Not this man’s fault

Not this man’s fault

Remember the other day I said that blaming the subprime mortgage fiasco on Dems in Congress and Barney Frank in particular was bullshit unwarranted? Well, the President’s own Working Group on Financial Markets thinks so too. They have issued a report.

Here’s what the Working Group, which is comprised of the Dept of the Treasury, the Board of Governors of the Federal Reserve, the Securities Exchange Commission, and the Commodity Futures Trading Commission say caused the problem:

•a breakdown in underwriting standards for subprime mortgages;

• a significant erosion of market discipline by those involved in the securitization process, including originators, underwriters, credit rating agencies, and global investors, related in part to failures to provide or obtain adequate risk disclosures;

• flaws in credit rating agencies’ assessments of subprime residential mortgagebacked securities (RMBS) and other complex structured credit products, especially collateralized debt obligations (CDOs) that held RMBS and other assetbacked securities (CDOs of ABS);

• risk management weaknesses at some large U.S. and European financial institutions; and

• regulatory policies, including capital and disclosure1 requirements, that failed to mitigate risk management weaknesses.

Guess what their prescription to cure this is? Regulation. Yep the bane of the GOP small government crowd.

• reform key parts of the mortgage origination process in the United States;

• enhance disclosure and improve the practices of sponsors, underwriters, and investors with respect to securitized credits, thereby imposing more effective market discipline;

• reform the credit rating agencies’ processes for and practices regarding rating structured credit products to ensure integrity and transparency;

• ensure that global financial institutions take appropriate steps to address the weaknesses in risk management and reporting practices that the market turmoil has exposed; and

• ensure that prudential regulatory policies applicable to banks and securities firms, including capital and disclosure requirements, provide strong incentives for effective risk management practices.

For a better understanding, go read 19genco’s explanation from yesterday’s comment thread.

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