Exactly 25-five years ago today, on January 28, 1986 at 11:38 a.m., the U.S. Space Shuttle Challenger disintegrated 73 seconds after liftoff, killing all seven astronauts aboard, including a schoolteacher named Christa McAuliffe. The disaster was witnessed by millions of Americans -- I recall watching in Bob Filo's fourth-hour world history class -- and stayed atop headlines for weeks, if not months afterward. At first, the Challenger disaster was thought to have been unavoidable, just one of those things that happens during man's exploration of the universe. But later it was revealed that, on the contrary, the disaster most definitely did not have to happen and, in fact, was the result of a series of shoddy engineering, signs of which surfaced after an in depth investigation.
Similarly, according to the Financial Crisis Inquiry Commission, which yesterday released its 500-page report on the causes of the U.S. credit crisis and ensuing financial crisis, the recent economic meltdown did not have to happen.
Revealing the report's findings, the commission's chairman Phil Angelides explained that "despite the expressed view of many on Wall Street and in Washington that the crisis could not have been foreseen or avoided, there were warning signs. The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done. If we accept this notion, it will happen again."
Among other things, Angelides (and the report) blames "widespread failures in financial regulation such as the Federal Reserve's failure to stem the tide of toxic mortgages over the past decade"; "systemic breaches in accountability and ethics at all levels"; "an explosive mix of excessive borrowing"; "mortgage fraud around the country in the years running up to the meltdown"; and "major financial institutions packag[ing] loans into securities that they had reason to suspect didn't meet their standards."
As expected, and noted here in an earlier post, the four Republican members of the commission have denied the accuracy of the contents of the report, believing that "instead of pursuing a thorough study, the commission's majority [its six Democratic members] used its extensive statutory investigative authority to seek only the facts that supported its initial assumptions."
According to the commission's Republican members, the crisis can not be blamed on deregulation, Wall Street greed, predatory lending, unregulated derivatives, or excessive risk-taking, but on the following: "credit and housing bubbles; nontraditional mortgages; failures in credit-rating and securitization; financial firms' massive housing risk; firms holding too little capital; the ease at which losses spread through the system; bad bets on housing; and market shock and panic."
In other words, the Republican members of the commission believe the meltdown was unavoidable, a perfect storm of variables that could very well repeat itself, if and when the financial stars were again to collide.
(Related: Crisis Didn't Have to Happen, Says Congress)