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 .|. 
