The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States: Searching Inside

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... or derivatives generally. For example, Lehman Brothers was a major player in the derivatives market... described as the "originate to distribute process"-has also been blamed for the financial crisis.... But securitization is only a means of financing. If securitization was a cause of the financial crisis, so... they were ultimately backed by the subprime mortgages that began to default in huge numbers when the bubble..., for all their dramatic content, were just another example of the way in which subprime and other high risk

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... financial firms were beginning to encounter capital and liquidity difficulties, two Lehman Brothers analysts... Credit Risk?"Lehman Brothers Fixed Income U.S. Securitized Products Research, September 7, 2007. 465... this is by far the most important fact about the financial crisis. None of the other factors offered... by the Commission majority to explain the crisis-lack of regulation, poor regulatory and risk management foresight... with the report, they estimated the total unpaid principal balance of subprime and Altmortgages outstanding

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... and sell to the growing legions of investors. For example, Lehman Brothers, the fourth-largest investment... FINANCIAL CRISIS INQUIRY COMMISSION REPORT decades. With new financial products like the home..., referring to "a large extraction of cash from home equity.''s SUBPRIME LOANS: "BUYERS WILL PAY A HIGH... PREMIUM" The subprime market roared back from its shakeout in the late 199os. The value of subprime loans... increasingly widespread computerized credit scores, the growing statistical history on subprime borrowers

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... if they encountered financial difficulties. However, when Lehman Brothers-an investment bank even larger than Bear-was... meltdown and a serious financial crisis. The reason for this is that only in the U.S. did subprime... by subprime and other risky loans-to fractions of their former prices. Mark-tomarket accounting then required... great investor and creditor unease. The mechanism by which the defaults and delinquencies on subprime... unprecedented period of market paralysis and panic that we know as the financial crisis of 2008. Weren't

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.... 67. Vikas Shilpiekandula and Olga Gorodetsky, "Who Owns Residential Credit Risk?" Lehman Brothers... and Goldman Sachs Reach Settlement Regarding Subprime Lending Issues;'," May 11, 2009; "Morgan Stanley to Pay... $102 Million for Role in Massachusetts Subprime Mortgage Meltdown under Settlement with AG Coakley... Gorodetsky, "Who Owns Residential Credit Risk?;' September 7, 2007, p. 1. The Lehman analysts pegged ultimate... subprime and Alt-A losses at $200 billion. Those forecasts were based, the analysts said, on a scenario

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... Crisis, day 1, session 2: Lehman Brothers, September 1, 2010, p. 212. 4. Richard S. Fuld Jr., testimony... Intervention and the Role of Systemic Risk in the Financial Crisis, day 1, session 2: Lehman Brothers... bank because of its funding model. Anton R. Valukas, Report of Examiner, In re Lehman Brothers Holdings...; 2:609 and n. 2134. 11. Harvey R. Miller, bankruptcy counsel for Lehman Brothers, interview by FCIC... on March 25 and 26; and $2 billion on April 16. Lehman Brothers, "Presentation to the Federal Reserve

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... CONCLUSIONS OF THE FINANCIAL CRISIS INQUIRY COMMISSION * We conclude the government was ill... prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial... to the developing crisis, not just those policies or actions that preceded it, to determine if any of those... responses contributed to or exacerbated the crisis. As our report shows, key policy makers-the Treasury... they were charged with overseeing, particularly as it had evolved in the years leading up to the crisis

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... in 2oo6, it had come late to the "vertical integration" mortgage model that Lehman Brothers and Bear... FINANCIAL CRISIS INQUIRY COMMISSION REPORT similarly rated mortgage-backed securities, they were... to deflate and delinquencies had begun to rise, Merrill announced it would acquire a subprime lender, First..., this move "puzzled analysts because the market for subprime loans was souring in a hurry."93 And Merrill... in September 2oo6, when one of its own analysts issued a report warning that this subprime exposure could lead

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... DISSENTING STATEMENT 2010.35 It is also instructive to compare the Lehman analysts' estimate... that the 2006 vintage of subprime loans would suffer lifetime losses of 19 percent under "stressed" conditions... actually occurred.36 The Lehman loss rate projection suggests that the analysts did not have an accurate... in the period before the financial crisis in which anyonescholar or financial analyst-actually seemed... to understand how many NTMs were in the financial system at the time. It was only after the financial crisis

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... DISSENTING STATEMENT the Lehman analysts-into believing that Fannie and Freddie did not hold... understood definition of the term "subprime," so Fannie and Freddie could define it as they liked... not report those mortgages as subprime or Alt-A, and the aggregators continued to follow industry practice... believed to be the number of subprime and other NTMs outstanding in the system immediately before... the financial crisis. Whenever possible in the Commission's public hearings, I asked analysts and other market

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...: Blankfein received $600,000 base salary and a 2007 year-end bonus of $67.9 million. 67. Lehman Brothers... for JPM, Citigroup, Bank of America, Goldman Sachs, and Lehman Brothers. 77. Fannie Mae, SEC filings 10-K... Crisis, day 2, session 1: The Federal Reserve, September 2, 2010, transcript, p. 111. 73. Testimony... for the FCIC, Hearing on Subprime Lending and Securitization and Government-Sponsored Enterprises (GSEs), day 3... into the Financial Crisis-Federal Officials, January 14, 2010, p. 22. 75. Mary L. Schapiro, written testimony

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... fees. The company was then packaging the loans and selling them as securities to Lehman Brothers... FINANCIAL CRISIS INQUIRY COMMISSION REPORT about First Alliance Mortgage Company... the nation's largest subprime lender, originating $39 billion in subprime loans in 2003-mostly refinances

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... into conservatorship. Then, in September, Lehman Brothers failed and the remaining investment banks, Merrill Lynch... credit default swap portfolio and exposure to the subprime mortgage market, was rescued by the government... to stabilize the financial system and to prop up the nation's largest financial institutions. The crisis... wrong in the run-up to the crisis would be enormous. The economic impact of the crisis has been...'s Economy.com, testified to the Commission, "The financial crisis has dealt a very serious blow to the U.S

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... of securities that did not trade was difficult, was subjective, and became a contentious issue during the crisis..., some economists and analysts estimated that actual losses, also known as realized losses, on subprime... not to be much more than that. As of year-end 2009, the dollar value of all impaired Alt-A and subprime... to the $14 trillion U.S. economy, the losses had a disproportionate impact. "Subprime mortgages themselves... and Treasury Secretary Henry Paulson had underestimated the repercussions of the emerging housing crisis. "You

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... CONTENTS PART IV: THE UNRAVELING Chapter 12 Early 2007: Spreading Subprime Worries... to Early 2008: Billions in Subprime Losses ...........256 Chapter 15 March 2008: The Fall of Bear... Chapter i8 September 2008: The Bankruptcy of Lehman ........................3 24 Chapter 19... September 2008: The Bailout of AIG .....................344 Chapter20 Crisis and Panic............................ .............389 Chapter 22 The Foreclosure Crisis ............................................ .... 402

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..., the five major investment banks-Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan... CONCLUSIONS OF THE FINANCIAL CRISIS INQUIRY COMMISSION xix mental change... exposures in acquiring and supporting subprime lenders and creating, packaging, repackaging, and selling... investments, and lack of transparency put the financial system on a collision course with crisis. Clearly... by itself to warrant our attention here. In the years leading up to the crisis, too many financial

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... BEFORE OUR VERY EYES Investment & Loan, the nation's eighth-largest subprime lender. "Don't put... that could have as much impact as the S&L crisis."'7 Swecker called another news conference in December 2005... reports did not in fact do so.73 "The claim that no one could have foreseen the crisis is false," said... crisis was unfolding.74 Former attorney general Alberto Gonzales, who served from February 2005 to 2007... in October 2004 that she suspected that some investment banks-she specified Bear Stearns and Lehman

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...) and Countrywide ($40 billion), followed by Lehman Brothers ($27 billion), GMAC RFC ($26 billion), and New Century... DISSENTING STATEMENT Table 7.105 GSE Purchases of Subprime and Alt-A loans $ in billions 1997... 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 1997-2007 Subprime $3* $18* $18* $11* $16* $38... $82 $180 $169 $110 $62 $707 PMBS Subprime $37 $83 $74 $65 $159 $206 $262 $144 $139.... Subprime purchases for these years were estimated based upon the percentage that subprime PMBS constituted

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.... No reason is advanced for the accumulation of subprime loans in the bubble other than the idea-implicit..." for the financial crisis, but once the collapse of the bubble had occurred the "weaknesses and vulnerabilities..." of the financial systemwhich had been there all along-caused the crisis. These alleged deficiencies included a lack... of subprime and Alt-A loans, created largely to comply with government housing policies, defaulted. 6.... CONCLUSION What is surprising about the many views of the causes of the financial crisis that have been

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... financial institutions. Some firms, such as Citigroup, Lehman Brothers, and Morgan Stanley, acquired... the financial system and fueled the housing bubble. Subprime lending was supported in significant ways by major... subprime lenders. In addition, major financial institutions facilitated the growth in subprime