Phil Angelides has begun a press conference about the release of the Financial Crisis Inquiry Commission report. You can watch the release here. You can find the report here; you may have some problems getting in.

Angelides says that he hopes the American people read the report. He said the mission was to record history and not rewrite it (a nod to the dissenting opinion)?

…Angelides: there’s much anger in this country about what’s transpired. Many looked to this commission for answers. We kept these people in mind as we completed our work. There has been no shortage of debate over the bailout and too big to fail. But our mission was to figure out the origins. How did it come to pass that we were forced to choose between two stark and painful alternatives? Rescue the banks or let them crash?

Six major conclusions. Every commissioner here today (all the Democrats) agree.

1) This crisis was avoidable. There were many warning signs ignored or discounted.
2) Failures in regulation
3) Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk;
4) Excessive borrowing and risk by households and Wall Street
5) Government was ill-prepared for the crisis, inconsistent response added to panic.
6) Breaches of accountability became widespread.

Angelides: Predatory lending practices going back to the late 1990s. Risky trading activities grew exponentially, market for derivatives exploded, and short-term borrowing.

“Pervasive permissiveness.” Regulators and leaders did not take action. Evidence of failures across the board. Federal Reserve failed to ask. Even as housing market fell in 2006, Wall Street created $1.6 trillion in MBS. Moody’s rated 30 mortgage backed securities triple-A EVERY DAY.

None of what happened was an act of God.

John Thompson discusses failures in regulation. “The sentries were not at their post.” Widespread belief in self-correcting nature of the markets and belief that companies could police themselves. Supported by Alan Greenspan and subsequent Congresses. Laissez-faire approach. Unregulated derivatives and shadow banking system. Race to the bottom with forum shopping. Regulators had ample power to protect the system in many arenas and they failed to use it.

Examples: 1) Fed was only organization to set prudent lending standards. But it didn’t do it. 2) SEC could have required more capital at riskiest banks. 3) NYFed could have stopped Citi exposing itself to subprime securities. 4) Regulators and politicians could have stopped subprime securitization train.

Financial industry pushed for weaker and lighter regulation. But overseers failed to enforce regulations they did have. Public leaders charged with protecting financial system sought these positions of responsibility, had a need to act, and didn’t.

Moving to Brooksley Born: 30 years of deregulation and weakened oversight changed our financial system. Some believed firms would naturally shield themselves from risk-taking. But dramatic failures of corporate governance and risk management were critical causes of the crisis. Stunning instances of governance breakdowns and irresponsibility. Cites AIG, Bear Stearns, Fannie Mae, Lehman. Government’s hands-off philosophy and bad business decisions went hand in hand.

Large investment banks and bank holding companies took on enormous risk by supporting subprime lenders and selling trillions in mortgage-backed securities. Some financial firms expanded and that left them too big to fail. Some embraced mathematical models to increase risk. Risk management became risk justification. They rewarded the big bet, upside could be huge and the downside ignored. This drove the market in OTC derivatives after deregulation in 2000. Market spiraled out of control and out of sight. $673 trillion in notional amount by 2008. Derivatives contributed significantly to the crisis. Report lays out how credit derivatives fueled mortgage securitization and amplified losses from the housing bubble. Millions of derivatives of all types between systemically important firms were unseen and unknown. This added to market uncertainty and escalated the panic.

Byron Georgiou: Inadequate capital, risky investments, and excessive borrowing major feature. Banks had excessive leverage, and participants in “deeply flawed” securitization chain had no margin for error and not enough skin in the game. 40:1 leverage. Modest 3% market move against them could consume entire capital reserve. Short-term overnight borrowing had to be renewed every day. Fannie and Freddie’s leverage ratio combined to 75:1. Leverage often hidden in derivative positions and off balance sheet lending. True leverage was masked. Heavy debt exacerbated by assets they were acquiring with that debt. MBS riskier and riskier. Households took on more debt as well. National mortgage debt doubled from 2000-2007. Even as wages stagnant. Dangers of all this debt grew more ominous because no transparency. Shadow banking system did not have protections the country built in early 20th century to serve as bulwarks against run on banks. Shadow banking was bigger than traditional banking system. When housing bubble popped, everything came home to roost. “We had reaped what we had sown.”

Bob Graham: Actions taken by government in response to developing crisis inadequate. Inconsistent responses added to the panic. Federal Reserve, Treasury and Fed Bank of New York caught off-guard. Other agencies also behind the curve. Did not have a clear grasp of the financial system they were charged with overseeing. Lack of transparency in key markets a big issue. Policymakers thought risk was diversified and not concentrated. Policymakers worked on an ad hoc basis. They did not have a handle on the risk or the interconnections. Didn’t realize that a bursting of the housing bubble could destroy the financial system. In June 2007 when Bear Stearns MBS imploded, they were thought to be relatively unique. NY Fed looking into 900,000 derivative contracts in Lehman just a month before they collapsed. Inconsistent approach stoked uncertainty.

Heather Murren: Americans expect businesses to pursue profits and to conduct themselves well. But this crisis was fueled by a systemic breakdown in accountability and ethics. Breaches stretched from the living room to the boardroom. Borrowers defaulted so rapidly after taking a loan, it suggested they never had the capacity to break them off. Mortgage brokers reaped greater fees by putting borrowers into higher-cost loans. Losses due to fraud from loans from 2005-2007 climbed to $100 billion. Simplistic to pin this on human failings such as greed. Crisis of this magnitude cannot be the work of a few bad actors. Does not mean everyone at fault. We place special responsibility with the public leaders charged with protecting system and chief executives. We embraced a system that gave rise to a serious crisis. We must take stock of what happened so we can plot a new course. Must make different choices.

That’s the full presentation, I’ll keep listening for questions, but that’s basically it.

…This is a key question. Did you refer anything for criminal prosecution? Angelides says they were asked to refer to authorities any individual who violated the laws of the United States. Where they found violations, they did refer. “We will not comment on any specific referrals.”

Pages 377-378 of the book is a part on Goldman Sachs, where they received an additional, undisclosed $3.4 billion from AIG, they retained $2.9 billion. And this went into their own specific account.

…Just listening to this, you have to ask if it’s a whitewash or not. It’s hard to say, because this is a large report and I haven’t read all 576 pages. But the word “criminal” doesn’t really appear in this discussion, as a reporter is saying right now. And there’s at least a nod to how everybody is responsible, with as much a focus on the regulators as the CEOs.

Brooksley Born again says they made criminal referrals but will not discuss them publicly.

…They hope their report will be a guidepost for policymakers. There are hundreds of rules that have to be promulgated, and hopefully they can use the report in that rulemaking.

…This is a good point from Byron Georgiou. It would be remiss to suggest that everything in this report has been solved by Dodd-Frank. The financial system looks the same in 2011 that it did in 2007. In fact, the too big to fail firms got even bigger.

…The Times of London again asks about criminal referrals. Angelides: “We’re not a prosecutorial body.” We sent potential violations to the proper authorities, under our obligations, and that is all we will say on this matter.