to_TO the_DT next_JJ person_NN in_IN line_NN ._. 
They_PRP were_VBD wrong_JJ ._. 
When_WRB borrowers_NNS stopped_VBD making_VBG mortgage_NN payments_NNS ,_, the_DT losses—amplified_JJ by_IN derivatives—rushed_JJ through_IN the_DT pipeline_NN ._. 
As_IN it_PRP turned_VBD out_IN ,_, these_DT losses_NNS were_VBD concentrated_VBN in_IN a_DT set_NN of_IN systemically_RB important_JJ financial_JJ institutions_NNS ._. 
In_IN the_DT end_NN ,_, the_DT system_NN that_WDT created_VBD millions_NNS of_IN mortgages_NNS so_RB efficiently_RB has_VBZ proven_VBN to_TO be_VB difficult_JJ to_TO unwind_VB ._. 
Its_PRP$ complexity_NN has_VBZ erected_VBN barriers_NNS to_TO modifying_VBG mortgages_NNS so_IN families_NNS can_MD stay_VB in_IN their_PRP$ homes_NNS and_CC has_VBZ created_VBN further_JJ uncertainty_NN about_IN the_DT health_NN of_IN the_DT housing_NN market_NN and_CC financial_JJ institutions_NNS ._. 
We_PRP conclude_VBP over-the-counter_JJ derivatives_NNS contributed_VBD significantly_RB to_TO this_DT crisis_NN ._. 
The_DT enactment_NN of_IN legislation_NN in_IN 2000_CD to_TO ban_VB the_DT regulation_NN by_IN both_DT the_DT federal_JJ and_CC state_NN governments_NNS of_IN over-the-counter_JJ (_( OTC_NNP )_) derivatives_NNS was_VBD a_DT key_JJ turning_NN point_NN in_IN the_DT march_NN toward_IN the_DT financial_JJ crisis_NN ._. 
From_IN financial_JJ firms_NNS to_TO corporations_NNS ,_, to_TO farmers_NNS ,_, and_CC to_TO investors_NNS ,_, derivatives_NNS have_VBP been_VBN used_VBN to_TO hedge_VB against_IN ,_, or_CC speculate_VB on_RB ,_, changes_NNS in_IN prices_NNS ,_, rates_NNS ,_, or_CC indices_NNS or_CC even_RB on_IN events_NNS such_JJ as_IN the_DT potential_JJ defaults_NNS on_IN debts_NNS ._. 
Yet_RB ,_, without_IN any_DT oversight_NN ,_, OTC_NNP derivatives_NNS rapidly_RB spiraled_VBD out_IN of_IN control_NN and_CC out_IN of_IN sight_NN ,_, growing_VBG to_TO $673_NN trillion_CD in_IN notional_NN amount_NN ._. 
This_DT report_NN explains_VBZ the_DT uncontrolled_JJ leverage_NN ;_: lack_NN of_IN transparency_NN ,_, capital_NN ,_, and_CC collateral_NN requirements_NNS ;_: speculation_NN ;_: interconnections_NNS among_IN firms_NNS ;_: and_CC concentrations_NNS of_IN risk_NN in_IN this_DT market_NN ._. 
OTC_NNP derivatives_NNS contributed_VBD to_TO the_DT crisis_NN in_IN three_CD significant_JJ ways_NNS ._. 
First_CD ,_, one_CD type_NN of_IN derivative—credit_NN default_NN swaps_NNS (_( CDS_NNP )_) —_NN fueled_VBD the_DT mortgage_NN securitization_NN pipeline_NN ._. 
CDS_NNP were_VBD sold_VBN to_TO investors_NNS to_TO protect_VB against_IN the_DT default_NN or_CC decline_NN in_IN value_NN of_IN mortgage-related_JJ securities_NNS backed_VBN by_IN risky_JJ loans_NNS ._. 
Companies_NNS sold_VBD protection—to_NN the_DT tune_NN of_IN $79_NN billion_CD ,_, in_IN AIG_NNP ’_NN s_VBZ case—to_NN investors_NNS in_IN these_DT newfangled_JJ mortgage_NN securities_NNS ,_, helping_VBG to_TO launch_VB and_CC expand_VB the_DT market_NN and_CC ,_, in_IN turn_NN ,_, to_TO further_VB fuel_NN the_DT housing_NN bubble_NN ._. 
Second_JJ ,_, CDS_NNP were_VBD essential_JJ to_TO the_DT creation_NN of_IN synthetic_JJ CDOs_NNP ._. 
These_DT synthetic_JJ CDOs_NNP were_VBD merely_RB bets_NNS on_IN the_DT performance_NN of_IN real_JJ mortgage-related_JJ securities_NNS ._. 
They_PRP amplified_VBN the_DT losses_NNS from_IN the_DT collapse_NN of_IN the_DT housing_NN bubble_NN by_IN allowing_VBG multiple_JJ bets_NNS on_IN the_DT same_JJ securities_NNS and_CC helped_VBD spread_VBN them_PRP throughout_IN the_DT financial_JJ system_NN ._. 
Goldman_NNP Sachs_NNP alone_RB packaged_VBN and_CC sold_VBD $73_NN billion_CD in_IN synthetic_JJ CDOs_NNP from_IN July_NNP 1_CD ,_, 2004_CD ,_, to_TO May_NNP 31_CD ,_, 2007_CD ._. 
Synthetic_NNP CDOs_NNP created_VBN by_IN Goldman_NNP referenced_JJ more_JJR than_IN 3,400_CD mortgage_NN securities_NNS ,_, and_CC 610_CD of_IN them_PRP were_VBD referenced_JJ at_IN least_JJS twice_RB ._. 
This_DT is_VBZ apart_RB from_IN how_WRB many_JJ times_NNS these_DT securities_NNS may_MD have_VB been_VBN referenced_JJ in_IN synthetic_JJ CDOs_NNP created_VBN by_IN other_JJ firms_NNS ._. 
Finally_RB ,_, when_WRB the_DT housing_NN bubble_NN popped_JJ and_CC crisis_NN followed_VBD ,_, derivatives_NNS were_VBD in_IN the_DT center_NN of_IN the_DT storm_NN ._. 
AIG_NNP ,_, which_WDT had_VBD not_RB been_VBN required_VBN to_TO put_VB aside_RB capital_NN reserves_NNS as_IN a_DT cushion_NN for_IN the_DT protection_NN it_PRP was_VBD selling_VBG ,_, was_VBD bailed_VBD out_IN when_WRB it_PRP could_MD not_RB meet_VB its_PRP$ obligations_NNS ._. 
The_DT government_NN ultimately_RB committed_VBD more_JJR than_IN $180_NN billion_CD because_IN of_IN concerns_NNS that_IN AIG_NNP ’_NN s_VBZ collapse_NN would_MD trigger_VB cascading_VBG losses_NNS throughout_IN the_DT global_JJ financial_JJ system_NN ._. 
In_IN addition_NN ,_, the_DT existence_NN of_IN millions_NNS of_IN derivatives_NNS contracts_NNS of_IN all_DT types_NNS between_IN systemically_RB important_JJ financial_JJ institutions—unseen_NN and_CC unknown_JJ in_IN this_DT unregulated_JJ market—added_JJ to_TO uncertainty_NN and_CC escalated_VBN panic_NN ,_, helping_VBG to_TO precipitate_NN government_NN assistance_NN to_TO those_DT institutions_NNS ._. 
We_PRP conclude_VBP the_DT failures_NNS of_IN credit_NN rating_NN agencies_NNS were_VBD essential_JJ cogs_NNS in_IN the_DT wheel_NN of_IN financial_JJ destruction_NN ._. 
The_DT three_CD credit_NN rating_NN agencies_NNS were_VBD key_JJ enablers_NNS of_IN the_DT financial_JJ meltdown_NN ._. 
The_DT mortgage-related_JJ securities_NNS at_IN the_DT heart_NN of_IN the_DT crisis_NN could_MD not_RB have_VB been_VBN marketed_VBN and_CC sold_VBD without_IN their_PRP$ seal_NN of_IN approval_NN ._. 
Investors_NNS relied_VBN on_IN them_PRP ,_, often_RB blindly_RB ._. 
In_IN some_DT cases_NNS ,_, they_PRP were_VBD obligated_VBN to_TO use_VB them_PRP ,_, or_CC regulatory_JJ capital_NN standards_NNS were_VBD hinged_JJ on_IN them_PRP ._. 
This_DT crisis_NN could_MD not_RB have_VB happened_VBN without_IN the_DT rating_NN agencies_NNS ._. 
Their_PRP$ ratings_NNS helped_VBD the_DT market_NN soar_VB and_CC their_PRP$ downgrades_NNS through_IN 2007_CD and_CC 2008_CD wreaked_VBD havoc_NN across_IN markets_NNS and_CC firms_NNS ._. 
In_IN our_PRP$ report_NN ,_, you_PRP will_MD read_VB about_IN the_DT breakdowns_NNS at_IN Moody_NNP ’_NN s_VBZ ,_, examined_VBN by_IN the_DT Commission_NNP as_IN a_DT case_NN study_NN ._. 
From_IN 2000_CD to_TO 2007_CD ,_, Moody_NNP ’_NN s_VBZ rated_VBN nearly_RB 45,000_CD mortgage-related_JJ securities_NNS as_IN triple-_NN A._NN 
This_DT compares_VBZ with_IN six_CD private-sector_JJ companies_NNS in_IN the_DT United_NNP States_NNPS that_WDT carried_VBD this_DT coveted_JJ rating_NN in_IN early_JJ 2010_CD ._. 
In_IN 2006_CD alone_RB ,_, Moody_NNP ’_NN s_VBZ put_VB its_PRP$ triple-_NN A_DT stamp_NN of_IN approval_NN on_IN 30_CD mortgage-related_JJ securities_NNS every_DT working_VBG day_NN ._. 
The_DT results_NNS were_VBD disastrous_JJ :_: 83_CD %_NN of_IN the_DT mortgage_NN securities_NNS rated_VBD triple-_NN A_DT that_DT year_NN ultimately_RB were_VBD downgraded_VBN ._. 
You_PRP will_MD also_RB read_VB about_IN the_DT forces_NNS at_IN work_NN behind_IN the_DT breakdowns_NNS at_IN Moody_NNP ’_NN s_VBZ ,_, including_VBG the_DT flawed_JJ computer_NN models_NNS ,_, the_DT pressure_NN from_IN financial_JJ firms_NNS that_WDT paid_VBD for_IN the_DT ratings_NNS ,_, the_DT relentless_JJ drive_NN for_IN market_NN share_NN ,_, the_DT lack_NN of_IN resources_NNS to_TO do_VB the_DT job_NN despite_IN record_NN profits_NNS ,_, and_CC the_DT absence_NN of_IN meaningful_JJ public_JJ oversight_NN ._. 
And_CC you_PRP will_MD see_VB that_IN without_IN the_DT active_JJ participation_NN of_IN the_DT rating_NN agencies_NNS ,_, the_DT market_NN for_IN mortgage-_NN related_VBD securities_NNS could_MD not_RB have_VB been_VBN what_WP it_PRP became_VBD ._. 
THERE_NNP ARE_VBP MANY_JJ COMPETING_NNP VIEWS_NNP as_IN to_TO the_DT causes_NNS of_IN this_DT crisis_NN ._. In_IN this_DT regard_NN ,_, the_DT Commission_NNP has_VBZ endeavored_JJ to_TO address_VB key_JJ questions_NNS posed_VBN to_TO us_PRP ._. 
Here_RB we_PRP discuss_VBP three_CD :_: capital_NN availability_NN and_CC excess_JJ liquidity_NN ,_, the_DT role_NN of_IN Fannie_NNP Mae_NNP and_CC Freddie_NNP Mac_NNP (_( the_DT GSEs_NNP )_) ,_, and_CC government_NN housing_NN policy_NN ._. 
First_CD ,_, as_IN to_TO the_DT matter_NN of_IN excess_JJ liquidity_NN :_: in_IN our_PRP$ report_NN ,_, we_PRP outline_VB monetary_JJ policies_NNS and_CC capital_NN flows_NNS during_IN the_DT years_NNS leading_VBG up_RP to_TO the_DT crisis_NN ._. 
Low_NNP interest_NN rates_NNS ,_, widely_RB available_JJ capital_NN ,_, and_CC international_JJ investors_NNS seeking_VBG to_TO put_VB their_PRP$ money_NN in_IN real_JJ estate_NN assets_NNS in_IN the_DT United_NNP States_NNPS were_VBD prerequisites_NNS for_IN the_DT creation_NN of_IN a_DT credit_NN bubble_NN ._. 
Those_DT conditions_NNS created_VBN increased_VBN risks_NNS ,_, which_WDT should_MD have_VB been_VBN recognized_VBN by_IN market_NN participants_NNS ,_, policy_NN makers_NNS ,_, and_CC regulators_NNS ._. 
However_RB ,_, it_PRP is_VBZ the_DT Commission_NNP ’_NN s_VBZ conclusion_NN that_IN excess_JJ liquidity_NN did_VBD not_RB need_VB to_TO cause_VB a_DT crisis_NN ._. 
It_PRP was_VBD the_DT failures_NNS outlined_VBD above—including_VBG the_DT failure_NN to_TO effectively_RB rein_VB in_IN excesses_NNS in_IN the_DT mortgage_NN and_CC financial_JJ markets—that_NN were_VBD the_DT principal_JJ causes_NNS of_IN this_DT crisis_NN ._. 
Indeed_RB ,_, the_DT availability_NN of_IN well-priced_JJ capital—both_NN foreign_JJ and_CC domestic—is_NNS an_DT opportunity_NN for_IN economic_JJ expansion_NN and_CC growth_NN if_IN encouraged_VBN to_TO flow_VB in_IN productive_JJ directions_NNS ._. 
Second_JJ ,_, we_PRP examined_VBD the_DT role_NN of_IN the_DT GSEs_NNP ,_, with_IN Fannie_NNP Mae_NNP serving_VBG as_IN the_DT Commission_NNP ’_NN s_VBZ case_NN study_NN in_IN this_DT area_NN ._. 
These_DT government-sponsored_JJ enterprises_NNS had_VBD a_DT deeply_RB flawed_VBN business_NN model_NN as_RB publicly_RB traded_VBN corporations_NNS with_IN the_DT implicit_JJ backing_NN of_IN and_CC subsidies_NNS from_IN the_DT federal_JJ government_NN and_CC with_IN a_DT public_JJ mission_NN ._. 
Their_PRP$ $5_NN trillion_CD mortgage_NN exposure_NN and_CC market_NN position_NN were_VBD significant_JJ ._. 
In_IN 2005_CD and_CC 2006_CD ,_, they_PRP decided_VBD to_TO ramp_VB up_RP their_PRP$ purchase_NN and_CC guarantee_NN of_IN risky_JJ mortgages_NNS ,_, just_RB as_IN the_DT housing_NN market_NN was_VBD peaking_VBG ._. 
They_PRP used_VBD their_PRP$ political_JJ power_NN for_IN decades_NNS to_TO ward_VB off_RP effective_JJ regulation_NN and_CC oversight—spending_VBG $164_NN million_CD on_IN lobbying_VBG from_IN 1998_CD to_TO 2008_CD ._. 
They_PRP suffered_VBD from_IN many_JJ of_IN the_DT same_JJ failures_NNS of_IN corporate_JJ governance_NN and_CC risk_NN management_NN as_IN the_DT Commission_NNP discovered_VBD in_IN other_JJ financial_JJ firms_NNS ._. 
Through_IN the_DT third_JJ quarter_NN of_IN 2010_CD ,_, the_DT Treasury_NNP Department_NNP had_VBD provided_VBN $151_NN billion_CD in_IN financial_JJ support_NN to_TO keep_VB them_PRP afloat_RB ._. 
We_PRP conclude_VBP that_IN these_DT two_CD entities_NNS contributed_VBD to_TO the_DT crisis_NN ,_, but_CC were_VBD not_RB a_DT primary_JJ cause_NN ._. 
Importantly_NNP ,_, GSE_NNP mortgage_NN securities_NNS essentially_RB maintained_VBN their_PRP$ value_NN throughout_IN the_DT crisis_NN and_CC did_VBD not_RB contribute_VB to_TO the_DT significant_JJ financial_JJ firm_NN losses_NNS that_WDT were_VBD central_JJ to_TO the_DT financial_JJ crisis_NN ._. 
The_DT GSEs_NNP participated_VBD in_IN the_DT expansion_NN of_IN subprime_NN and_CC other_JJ risky_JJ mortgages_NNS ,_, but_CC they_PRP followed_VBD rather_RB than_IN led_VBN Wall_NNP Street_NNP and_CC other_JJ lenders_NNS in_IN the_DT rush_NN for_IN fool_NN ’_NN s_VBZ gold_NN ._. 
They_PRP purchased_VBD the_DT highest_RBS rated_VBN non-_NN GSE_NNP mortgage-backed_JJ securities_NNS and_CC their_PRP$ participation_NN in_IN this_DT market_NN added_VBD helium_NN to_TO the_DT housing_NN balloon_NN ,_, but_CC their_PRP$ purchases_NNS never_RB represented_VBD a_DT majority_NN of_IN the_DT market_NN ._. 
Those_DT purchases_NNS represented_VBD 10.5_CD %_NN of_IN non-_NN GSE_NNP subprime_NN mortgage-backed_JJ securities_NNS in_IN 2001_CD ,_, with_IN the_DT share_NN rising_VBG to_TO 40_CD %_NN in_IN 2004_CD ,_, and_CC falling_VBG back_RB to_TO 28_CD %_NN by_IN 2008_CD ._. 
They_PRP relaxed_VBD their_PRP$ underwriting_NN standards_NNS to_TO purchase_VB or_CC guarantee_NN riskier_JJR loans_NNS and_CC related_VBN securities_NNS in_IN order_NN to_TO meet_VB stock_NN market_NN analysts_NNS ’_NN and_CC investors_NNS ’_NN expectations_NNS for_IN growth_NN ,_, to_TO regain_VB market_NN share_NN ,_, and_CC to_TO ensure_VB generous_JJ compensation_NN for_IN their_PRP$ executives_NNS and_CC employees—justifying_VBG their_PRP$ activities_NNS on_IN the_DT broad_JJ and_CC sustained_VBN public_JJ policy_NN support_NN for_IN homeownership_NN ._. 
The_DT Commission_NNP also_RB probed_JJ the_DT performance_NN of_IN the_DT loans_NNS purchased_VBN or_CC guaranteed_VBN by_IN Fannie_NNP and_CC Freddie_NNP ._. 
While_IN they_PRP generated_VBD substantial_JJ losses_NNS ,_, delinquency_NN rates_NNS for_IN GSE_NNP loans_NNS were_VBD substantially_RB lower_JJR than_IN loans_NNS securitized_JJ by_IN other_JJ financial_JJ firms_NNS ._. 
For_IN example_NN ,_, data_NNS compiled_VBN by_IN the_DT Commission_NNP for_IN a_DT subset_NN of_IN borrowers_NNS with_IN similar_JJ credit_NN scores--scores_JJ below_IN 600_CD --_: show_NN that_IN by_IN the_DT end_NN of_IN 2008_CD ,_, GSE_NNP mortgages_NNS were_VBD far_RB less_RBR likely_JJ to_TO be_VB seriously_RB delinquent_JJ than_IN were_VBD non-_NN GSE_NNP securitized_JJ mortgages_NNS :_: 6.2_CD %_NN versus_CC 28.3_CD %_NN ._. 
We_PRP also_RB studied_VBD at_IN length_NN how_WRB the_DT Department_NNP of_IN Housing_NNP and_CC Urban_NNP Development_NNP ’_NN s_VBZ (_( HUD_NNP ’_NN s_VBZ )_) affordable_JJ housing_NN goals_NNS for_IN the_DT GSEs_NNP affected_VBD their_PRP$ investment_NN in_IN risky_JJ mortgages_NNS ._. 
Based_VBN on_IN the_DT evidence_NN and_CC interviews_NNS with_IN dozens_NNS of_IN individuals_NNS involved_VBN in_IN this_DT subject_JJ area_NN ,_, we_PRP determined_VBD these_DT goals_NNS only_RB contributed_VBD marginally_RB to_TO Fannie_NNP ’_NN s_VBZ and_CC Freddie_NNP ’_NN s_VBZ participation_NN in_IN those_DT mortgages_NNS ._. 
Finally_RB ,_, as_IN to_TO the_DT matter_NN of_IN whether_IN government_NN housing_NN policies_NNS were_VBD a_DT primary_JJ cause_NN of_IN the_DT crisis_NN :_: for_IN decades_NNS ,_, government_NN policy_NN has_VBZ encouraged_VBN homeownership_NN through_IN a_DT set_NN of_IN incentives_NNS ,_, assistance_NN programs_NNS ,_, and_CC mandates_VBZ ._. 
These_DT policies_NNS were_VBD put_VBN in_IN place_NN and_CC promoted_VBN by_IN several_JJ administrations_NNS and_CC Congresses—indeed_NNP ,_, both_DT Presidents_NNP Bill_NNP Clinton_NNP and_CC George_NNP W._NN Bush_NNP set_VBD aggressive_JJ goals_NNS to_TO increase_VB home-_NN ownership_NN ._. 
In_IN conducting_VBG our_PRP$ inquiry_NN ,_, we_PRP took_VBD a_DT careful_JJ look_NN at_IN HUD_NNP ’_NN s_VBZ affordable_JJ housing_NN goals_NNS ,_, as_IN noted_VBN above_IN ,_, and_CC the_DT Community_NNP Reinvestment_NNP Act_NNP (_( CRA_NNP )_) ._. 
The_DT CRA_NNP was_VBD enacted_VBN in_IN 1977_CD to_TO combat_VB “_NN redlining_VBG ”_NN by_IN banks—the_NN practice_NN of_IN denying_VBG credit_NN to_TO individuals_NNS and_CC businesses_NNS in_IN certain_JJ neighborhoods_NNS without_IN regard_NN to_TO their_PRP$ creditworthiness_NN ._. 
The_DT CRA_NNP requires_VBZ banks_NNS and_CC savings_NNS and_CC loans_NNS to_TO lend_VB ,_, invest_VB ,_, and_CC provide_VB services_NNS to_TO the_DT communities_NNS from_IN which_WDT they_PRP take_VBP deposits_NNS ,_, consistent_JJ with_IN bank_NN safety_NN and_CC soundness_NN ._. 
The_DT Commission_NNP concludes_VBZ the_DT CRA_NNP was_VBD not_RB a_DT significant_JJ factor_NN in_IN subprime_NN lending_NN or_CC the_DT crisis_NN ._. 
Many_JJ subprime_NN lenders_NNS were_VBD not_RB subject_JJ to_TO the_DT CRA_NNP ._. 
Research_NNP indicates_VBZ only_RB 6_CD %_NN of_IN high-cost_JJ loans—a_NN proxy_NN for_IN subprime_NN loans—had_NN any_DT connection_NN to_TO the_DT law_NN ._. 
Loans_NNS made_VBN by_IN CRA-regulated_NNP lenders_NNS in_IN the_DT neighborhoods_NNS in_IN which_WDT they_PRP were_VBD required_VBN to_TO lend_VB were_VBD half_NN as_IN likely_JJ to_TO default_VB as_IN similar_JJ loans_NNS made_VBN in_IN the_DT same_JJ neighborhoods_NNS by_IN independent_JJ mortgage_NN originators_NNS not_RB subject_JJ to_TO the_DT law_NN ._. 
Nonetheless_RB ,_, we_PRP make_VBP the_DT following_VBG observation_NN about_IN government_NN housing_NN policies—_NN they_PRP failed_VBD in_IN this_DT respect_NN :_: As_IN a_DT nation_NN ,_, we_PRP set_VBD aggressive_JJ homeownership_NN goals_NNS with_IN the_DT desire_NN to_TO extend_VB credit_NN to_TO families_NNS previously_RB denied_VBD access_NN to_TO the_DT financial_JJ markets_NNS ._. 
Yet_RB the_DT government_NN failed_VBD to_TO ensure_VB that_IN the_DT philosophy_NN of_IN opportunity_NN was_VBD being_VBG matched_VBN by_IN the_DT practical_JJ realities_NNS on_IN the_DT ground_NN ._. 
Witness_VB again_RB the_DT failure_NN of_IN the_DT Federal_NNP Reserve_NNP and_CC other_JJ regulators_NNS to_TO rein_VB in_IN irresponsible_JJ lending_NN ._. 
Homeownership_NNP peaked_VBD in_IN the_DT spring_NN of_IN 2004_CD and_CC then_RB began_VBD to_TO decline_VB ._. 
From_IN that_DT point_NN on_IN ,_, the_DT talk_NN of_IN opportunity_NN was_VBD tragically_RB at_IN odds_NNS with_IN the_DT reality_NN of_IN a_DT financial_JJ disaster_NN in_IN the_DT making_VBG ._. 
WHEN_WRB THIS_NNP COMMISSION_NNP began_VBD its_PRP$ work_NN 18_CD months_NNS ago_RB ,_, some_DT imagined_VBD that_IN the_DT events_NNS of_IN 2008_CD and_CC their_PRP$ consequences_NNS would_MD be_VB well_RB behind_IN us_PRP by_IN the_DT time_NN we_PRP issued_VBD this_DT report_NN ._. 
Yet_RB more_JJR than_IN two_CD years_NNS after_IN the_DT federal_JJ government_NN intervened_VBD in_IN an_DT unprecedented_JJ manner_NN in_IN our_PRP$ financial_JJ markets_NNS ,_, our_PRP$ country_NN finds_VBZ itself_PRP still_RB grappling_VBG with_IN the_DT aftereffects_NNS of_IN the_DT calamity_NN ._. 
Our_PRP$ financial_JJ system_NN is_VBZ ,_, in_IN many_JJ respects_NNS ,_, still_RB unchanged_JJ from_IN what_WP existed_VBD on_IN the_DT eve_NN of_IN the_DT crisis_NN ._. 
Indeed_RB ,_, in_IN the_DT wake_NN of_IN the_DT crisis_NN ,_, the_DT U.S._NNP financial_JJ sector_NN is_VBZ now_RB more_RBR concentrated_JJ than_IN ever_RB in_IN the_DT hands_NNS of_IN a_DT few_JJ large_JJ ,_, systemically_RB significant_JJ institutions_NNS ._. 
While_IN we_PRP have_VBP not_RB been_VBN charged_VBN with_IN making_VBG policy_NN recommendations_NNS ,_, the_DT very_JJ purpose_NN of_IN our_PRP$ report_NN has_VBZ been_VBN to_TO take_VB stock_NN of_IN what_WP happened_VBD so_IN we_PRP can_MD plot_VB a_DT new_JJ course_NN ._. 
In_IN our_PRP$ inquiry_NN ,_, we_PRP found_VBD dramatic_JJ breakdowns_NNS of_IN corporate_JJ governance_NN ,_, profound_JJ lapses_NNS in_IN regulatory_JJ oversight_NN ,_, and_CC near_IN fatal_JJ flaws_NNS in_IN our_PRP$ financial_JJ system_NN ._. 
We_PRP also_RB found_VBD that_IN a_DT series_NN of_IN choices_NNS and_CC actions_NNS led_VBD us_PRP toward_IN a_DT catastrophe_NN for_IN which_WDT we_PRP were_VBD ill_RB prepared_VBN ._. 
These_DT are_VBP serious_JJ matters_NNS that_WDT must_MD be_VB addressed_VBN and_CC resolved_VBN to_TO restore_VB faith_NN in_IN our_PRP$ financial_JJ markets_NNS ,_, to_TO avoid_VB the_DT next_JJ crisis_NN ,_, and_CC to_TO rebuild_VB a_DT system_NN of_IN capital_NN that_WDT provides_VBZ the_DT foundation_NN for_IN a_DT new_JJ era_NN of_IN broadly_RB shared_VBN prosperity_NN ._. 
The_DT greatest_JJS tragedy_NN would_MD be_VB to_TO accept_VB the_DT refrain_NN that_IN no_DT one_PRP could_MD have_VB seen_VBN this_DT coming_VBG and_CC thus_RB nothing_NN could_MD have_VB been_VBN done_VBN ._. 
If_IN we_PRP accept_VBP this_DT notion_NN ,_, it_PRP will_MD happen_VB again_RB ._. 
This_DT report_NN should_MD not_RB be_VB viewed_VBN as_IN the_DT end_NN of_IN the_DT nation_NN ’_NN s_VBZ examination_NN of_IN this_DT crisis_NN ._. 
There_EX is_VBZ still_RB much_JJ to_TO learn_VB ,_, much_JJ to_TO investigate_VB ,_, and_CC much_JJ to_TO fix_VB ._. 
This_DT is_VBZ our_PRP$ collective_JJ responsibility_NN ._. 
It_PRP falls_VBZ to_TO us_PRP to_TO make_VB different_JJ choices_NNS if_IN we_PRP want_VBP different_JJ results_NNS ._. 
