What Caused The Financial Crisis?

The existing rules were not enforced.

The Federal Reserve could have set tougher mortgage-lending standards. It refused to do so. And no one else had the power to do so.

The Rating Agencies determined which bonds could be bought by fiduciary institutions.

From 2000 to 2007, Moody’s rated nearly 45,000 mortgage-related securities as triple-A.

Moody’s put its triple-A stamp of approval on 30 mortgage-related securities every working day.

The results were disastrous: 83% of the mortgage securities rated triple-A that year ultimately were downgraded.

Fannie Mae and Freddie Mac
You’ll often hear the financial crisis blamed on

1. The Community Reinvestment Act (encouraging mortgage lending to poor and minority borrowers).

2. The two government-sponsored mortgage lenders, Fannie Mae and Freddie Mac.

In 2005 and 2006, they ramped up their purchase and guarantee of risky mortgages.

They used their political power to ward off regulation and oversight — spending $164 million on lobbying from 1999 to 2008.

However, 9 out of 10 commissioners on the Financial Crisis Inquiry Commission said that they contributed to the problem but were not the primary cause.

Political Contributions
From 1999 to 2008, the financial sector spent $2.7 billion in federal lobbying.
Individuals and political action committees in the sector made more than $1 billion in campaign contributions.

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