they testified befor house financial services committee for two-and-a-half hours. >> the hearing will come to order. in the interest of time, i will reserve my designated three minutes to make an opening statement. and i'll submit my statement for the record. and yield to additional members. without objections, all members' written statements will be made a part of the record. with that, i'd like to recognize the gentleman from massachusetts, who is recognized for three minutes. >> thank you, mr. chairman. first of all, mr. chairman, i'd like to thank you and the ranking member, mr. frank, for

holding this hearing. i want to thank the members of the financial crisis inquiry commission, and thank them for their testimony today and helping the committee with its work. and for their public service to our country. the commission's major -- majority report has received a fair amount of praise, i think, for its honesty and clarity. and for the ease with which it explains some very difficult and complex financial issues. i'm pleased that the commission identified over the counter derivatives as one of the nine conclusions offered as the primary cause of the financial crisis. the majority reports states that otc derivatives, quote, fueled the mortgage securitization pipeline by allowing investors to protect themselves against the default or decline in value of mortgage-related securities backed by very risky loans. close quote. additionally, the report notes that cds were credit default swaps were essential to the creation of synthetic cdo

squares, products that have been -- that i have been very concerned about, and which amplified those losses from the collapse of the housing bubble, and were just one example of the interconnectedness that brought down the system. i realize that the members of the commission released three reports in total. but many have pointed to the similarities amongst the three, rather than their dissenting views. i hope the commission's findings will help this committee with its work, and congress with its work. and i look forward to hearing from other witnesses as i yield back. thank you, mr. chairman. >> i would like to recognize the gentleman from california for one minute. >> yes, mr. chairman. economists have already pointed out that the -- that there's little mention of the major role in all of this, of this fed in setting interest rates too low, setting negative real interest rates for four years running,

caution very cheap money and massive speculation, one out of three homes were being flipped because of those negative real interest rates. nor the role of the politicians. i guess we shouldn't be that surprised. but, for example, the fact that the -- that politicians muscled the market for zero down payment loans to go to 20% down to 0 down. the politicians backed the gses in this effort to allow arbitrage over leverage at 100 to 1, and this caused the collapse of the housing market to begin with. and so it's the underlying factors, the other underlying cause here that was hit on by a few members of this commission, but does not end up in the final report. and i think the wall street journal put it best. so the two companies that dominated the mortgage market, fannie and freddie, that brought -- that bought or insured hundreds of billions in sub time loans, that turbo charged the mortgage market with trillions in capital from around the world, and that have cost

taxpayers more than any other bailed out bank, they're innocent. >> and i yield -- >> was their attorney johnnie crock can? >> i yield one more minute. >> was their attorney johnnie cochran, they ask? there has been risk-taking and speculation throughout our capital markets for decades. but have not caused the boom and bust of this magnitude. it was the actions taken by the fed and the gses that turned a boom into a bubble. and led to the eventual collapse. and i think it's unfortunate that this commission couldn't produce a more credible report, but i'm glad to see the dissent, most notably of peter wallace's report which properly accounts for the government's role in this crisis, and that's what we should be looking at today. thank you. >> thank you. mr. scott, for two minutes. >> thank you, very much, mr. chairman, for holding this hearing today on the final report. of the financial crisis inquiry commission. in its 633-page report, the

commission mentions massive failures of corporate governance. and risk management. as several important financial institutions. many entities are deemed responsible, contributing to the crisis. whether through ineffective government policies, or by a lack of proper oversight. the commission further states in its report that failed policies under president bush and under president obama bear some of the blame for the crisis. in addition, government regulators and corporations are cited for missing key warning signs, including risky subprime lending and securitization. and growth and financial firms trading activities and a steady rise in housing prices. but perhaps the most troubling is that the report cited that several financial industry figures themselves appear to have acted illegally.

most importantly, the commission states that the recent financial crisis could have been avoided. it continues to affirm that it occurred as a result of human action and human inaction. and that it could happen again, if lessons are not learned. so i find it difficult to disagree with this assertion. if those involved in the financial collapse had responded appropriately to market indicators, and had refrained from unsound lending practices, we would not have experienced a crisis so severe. so it is my hope that we can continue to learn from the commission's report, and avoid a similar series of failures in the future. thank you, mr. chairman. >> thank you, mr. scott. the gentleman from north carolina, mr. mchenry. >> thank you, mr. chairman. the financial crisis inquiry commission was entrusted by congress to conduct the most significant financial investigation since the core

investigation of the 1930s. and many were hopeful that it would result in a similar, unified report with a unified narrative. but the fcic has fallen well short of unity. in fact, it was no pecora. the fact that three different opinions have emerged from a body of only ten commissions brings into question the objectivity of the majority report. i'm also concerned about the lack of new findings provided in the majority report. which reads like a clipping service of already published books, articles and other works on the financial crisis. i look forward to speaking with our witnesses today, and i hope that they'll be able to shed some light on their process and answer questions that have been left unanswered in this report. >> the gentle lady from california, ms. waters, recognized for two minutes. >> thank you, very much, mr. chairman. i thank you for holding this hearing today. it's very important that we hear

from our commissions, what they discovered about our financial crisis, and i'm so pleased that we have before us today two persons that i know very well. my former colleague, mr. bill thomas, good to see you. and bill angelitas from the state of california. i'm very pleased that you're here today. i appreciate the opportunity to listen to the commissioners here today, and hear their analysis of what caused this catastrophic economic meltdown of 2008. as we get further and further away from this crisis, my fear is that some of my colleagues will try to rewrite history and perhaps some in the public listening to their messages will begin to forget the true cause of how we got here. of course, the purpose of trying to rewrite the causes of the crisis, i believe, could only serve to undermine the dodd frank act and return to financial services industry to a

nostalgic age of leverage and risk. i consider one of my highest priorities during the 112th congress to continue to reflect on what brought us to the brink in september of 2008, and to protect the work we did on the dodd frank act, and importantly, i'm committed to pursuing what i believe is one of our largest pieces of unfinished business in this congress, responding forcefully to the foreclosure crisis. i voted for the legislation that created t.a.r.p. in 2008, because i believed that the authority would be used to actually buy up toxic paper and in turn, provide modifications to homeowners. as we all know, the treasury plan changed, and that didn't happen. so i fought for bankruptcy protections for homeowners and loans for unemployed homeowners threatened by foreclosure. then i fought to strengthen to end robosigning or other service fraud. despite the efforts of many of

us, we have never had a sincere, robust effort to direct homeowners on any scale like for the banks. like the need to end the few programs we do have, let's remember that so many of these foreclosures were avoidable, as a commission points out in their report. moreover, i believe that many foreclosures continue to be avoidable. if we actually take the difficult steps needed to confront this crisis head-on. so i'm delighted to hear more about the findings of commission, and i look forward to being able to read the entire report at some point. and i yield back the balance of my time. >> thank you, ms. waters. the gentleman from new mexico, mr. pierce, is recognized for one minute. >> thank you, mr. chairman. i appreciate the opportunity to participate in this hearing. it's good to see mr. thomas here. the mortgage crisis that we have found here, the banking crisis,

to me is fairly simple and straight forward. we just poured too much money into a market we did not run the background checks, we didn't have the documentation for the loans, and then we built securities on those loans. and the whole system was built on thin air, and began to collapse very readily. the fact that we couldn't get a report that actually clarified that completely with agreement among all the members, talks about the politicization of that process. so i'll be interested to hear the testimony of the panels, and thank the chairman and yield back. >> thank you, mr. pierce. the gentleman from illinois, mr. dole, for one minute. >> thank you, mr. chairman. and i certainly want to thank the witnesses for their time. for their effort and service to the commission, and to our nationment by my account, we've had 47 economic recessions or

downturns since our nation's first major economic contraction, the panic of 1797. that's an average of one economic recession or downturn every four and a half years in the last 214 years. throughout our nation's history, our national economy has regular -- inevitable economic expansions, followed by economic contractions. this business cycle is how our economy properly allocates resources, evolves, and grows. and while business cycles are certainly inevitable, history proves that normal and necessary and healthy economic contractions are frequently exacerbated by misguided or excessive government regulatory fiscal trade or monetary policies. we should certainly learn from each and every economic contraction, and we should do so in the most objective and nonpartisan way possible. our investigation should not be manufactured to support preestablished political philosophies or positions, but instead we should strive to learn what governments can do,

and perhaps more importantly, what governments can stop doing to avoid aggravating otherwise normal and investable healthy business cycle contractions. in response to our most recent financial crisis, we established the financial commission to investigate the causes. but many months before we received the financial commission reports, congress passed a comprehensive legislation broadly affecting entire industries, including many that indisputably had little or nothing to do with the financial crisis. we should not be manufacturing legislation or regulatory solutions for problems before we adequately assess the actual problems. so i'm concerned that once again, congress has overreacted without sufficient information and with a very high risk of creating unintended consequence that could result in a weaker economy, fewer jobs and overly burdensome small businesses and diminish global competitiveness. we need regulation. not more regulation, but smarter regulation. and i again thank the witnesses for their time and look forward to receiving their most objective and candid opinions.

i yield back. thank you, mr. chairman. >> thank you, mr. dole. and that would -- i'm going to yield an additional minute to mr. dole, so -- and at this time, i'll -- we claim my time and recognize the gentleman from new york, mr. grim, for one minute. i yield him one minute. >> thank you, mr. chairman. i thank everyone at the panel today. i have to say that i'm disappointed. i'm disappointed that the commission was really unable to put together a unified report to accurately assess the root cause of the financial crisis. it's cost millions of jobs, and has done fundamental damage to our economy. it seems that some members of this commission were more interested in following an ideological agenda than producing a report that would assist congress in developing a strong understanding of what occurred, so that we can prevent

such a grave situation from happening again. and with that being said, i am interested in hearing what the commissioners have to say regarding their findings and their assessment of how dodd/frank will or will not stop the crisis, specifically noting the irony that dodd/frank was passed into law five months prior to this commission's report. thank you again and i yield back. >> i thank the gentleman from new york, and i yield one minute to the gentleman from texas. >> thank you, mr. chairman. the crisis of 2008 resulted in a financial meltdown. millions of job losses, trillions of dollars of debt piled upon our children and grandchildren. it left americans wanting to know why it happened. the american people deserve an answer. not a history lesson. the financial crisis inquiry commission was created to give the american people that answer. on the 27th of january, the commission delivered its majority report. however, they failed to provide

an explanation for why the financial crisis happened. it seems that the commission's report has produced only a step by step accounting of the crisis. the american people lived through this crisis. they know what happened. they don't need to be told the story over again. the american people deserve better. and i hope to gather from our panel today some of the reasons for the crisis. and i look forward to hearing from each of you. thank you. i yield back my time. >> thank you. and in the final minute on our side, i yield to the gentleman from ohio, mr. stoddard. >> thank you, mr. chairman. i would like to thank you for calling this hearing on the financial cries inquiry commission's report. and i'm new to congress, but i'm not sure i understand the process here, because most problem-solvers would recognize a problem, study a problem, and then find a solution and it seems only in congress can we recognize a problem, pass a

solution, and then study the problem. so, you know, i am concerned also that the report didn't have detailed recommendations of how congress can avoid a future crisis. in fact, representative thomas suggested in his dissent that the majority's report is too broad, and provides an account of bad events, as opposed to a focused explanation in how we move from here. knowing that this report cost the taxpayers $10 million, i have higher expectations. and i want to look forward to hearing the panelists talk about recommendations of how we can avoid a future crisis, and how our solution, hopefully, can solve the problem. it's my hope that we can learn from the past so that we don't have to relive it. thank you so much. i look forward to hearing from the panelists. i yield back, mr. chairman. >> thank you the gentleman from ohio and i yield the balance of the time on the minority side and the gentleman from massachusetts, mr. frank.

>> thank you, mr. chairman. i am pleased to welcome an old friend back, bill thomas, who gives me some affirmation that there is life after chairmanship. and i appreciate that. the -- checked his pulse. we've just heard some criticism on the republican side that the congress should not have acted on the financial reform until the commission finished. but the point is one very prominent commentator has argued that a significant part of the commission's report is a justification of the rationale of the bill, and to some extent, of its substance. let me read from peter wallaceson's dissent. we'll hear from mr. wallaceson later. second, by suggesting that a major cause of the financial crisis was the wholesale failure of bank and financial institution managements, this section endorsed a policy

foundation for more regulation, as well as the underlying rationale for the dodd/frank act. after all, the management's -- virtually all the financial institutions cannot be trusted to manage their firms, then the public must oversee them. he says, that is exactly the rationale that congress used in designing and enacting the dodd/frank act, and unfortunately, it's the implicit policy message of this particular section of the report. now, the relevance of that is that the section of the report that is being discussed here is the dissent by the three other republican commissioners. in other words, according to mr. wallaceson, the other three republicans whom he somewhat oddly refers to as the thh dissent, i actually was looking when i first came across that to see what disparaging initials those were. it turns out it's just last names. but it did seem thh was an odd way to characterize your colleagues. but mr. wallaceson says that the dissent went in that same direction.

actually, obviously, that, i think, is somewhat unfair to them, because there was some differences. but there is one very important point of similarity. and we ought to be clear. yes, it was a 6-3-1 vote. but on a number of issues, a 9-1 vote. for example, the community reinvestment act. mr. wallaceson has long been a proponent, as have some members of this committee, that the community reinvestment act is a substantial cause of our problems that has compelled mortgages to be given that shouldn't be. of course, nothing of the terms of the act says so. and if you compare mortgages granted by institutions who were not covered by the cumulative reinvestment act, they are far more likely to have failed, and to have been inappropriate than those covered by the cra. but it is clear that the thh group, to adopt mr. wallaceson's terminology, his three fellow commissioners, specifically said that the cra was not a major part of this problem. that is, nine of the ten commissioners repudiate the notion that this was caused in substantial part, even at all by the community of reinvestment

act. and that's very important, i think, for us to have online. it's particularly important, because we are today continuing the debate on a financial reform bill in which the republican version of the continuing resolution assaults three particular important aspects of the reform act. one of the things we did in that bill was to say that hedge funds should be covered by a registration requirement. so that we will know what's going on out there. that's entrusted to the s.e.c., which, under the republican cr, will not have the money to carry that out. hedge funds will remain uncovered. we gave the cftc the mandate to begin to regulate derivatives, including mostly, including for end users, making public the price. not through end users in any other way regulating them. what we did then with both derivatives and with regard to hedge funds, and private equity, was to get some more information. people have been talking about the shadow banking system. well, one of the things we did in the bill was to try to bring

that out of the shadows. but as a result of the republican budget, neither the s.e.c. will have the money to do that. so we will go back -- i from time to time talk to old radio programs. i think we have another one. who will know what risk lurks in the heart of the financial system? and the answer is, the shadow will know. but nobody else. because our efforts to put some light on the shadow banking system by having hedge funds register with the s.e.c. and have them be able to calculate what's up, and having derivatives regulated by the cftc, those won't happen. when aig needed money from the federal reserve, under a section which we unanimously rescinded on both sides, what the federal reserve gave to the aig won't be possible in the future. we have flicken that section 13.3. but when they gave money to aig, they came in first week and told us they were giving them $80 billion and then they needed another $80 to $100, because

nobody knew how much they had. so i welcome nine of the ten commissions repudiating the notion that it was just the government trying to be nice to poor people. and particularly, the cra that caused this problem. and i am regretful that we will be debating later today a budget which will leave hedge funds in the dark, prevent the regulation of derivatives, including price discovery for the end users, and will further reduce the role of the consumer protection bureau. so credit cards, hedge funds, unregulated, and unknown and in the shadows hedge funds and derivatives will all be the beneficiaries. and as i said, i do believe, mr. wallaceson was right, that nine of the other ten commissioners give support to the notion that we should go forward. i think the majority brought up in particular is a good argument for the bill going forward. and we will be fighting later today to prevent the rederegulation of the financial

economy, which the republican budget represents. >> thank you. we'll note for the record that you agree with peter wallaceson on these issues. >> yes, i agree with him that the initials of his three fellow commissioners are, in fact, t, h and h. >> okay. i want to introduce the first panel, and also acknowledge the second panel. and associate myself with mr. dole's remarks that we thank you for your service to the commission. and to the country. you were -- your compensation was very nominal. so you did this, i think, out of a sense of patriotism, and duty to your country. so i thank you. our first panel is honorable phil chairman of the financial crisis and inquiry commission and the honorable bill thomas, the vice chairman of the

commission. our second panel is dr. douglas holeseeken, commissioner. the honorable brooksly burn, commissioner. mr. peter wallaceson, commissioner. and mr. brian georgio. so we thank the second panel. the first panel will be dismissed at noon. and without objections, your written statements will be made a part of the record, and you'll each be recognized for a five-minute summary of your testimony. at this time, mr. angelitis, i will recognize you. >> thank you, very much, chairman baucus, ranking member frank, members of the committee. thank you for the invitation to discuss the report of the financial crisis inquiry commission. first of all, i want to thank my colleague, vice chairman bill thomas, for his service to our country and to this commission.

and i want to thank our dedicated and excellent staff who worked with us. this committee requested that i address three subjects. the commission's report, the inability to reach a consensus on some conclusions, and the dodd/frank wall street reform and consumer protection act. in 2009, congress tasked the commission to examine the causes of the current financial and economic crisis in the united states. and to probe the collapse of major financial institutions that failed, or would have failed, it not for exceptional assistance from the government. we were true to our charge, and fulfilled our mandates. our task was determined -- was to determine what happened, and how it happened, so we could understand why it happened. in doing so, we sought to answer this central question. how did it come to pass that in 2008, our nation was forced to choose between two stark and painful alternatives? either risk the total collapse of our financial system and economy, or inject trillions of

taxpayer dollars into the system and into private companies, even as millions of americans still lost their jobs, their savings and their homes. in the course of the commission's exhaustive investigation, we reviewed millions of pages of documents, interviewed more than 700 witnesses, and held 19 days of public hearings in new york, washington, d.c. and in communities across the country. the commission also drew from a large body of existing work developed by congressional committees, government agencies, academics, and others. the commission's report contained six specific major conclusions. first and foremost, we concluded that this crisis was avoidable. the crisis was a result of human action, inaction, and misjudgment, not mother nature. financial executives and public stewards of our financial system ignored warnings, and failed to question, understand and manage evolving risks within the system so essential to the well-being of the american public. second, we found widespread

failures and financial regulation that proved devastating to the stability of the nation's financial markets. third, our report described dramatic breakdowns in corporate governance and risk management at many systematically important financial institutions. fourth, we detailed the excessive borrowing, risky investments and lack of transparency that combined to put our financial system on a collision course with catastrophe. fifth, we concluded that the key policy makers were ill prepared for the crisis, and that their inconsistent response added to uncertainty and panic. and finally, we documented how breeches in accountability and ethics became widespread at all levels during the run up to the crisis. our report, as well as two decents can be found on fcic.gov. that website also contains approximately 2,000 documents, testimony in our public hearings, audios, transcript vipts and summaries of more than 300 witness interviews, and additional information to create an enduring historical record of

this crisis. in addition to the major causes we identified, the commission also investigated, among other things, whether this crisis was caused by excess capital availability, the activities of fannie mae and freddie mac and government housing policies. we concluded that excess liquidity by itself did not need to cause a crisis and that fannie mae and freddie mac contributed to the cries he is, but were not a primary cause. we determined that government housing policies were not a significant factor in this crisis. as we undertook our work, all ten commissioners were afforded the opportunity to fully participate. while we were not unanimous on all issues or on the emphasis we placed on key causes, there were areas of agreement among nine or ten commissioners. importantly, setting aside conclusions and dissents, this report contains a valuable and accurate, historical accounts of the events leading up to the crisis and the crisis itself. finally, if you ask -- you have asked me to comment on the

dodd/frank financial reform law. with our inquiry and report completed, and the facts and evidence, i will now speak to this matter. i believe the law's financial reforms are strong and needed, and that the law directly and forcefully addresses issues and conclusions identified in our report. i believe full implementations of its provisions is critical, and will help prevent a future crisis. in conclusion, it is my hope that our report will serve as a guidepost in the years to come, as policy makers and regulators endeavor to spare our country from another catastrophe of this magnitude. thank you, and i look forward to your questions. >> thank you. congressman thomas? >> thank you, mr. chairman bam baucus, chairman frank. you asked that my findings, the light of the findings, and why they were unable to reach unanimous agreement.

i joined hennessey and [ inaudible ] we describe the ten essential causes of the financial crisis. our conclusion is that the crisis -- >> can you move your microphone up a little, please? >> better turn it on. >> our thesis is that the crisis was at its core a global financial panic, sip stated by concentrated, correlated housing related losses at large and mid size financial institutions in the united states and europe. let's examine three areas where our findings and conclusions differ from those of the six-member majority. first, our explanation of the crisis begins with a global credit bubble fueled by international capital flows. we do not think that you can understand what happened in the united states without first understanding what was going on in international capital markets. there were a series of credit bubbles occurring at the same time in a variety of asset classes around the world. this fact undermines, we think, the thesis that it was something about u.s. capital markets or

the u.s. housing market in particular, that was the primary cause of the bubble. we focus on the role that economic forces played in causing the crisis, whereas the majority focused on individual firms and actors. this difference is highlighted in an article by robert j. samuelson, entitled "rethinking the great recession." it's in the winter issue of "the wilson quarterly." samuels samuelson's main thesis is, quote, there's a political, journalistic and intellectual imperative to find out who caused the crisis, who can be blamed, who can be indicted, either in legal courts or the court of public opinion. and if found guilty, be jailed or politically humbled. but, he writes, in embracing a victim's and villain's explanation of the recession, americans are missing important lessons about the future of the u.s. economy. second, as you can see from the chart in my testimony, housing bubbles occurred in a number of large countries with very

different systems of housing finance. no two were quite alike, and none looked anything like ours. therefore, we had a hard time placing too much emphasis on the structure of our mortgage finance system in explaining the boom and bust. and focused more on factors common to all of the countries. that is, the broader credit bubble. third, we observed financial firm failures across a variety of different firm organizational structures. in the united states and europe. for us, this supported the conclusion that the organizational form of a financial firm, or its specific regulatory regime, was secondary in importance to common factors. that is, concentrated exposure to the housing market, and poorly managed solvency and liquidity risk. when we look at the multitude of different types of firm failures in the united states and around the world, it casts doubt on the majority's thesis that a particular feature of the american regulatory regime, a

specific type of financial sfugs institution, or an individual firm and the people that ran is an essential cause of the crisis. however, when you're looking for villains and victims, rather than essential causes, it is easy to examine the same set of facts and arrive at diametrically different conclusions. this leads me to the central question of why we were unable to reach unanimous agreement among the commissioners. from the beginning, i thought the commission was created for political purposes with the partisan structure, and a partisan agenda. it called for six of us to be appointed by democrats, and four by republicans. and any six votes were all that was needed to transmit the report to the president and the congress. the math is simple. let's be clear. the commission was not created by congress to write a 500-plus page commercially produced book. the commission was created to determine why we had a financial and economic crisis. in our dissent, we conclude, by

focusing too narrowly on u.s. regulatory policy and supervision, ignoring international parallels, emphasizing only arguments for greater regulation, failing to prioritize the causes, failing to distinguish sufficiently between causes and effects, the majority's report leads to incorrect conclusions about what caused the crisis. i think we had the money, the time, the staff and the resources necessary for our work to have been a success. but when you have the votes, what else really matters? and finally, regarding the dodd/frank act, i believe our work has shed light on a number of problems in our financial markets that have not been sufficiently addressed, as well as cases of regulatory overreach in the act, where the financial and economic crisis was used as cover to regulate activities that had little to do, really, with the financial crisis. i look forward to your questions. >> thank you. congressman thomas, in your testimony, you spoke about the

crisis being used as a cover to regulate activities that had little to do with the financial crisis. can you tell us a little more about the regulatory -- what you described as overreach of the dodd/frank act, and the use of the financial crisis as a pretext to regulate activities it didn't cause or had nothing i am pleased to say that douglas holtz will be on the second panel. he is a professional economist and some of you may know was the former head of the congressional budget office. he is much more conversant with many of the provisions with the dodd frank act. a couple things are fairly obvious. one is the whole question that this congress, a portion of the congress stressed during the dodd frank act that the

so-called fannie mae and freddie mac really needed to be dealt with. i thought it should have been an integral part of the legislation. the government bailouts. when you look for overreach, enhanced supervision. i disagree that there was information that was available to regulators. in hindsight is always easy to explain what happened even if it is wrong. i do urge you to read this article by samuelsson because it is so easy to focus on villains and victims and unfortunately that is the direction we tend to go politically and that is why our conclusions look at more fundamental causes and if we don't focus on those we are going to be doomed to repeat not withstanding a number of regulatory measures that were

put in effect, especially a portion of the derivative legislation. not saying there were certain kinds that were clearly part of the problem but there are many others and we're just now discovering as we're getting testimony recently reported in the paper about firms that use the derivatives to truly hedge against their input costs in producing product. that is a long time-honored procedures for derivatives. historical use, and this has to be revisited to be able to allow them to use this in a way that is sound and appropriate and never a cause in my opinion in any way of the financial crisis. those are couple of examples. eating your own cooking. the idea that you are going to hang onto your own stuff and therefore be more sober, it was rather frightening for me to hear the testimony in which a

number of the major executives actually put into their basic portfolio the derivatives that were synthetic. in a way that they won, thought they were worth what they were supposed to be worse because they were triple-a-rated. rating agencies obviously in another area that needs to be dealt with. but the fact they had to make margin calls if numbers change relative to what they were holding, that was fairly frightening to some of us who thought that these people in some way earned the amounts of moneys they were receiving the that was so fundamental as to be shocking. i do think there are some areas that were just gathered up not unlike the stimulus bill that had been desired regulatory moves for summoned time as plug

into the dodd frank act, ran there were clearly areas that were left out. it would have been nice to wait for our report to analyze it. that was not of concern to me. i was pleased we didn't have to come up with solutions to analyze the cause. we were supposed to come up with solutions i wouldn't have volunteered to be on the commission. we thought was important to try to look at the causes. with a 6-4 vote especially near the end, ranking member frank responded to the fact that there were some 9-1 decisions. those were early on. a thought everyone would ask me about the decisions once it is clear that the former majority was no longer going to be the majority and after the election what occurred in november and december on a 6-4 decision which wound up producing a rather what

i considered to be unfair and bizarre situation on this commission as opposed to the many other commissions i served on especially the bipartisan commission on medicare and several others. >> are those 5-54 equal numbers? >> i can't hear you. >> are those commissions 5-5 as opposed to 674? >> they were rather larger but the point was look at the president's debt commission as a good example. require a supermajority. it is difficult to do. that is what we had as a requirement on the bipartisan medicare commission. senator breaux was the cochair and i was a co-chair. we worked in an absolutely level relationship. i will say to a chairman phil angelides who gave me the ability to be involved than the

act requires. in the end when you wind up with a series of 6-4 folks, someone wants to ask me the detail clearly the decision to move forward was a function of two things. senator dodd decided to retire and whenever anyone spend that much time in congress and wants to move a product is very difficult to say no. i am not saying the product was fatally flawed. i'm just saying that there was a desire to get it done before he left congress. that is pressure that produces a product that perhaps wasn't as well established. my friend from massachusetts's name is on it and all the good parts that are in it are attributed to him. the rest of them are to those who have left the place and we can agree on that structure. but when you have a 6-4 structure and if i might go on for a minute just to give you a

couple of examples, or i will wait for other questions. >> if unanimous consent -- for ranking member says that is fine as long as you keep complimenting him. the actually didn't say that. >> my problem is with the new deadline. >> it is not hard to do. we worked as well as could be expected to get there given the odd fellows than those of us are. is that a compliment? okay. let me give you a simple example of 6-4 votes. this is the commercially commissioned a book. on a 6-4 vote, the whole relationship that i have known for 28 years that i was in congress dealing with majority minority reports was turned on

its head. a congressional report is the majority and minority's position. that is the report. what happened here on a 6-4 vote was dissent in the report, the congressional model was changed to descent with the report. descents were not part of the report. that is why i say to my friend mr. lynch in his description of three reports there was one report that was the majority. the others clearly worded dissents. i put bluefor democrats--the blue is the commissioner's finding in the report.

the red of the minority's descends separated by four -- 400 pages. they could easily have been placed together so you could judge the two. those 400 pages are a political decision decided on a 6-4 vote. >> ranking member frank, you can -- >> based on this example can look forward to a certain mellowing. if you have the votes you go ahead. i just want to begin by saying the topography is not significant. material for people to read with the report or from the report or

over a report is irrelevant. i want to begin with one of the accusations, and the descent from the majority. he talks about you are not fair to mr. pinto's information. >> the sense that mr. pinto who provided information which was never distributed to the commission. and mr. wallace and distributed that information to all commissioners including members of the housing working group. our staff met six times in person and by phone with mr. pinto and his july interview as

posted on our web. staff took an analysis of his work and provided that to the commission. mr. pinto commented on that analysis and on pages 219 threw 221 of the report you can find a discussion, and staff's analysis, reading of the analysis it is footnoteed and posted on the web. i am a little surprised by that. >> with regard to the scope of the bill, i focused -- not trying to brag about the fact that, the causes of the crisis. it would have been irresponsible not to double the issues. when congress is legislating digitally go backwards if you anticipate future problems.

there are things -- we try to take a comprehensive view and look at what might be happening in the future and other factors. i am stunned that it is a criticism that the bill on financial reform is more than simply respond. this wasn't hurried because of chris dodd but the whole range of people beginning with ben bernanke, the bush appointees who initiated efforts saying this needs to be done quickly because we were told by the financial community that uncertainty was the problem and on this for another year, and not including fighting may and freddie mac we were not ready at that point, responses were formulated and i accept graciously you should take yes for an answer. i learned how to do that because last year republicans offered what they said was the solution

to the fannie mae and freddie mac problem. we did not accept it and they said this is a big mistake. now that the republicans are in power that solution appears to have become a dissolution. it is not here anymore. we had a hearing on fannie mae and freddie mac and that was not the subject of the hearing so we have retroactively the public acknowledging that while we put them in the receivership we stopped at the bleeding and were not at a consensus how to replace them and i was struck that the republicans criticized president obama's administration for not giving more specific advice how to fix fannie mae and freddie mac. i was not aware they were in the habit of waiting for the president to tell them what to do so they acknowledged by their actions that we are in the process of trying to figure out what to do next which is why we hadn't moved on it. the last point i will go back to, there were some who blamed fannie mae and freddie mac and

others who blame the other aspect of the american situation. i am struck by this three member descent disagreeing with both. particularly those who thought it was fannie mae or freddie mac or voted for the american system in general the personal comment briefly as i read from your testimony. this undermines the thesis that it was something about u.s. capital markets or the housing market in particular because of the bubble. it undermines that thesis. a pre creation of the notion that it was the u.s. housing market in particular that was a primary cause and two pages later we observe financial failures for a variety of different organizational structures in the united states and new york. this supports the conclusion that the organizational form of a financial firm or regulatory regime with secondary importance to concentrated exposure to the

housing market and manage risk. that is a difference from what is in the majority view and also very different from the view it was fannie mae, freddie mac and pc are a because those were american institutions managed a particular way. >> no. a i thought the commission was charged with looking at the fundamental causes of the crisis. i want to commend to you the samuelsson article that has just been written. [talking over each other] >> he is worried that we're going to go off on a tangent of investigating villains and victims and not understand the fundamental lesson of what happened to. international capital. it is interrelated. lack of transparency. the cra was a cause. there were multiple causess but they were not the reason what happened happened.

we can look at the listening up of credit under alan greenspan. the area of moderation. you can look at all of the sovereign funds that came in. there are a lot of reasons and a lot of them have been written about but if our job was try to explain what happened -- that is what we thought. [talking over each other] >> that is true for the commission. it was not the mandate of legislation. the fact that we consciously included in the legislation things that were not because -- is not a criticism of the mandate goes beyond that. the other thing i would say as i do appreciate it so on this question the notion that it was fannie mae and freddie mac and cra that caused it is another to say they were exacerbating was the public started. >> are there problems? yes. >> and i await the republican

solution. i yield back. >> ranking member mr. roy? >> the response to this argument about primary causes and factors, one of the underlying factors was missed in this report and i remember the london economist, british magazine making the argument in 2002 that our federal reserve set an interest rate that effectively was below zero. if you include inflation into the calculation. mark zande in his book financial shock, you had a quote in support of some of his conclusions but i had a chance to have dinner with him and talk about this particular factor. in my view and the view of many

economists, interest rates were below zero and any time that happened, here's what the economists said at the time. asset bubbles in real-estate. i want it understood that when you eliminate or earaches market discipline as clearly we did into the market, with pressure to get those 20% down payments down to zero congress did that, all of that helps create a bubble. an underlying that is this massive infusion of credit. he goes through the argument, the extraordinarily easy money policies pursued by the global's her central banks helped pump up the credit and housing market.

as i read the report there is a mention, three mentioned throughout the report about interest rates and what you mess is something the federal reserve and the majority report. what you missed is the crucial role that played. i wanted to ask about that. his argument was made by many journalists and economists since the report came out. wanted to ask about that. i don't think you can debate the issue with respect to the role of the gsts given the losses which are $350 billion to the taxpayers. those institutions were the heart of the collapse of the housing market. the federal reserve came here.

unless we regulate the tses versus systemic risk and give regulators the ability, this would create a systemic financial crisis. i want to ask about those two points. >> i appreciate the questions. we did look at international capital and excess liquidity and monetary policy. in the book on page 83 there is a whole section on credit expansion and also parts in the book where we discuss other countries, housing bubbles, on that issue, the commission there was excess liquidity but in and of itself that need not have caused a crisis. could have been recognizing that excess liquidity.

regulators, market purchase of this should have exercised discipline and in particular let me give you the example of the federal reserve. knowing there was that kind of excess liquidity in the global economy it was incumbent on the federal reserve to use its power to says reasonable funding. as someone out of the real-estate business we should have recognized those tighter mortgage lending standards and that was at the heart our failure to grapple with those capitals, if we take the position that international capital is detrimental to this country is very damaging. we want capital flowing and put it into productive uses. >> you cannot regulate. the idea that you are going to make money so cheap that it is less than zero bieber turtle for four years you flood the market and somehow you are going to be

able -- this is what economists call the fatal conceit and to overcompensate for the fact that that much money is flooded in the market and on top of it you have erased market discipline by what you have done with government intervention with fannie and freddie and gone to zero down payment loans. the idea that some regulator is going to tap all that down or keep that under control when the government has unleased by bad decisions all of that liquidity into the market, i think is a fantastic believe. i can't understand in this day and age how people unless you had central planning able to control every aspect of decisions made by people how could you possibly undo the damage that those kinds of decisions create in any economy? >> i don't mean to interrupt. >> but even if we concede that

you can overregulate what has been unleashed by the birth of a why not a real discussion on fed policy in the majority report in terms of how this would underlie the problem? i have read the report. [talking over each other] >> i wondered everyone and as many americans as possible to read the report. we detail fed monetary policy. we do detail the liquidity in the marketplace but i will say when you take the grading lending standards, leverage ratios of 40-1. when you take a shadow banking market of $13 trillion that sees the regular banking system with no transparency the combination of cheap money and accesses in the marketplace and dramatic failures of regulatory control you have a formula for disaster. [talking over each other]

>> they were the kings of leverage. >> thank you very much. i would like to thank the co-chairs of the commission and i take to heart the recommendation that mr. thomas is making about samuelson. what he is explaining about samuelsson, billings and vickers. there is a fundamental debate and that is going on in the congress of the united states today. this fundamental debate is about regulation. on this side of the aisle we believe that we understand and recognize the cause of the meltdown and what brought us to the brink of a depression and we have also heard from our

regulators, they need to be supported. a need to do a better job and the dodd frank will help to do that. and on the opposite side of the aisle we are hearing we need less regulation. my colleagues on the opposite side of the aisle are claiming that regulation is a job killer. so this debate is so important because it is about which way america, are we going to have regulatory agencies that turn a blind eye, that are not supported with their technological capabilities are going to be intimidated or are we going to have a regulatory system that is going to do the job they are expected to do not only to protect the public and the consumers but to help

regulate what happens in this economy? that is what it is about. phil angelides said that the crisis was a result of human action, misjudgment, not mother nature. financial executives are public stewards of the financial system ignored warnings and failed to question, understand and manage, evolving risks in a system's central to the wealth of the american public. we found widespread failure in financial regulation that proved devastating to the stability of the nation's financial market and on and on and on. basically that is the conclusion that some of us have come to. in your discussion did you find that there was indeed a consensus about what you identified here? in some fashion about the failure of our regulatory

agencies to its job? >> certainly speaking for the commission's conclusions we found first of all we believe this is avoidable. there were plenty of warning signs along the way. you don't create $13 trillion of mortgage security and have no one noticed. don't have the fbi warned about rampant mortgage fraud in 2004 fleet grew and 2005 and have no one noticed. you don't have unprecedented escalation with asset bubbles and housing prices and there were plenty of warnings of the federal reserve are about egregious and predatory lending practices. mr. greenspan said regulation is not the answer. the answer was law enforcement but for 2006 the federal reserve made only three referrals to the department of justice but there was a twin phenomenon. breakdown in regulation and we detailed that and i don't want to speak for my other members

but there was an acknowledgment. we may differ on the cause but the sec has the ability to curb the investment banks. they did not. there reserve bank of new york had a chance to curb the excess and they did not. the office of supervision which oversaw a ig didn't even understand that its mandate a signed a directive with the european union to oversee the whole company so there were dramatic breakdowns but they were accompanied by dramatic corporate governance and risk-management breakdowns. at citigroup this was an organization that did not know it had $55 billion worth of exposure to some prime mortgages representing to the public through 2007 that they had $13 billion. they had $25 billion in liquidity off-balance sheet. executives themselves did not learn until the fall and they

represented to the public that they had $13 billion the same day their orders were told of exposure of $55 billion. at a ig they wrote $79 billion of credit default swaps, protection on some prime securities. neither the ceo, mr. sullivan, the ceo, the chief risk officer, none of them knew that there would be collateral calls made on a ig if the market value of those securities fell so when goldman sachs made their first collateral call in july of 2007 they were shocked and as everyone knows what happened after that the collateral calls accelerate ultimately leading to the collapse and taxpayer bailout so it was a twin phenomenon of deregulation lincoln will be's in regulation, failures of regulators to use the power they had and i want to be clear to all members here of both parties. there were a lot of powers that went unused. please. members of both parties.

there were a lot of powers that ..i believe dodd frank has help close a lot of the gaps that existed. but the fact,there was a twin phenomenon here where there were clear breakdowns in corporate governance and management. >> thank you. >> thank you very much. i yield back the bam of my time. >> i thank the chairman and to the congressman, it's interesting the ranking member says this is what he has to look forward to in retirement, the mellowing we see here. i don't know whether we hear some pronouncement from the >> [inaudible] >> okay. i thought, i thought this would be the committee hearing of the week then, in which case. so in any event, to the congressman, you have began your issue with regard to the lack oe bipartisanship nature of the committee. i'm thinking back of a couplei years ago, weth had the 9/11 commission. you mentioned some other commissions where it was done many in a truly bipartisanment

manner. can you just, briefly, if you, i if you will, did the majority give you complete bipartisanshib to the areas as a commission you were going to study, investigata and finally report upon. to and thirdly, you had some sort of comment you wanted to make with a regard to the final votes well. >> um, thank the gentleman. >> sure.ou >> i thought it was pretty as obvious when the move was made at the beginning, um, of the congress to create a committee which was structured along partisan lines, six and four. the democrat side got the chairman, and the minority side got the vice chairman rather than co-chairmen, that my friend from massachusetts' argument that i'm very familiar with thet partisan environment was one of the reasons i decided to go into this, because it was clear from the beginning it was a partisant

environment. i was going to try to make sure that it didn't wind up a partisan environment.isan and as we began, it was clear that there was an attempt to try to get a broader base. however, as the commission wentt on and decisions needed to be made and, more importantly, the use of the commission started to shift. i've no question that this body and the congress should not have held up in passing legislation. i just think a lot of the legislation was offha the shelf stuff that people wanted to doa with derivatives in general,i they hadn't been able to.legi as i said, a lot like the stimulus bill, here's or ao chance to dump some stuff in that we've wanted to do for aa whilloe and became part of the dodd-frank fresh movement. what can you do with a commission that's created andless than a month later the president offers his solutions and the congress moves forward with their solutions? there's a lot of things you can do with it, especially, i

believe, because the former majority thought they were going to be a majority in this congress as well.it. it's very difficult, i'll tell you, when republicans were in power and the administration was republican, we could not go back to the dingell playbook and go after the administration because they were republican and we wero republican. democrats did a great job of g oversight for decades because the republicans were in thewere presidency, and the democrats were in the congress. so when you look at what you can do with this commission, one, you can use it to go after the villains and help the victims if that's the result, and you're in the majority. you can use it even if you're in the minority to hold hearings about those issues. and so when you wind up with a series of 6-4 votes thatgs a

literally, in my opinion, split the commission on a partisan basis, the result is a partisan conclusion. and i have, i have no qualms about that. i thought that was what it was a going to be to begin with.s i wanted to try to overcome it.i >> so let's go into detail. as far as things that were donet and were not done, what was done, i guess, is case studiest of ten specific financial institutions and finding the problems or lack thereof in the financial institutions but none, i understand, specific case fin studies with regard to the regulatory failures. can you comment on why it wasn't done, and how then can you come up with the conclusions if you're not going to do it in that same fashion, the conclusions that you've come up with. >> yes, may i comment -- or is i that a chairman to me or thenclu chairman? >> first to the chairman, then you can --s, >> yes. we did the following. first of all, let me just sayira very quickly i really do stand on the report, the integrity ofr the report, the facts are in it. the facts themselves have not been challenged, and everyone

can draw their own conclusions, but that 400 some pages mr. thomas talked about -- >> we were looking for you for the conclusion really.th >> well, but i want to say every member had full opportunity tol. participate, all members had full opportunity to attend hearings all over the country. in fact, i went to bakersfield,i i had a great chance to go with the vice chairman to a very informative hearing about what had happened at the communityma level. all materials were madeorma available, all drafts of all the reports on all the chapters were made available to commissioners for comment. m some chose to, some did not, and all staff were jointly approveda by mr. thomas and me. what we did as a general kind of approach to our work is we did a look at overall research, the large picture. and because of our time frame we then did ten case studies of financial institutions including a very deep scrub on fannie mae. we also looked at otheries institutions at a lesser level,,

but we looked very specifically at the roles of policymakers and regulators. we looked at the fdic, the federal reserve, the federal at reserve bank of new york, and let me just speak to the nonpartisan nature of this. if you rook at this report, sir, we are very critical of the federal reserve bank of new york's oversight of citigroup when mr. geithner was in charge of the federal reserve bank in new york. we looked at hud, we looked at the role of the office of comptroller of currency and thes office of terrorist supervision. so -- thrift supervision. and i think you will find that we found, without regard to party, without regard to publicw sector/private sector that this crisis was avoidable both in failures in the regulation and in corporate risk management.s >> thank you. the gentle lady from new york. f >> did mr. thomas want to respondsome. >> oh. tha 30 seconds.

[laughter]e >> sure. >> well,le it's hard to get -- >> look, warren buffett came before us in new york and said he didn't think housing prices would go down the way they did. people who were supposed to bere gurus in this said they weren't aware of it. you have to read a clever book s by michael lewis if you haven't, "the big short," because he winds up writing a book about ce those three or four people who actually made money on it. i asked him, what about john paulson? he said, he's been around for a long time. he was a joke.e we all laughed at him. he had this view of what was going on. turns out he was right, but it was after the fact. if warren buffett didn't know ia was coming, how can you say very nonchalantly it could have been avoidable? th >> thank you. mr. malone? ms. maloney is recognized for, five minutes. >> thank you very much, and i

welcome the panelists, particularly my former colleague, congressman thomas. very good to see you again. we >> thank you very much. >> i'd like to mention that one of my constituents is here that weue are very proud of. thank you her for her public service, her courageous leadership in pointing out reforms that needed to take place. i would like to say, first o all, that i thought it was an excellent report. and my biggest disappointment ie it was that it was not more wa bipartisan. i truly believe one of the besty actions of this congress was the 9/11 commission report that was totally bipartisan, and we worked together to implement their charges and their, their suggestions of how to make this country safer. republicans and democrats lost their jobs, republicans and democrats lost their savings, republicans and be democrats -- and democrats lost their homes,p and they are both suffering,sa republicans and democrats, in the worst recession that we'vee

ever had many this country. so when a house is burning down, itor would have been helpful if everybody could have comeis together and worked together inl a positive way with concretegeth solutions and be analysis. i would like to begin by asking mr. angelides, can you e elaborate on the role of unprecedented liquidity and your response that it doesn't have to be a problem? in fact, we should welcome it if it's used responsibly?m? >> yes, and this is a follow up to mr. royce's question. clearly, as we detail in the report, monetary policy made for cheaip money. there were capital inflows into this country. but in the end the availability of capital need not be the maker of a crisis. the fact is that, as i said earlier, the federal reserve could have set tougher mortgage

lending standards.e they allowed a tragic deterioration of of mortgage lending standardsgher notwithstanding all the information they had.ed companies levered themselves up. the investment bank bees were levered to about 40-1. take bear stearns, for example. in 2007 they had $11 billion in equity, about $380 billion in f liabilities, and they were borrowing up to $70 billion in the overnight markets. that's like a small businessli that has 50,000 equities borrowing 1.6 million with about 300,000 due every day. so in this environment you have toin be careful for excesses, bt this idea that reasonably-priced capital is necessarily the maker of the crisis, i think, is a flawed one. it can be channeled to productive uses. unfortunately, where the moneyme went was to create $13 trillion of mortgage securities many of which were wholly defective.the

institutions either didn't care to know, didn't examine or knew theye were defective but still moved them in the marketplace. and be instead of building the economy, we built a house ofkn cards built on financial neernging. as -- engineering. as to the matter of consensus, h do want to say that there were a number of areas if you look i where, in fact, nine of the ten commissioners did find common ground, and the dissent which i would say by mr. thomas and mr. hennessey noted we find areas of agreement with the majority's conclusions. fannie mae and freddie mac contributed significantly to the crisis, and that is our view also. these organizations were poorlym managed. they were seeking market share, they were seeking profits and big compensation for their executives. but e want to point out, yes,ri they added helium to the housinr balloon, but they never

represented a majority of the purchase of mortgage securitiesl they followed wall street,iu thy didn't lead it. and finally, this is important to note, the value of gse-backed mortgage securities from be january of 2007 to the day before conservatorship never dropped, so they did not cause the financial losses at the big financial firms. they caused huge losses to the taxpayers. that's a fiscal issue. but they were not the cause offi the big financial losses that happened at merrill lynch, at citigroup that began the cascade that led to the bailouts in september. >> could you comment on the lack of knowledge or understanding in be aig? you touched on it, but i recall the hearing we had here, and treasury and many others came, and they asked, first, for 50 billion, that's all they needed. 80 billion, that's all they needed.it then they came back two days later, they needed 50 billion, and they kept coming back showing that they clearly did not understand the exposure or

the problem. there was no understanding. and the head of aig didn't understand the one, the exposure for the 79 billion in credit protection. and furthermore, the office of thrift supervision -- even the default swap salesmen at aig did not know about the terms that he was selling with. and no one seemed to understandi anything about it except for the counterparties when they starte calling it in.tand can you discuss the extent ofpa lack ofrt knowledge by regulato. by leaders, by salespersons, by everyone contributed to this? i believe it's astonishing. some were saying buy they product, others were saying -- within the same company -- thate itve was a problem be. there was a total lack ofying knowledge, and could you commeni on it and what you think shoulds be done -- >> ms. maloney, your time is up.

>> my time is up. >> but i will -- >> i'll try to do it within one minute, i'll be very quick. >> absolutely. >> i'll try my best. three items. as i noted earlier, aig sold $79 billion worth of credit protection to holders of subprime-related securities. there are conditions in those contracts that said that aig would have to post collateral. by the way, aig had no cashth reserves.sion they had nothing set aside, nog reserves because they had aal. model that showed there was ase 99.75% chance they'd never lose a dime.th the contract said they'd have to post chattal if aig wasth downgraded. if there was an actual economic loss or if market value declined. the market value of those securities started plummeting in 2007. not the ceo, the cfo, the chief risk officer knew anything abouh these collateral provisions related to market value. they were stunned. secondly, in about 2006 the

people actually writing credit protection began to look at the quality of these subprime loans and they start to stop writing. they didn't, they kept writing a few more new protection. at the same time though, aig ramps up its securities lending program and starts buying tens of millions of dollars more of subprime securities finally as deregulation. the office of thrift supervision signed a agreement with the european union to become a t consolidated supervise.ft mr. rich, who is the head ofment ots, told us that he wasn't aware that they had the authority over the holding company. he said they had no understanding of these credit default swap provisions and, in fact, he said having the ots regulate aig was like having a gnat on an elephant. >> thank you. >> thank you. mr. hensley? >> thank you, mr. chairman. and thank you for calling this

hearing. i certainly think the establishment of this commission was an important act. i do still find it somewhat ironic, somewhat perplexing, c somewhat amusing that we ended up passing the entire dodd-frank act before we even had the conclusions of the commission in the first place. so the whole reason for being, i'm not sure it hasn't passed. having said that, before i getpl into the conclusions of the majority, i did have a couple o' process questions, something i' somewhat sensitive to since it everybodied on the congressional oversight panel for the t.a.r.pm commission.ve i know that one of the minority members held the 9/11 commission up as a model of bipartisanship. if i recall right, there weresso equal number of democrats and be republicans that served on that commission, and i believe the9 resources/1 were equally shared.

so i would like to ask you, mr. mayor, a couple of questions under your chairmanship. i number one, were the -- actually, chairman thomas, let me go to you first and, welcomeo it's good to see you, sir. were the minority representatives of thethom commission, what type of access to the resources of thee commission were they granted? >> i'm sorry, i missed your testimony earlier -- >> as i said, i don't think them problem was a lack of money, in' don't think it was the staff. i think we reached a point, and it's very easy to do when you have the kind of makeup that you have. and, remember, the charge to the commission were 22 specific agenda items which were reached in a partisan way in this 2 committee.hich i, early on, was contacted by folks who said we wanted to get

these particular items on the list, and we weren't allowed to so that what we were guided to look at was structured from aern partisan point of view.ha now, why in the world would i, if i know anything about that,pt go into the situation with myrld eyes wide open? i went into it with my eyes widi open. wes were asked to get to the fundamental causes, and i thought that was really, really important. and, and i was concerned about this business, as samuelson calls it, looking at villains and victims. just let me run a quick analogy. it's like this budget fightan right now.. we're spending all this time on discretionary spending. it's a dime.ht nobody's moving to the fundamentals which is thedisc entitlement reform area. i was hopeful we could move as a commission to the fundamental causes and understand them. we got side railed in a, many a

partisan, political way.ca i will tell you the chairmanot s says we shared leadership.po well, of course, we did. look at the early agendas. look at the last few agendas. there wasn't even a vice chairman mentioned on the agenda. it turned partisan at the end on a 6-4 vote, multiple 6-4 votes. >> mr. chairman, i think i get that.6- i also heard many this vein, i just want to ask you, mr. mayor. was it true -- >> the mayor, who was the mayor? >> i was treasurer, but -- >> i'm sorry.s >> that's okay. don't worry about it. i >> i started to give you a promotion.e >> i don't think my own townon't would elect me mayor. [laughter]was >> mr. treasurer, mr. chairman, whatever the appropriate title is, i understand the majority report is 900 pages -- 400 pages long. is it true that in the authorized edition that theumma dissenters were elemented to

nine pages apiece? is that correct? >> sir, first of all, let me comment. the 400 and some pages ise actually the report of our investigation. our conclusions, theet commission's conclusions, are actually shorter than the published dissent, and here's how it worked. i think our conclusions are about 20-some pages.he it reminds me of the mark twain --se >> well, werent the minority limited in their dissent in thes authorized edition? >> in the authorized edition, m any commissioner could give an>w additional or dissenting view of up to nine pages, people coulday combine. c but let me add in the government report and on the web, folks were unlimited. mr. thomas, mr. holtz-eakin and mr. hennessey chose not to use that additional space. >> if i could, i see, unfortunately, my time is running out here -- >> [inaudible]d mr >> you did say in the report you determined government housing to policies were not a significant factor in the crisis. >> correct. >> clearly, there were strong dissents. so be it the affordable housing

goals of fannie and freddie, hud's best practices, cra, you found no significant factor in the crisis?y >> so let me talk about each of these very quickly. let me tell you about fannie ana freddie, and be i just want to e say very quickly that a deeply flawed business model with thet implicit backing of the government was a bad model. the fact is that those entities used their political power to ward off effective regulation. we conclude that they did contribute to the crisis, but theys, were not primary. they did add healing to the housing balloon, but keep in mind they never represented a majority of the purchases of subprime securitizations emanating out of wall street. they did ramp up traumaticically their purchases and -- dramatically their purchases in 2005, 2006 and 2007, but -- >> i'm sorry, i'm running out oe time.in can i get a quick comment out of you, chairman thomassome.

>> but -- okay. >> there's one important -- >> are i'd like toed -- to add if we have time. >> look, the majority, six votes, owned over 400 pages. at the end of each chapter are commission conclusions on o chapter 14, commission conclusions on chapter 15. they owned the 400 pages. we were given on a 6-4 vote nine pages each total out of this entire document. they had 400 pages to do, whatever they wanted with. what they did was what they wanted. you can't explain away the fact on a 6-4 vote -- i was givent t nine pages. that's why the three of us came together so we could have almost 30 pages to try to explain our fundamental concerns.ame that is partisan. we >> okay. mr.ld chairman, i'll yield backt just on this note. i think it's sad and important work, it's hard to take

seriously when it was conducted on such a partisan basis. it's going to be hard to takei'l the nature of this work seriously. i yield back my time.no >> well, sir, can i make just one comment very quickly? i just would say i stand on the facts of the report, and the facts are truthful. theyo have withstood scrutiny. i guarantee you every financialt institution -- >> apparently not the scrutiny of several of the dissenting opinions. >> all right. thankan you. >> could i briefly respond?. >> no i -- >> 25 seconds. because i've been sitting here very quietly. [laughter] for me. mr. congressman, again, in my, in my opening statement i said when you're looking for victims and villains rather than essential causes, it is easy toa examine the same set of facts and arrive at diametrically different conclusions. it isn't the facts, it is the

conclusions that we should be y focusing on. thank you. dif >> thank you. i will say that this has been ah very informative hearing, and it has been rather loose, but i think we've learned quite a lotm i mean,at and be i think it's bn very thought provoking. and with that, mr. lynch, what we're going to do now if -- with your permission, the panel's permission, we're going to extend your panel 30 minutes're which will take care of all the 27 minutes that we've gone over and give some of our very all talented, younger members an opportunity to ask questions. >> does that exclude me, o mr. chair? [laughter] >> well, i was talking about the talented members. [laughter] >> i'm neither talented, nor ab young. >> i mean, obviously --nted >> i don't know, welcome to the club. >> i think i've been just excluded on both criteria.

>> you would be included under talented but probably excluded under new. >> we're matching ends of the dais. >> so, but mr. watt -- >> oh, i'm both talented and young now. i'm sorry. hey, i got, got in at a good time m and i'm not sure i want to take time to ask a lot of. questions. i b actually have looked at the report and will look at it more thoroughly. que i want to use my time really toe comment more on a couple of things that i thought were important. because it's ironic that i got beat up a lot back in 2007 because i was the chair of the oversight subcommittee of this full committee. i got beat up by people who said

i ought to be doing what we, the oversight subcommittee ought to be doing what we ultimately, you all ultimately got tasked to do. and it was bipartisan because a lot of folks wanted me to have hearings that would blame it on the, blame the meltdown on the, on the past administration. a lot of folks wanted me to -- and i just said, look, you know, i think it's more important for the committee, for this ju committee to be focusing on how we get out of this mess rather than spending the resources of our committee looking backwards trying to figure out how we got into it. r that doesn't mean, and i didn'to mean at that point that it was not an important undertaking toe

look retroactively at it. but we were, we were trying to focus more attention on how to move forward, and i'm glad we did. but now we can take a look back to the extent that the report contradicts anything we did in dodd-frank, i think it's worthwhile for us to do that. to the extent that it reaffirms some of the things we did in dodd-frank, i think that's important. but what's most important is we need to try to avoid this kind of economic meltdown in the future, and i heard one of the opening statements over there saying we go through these cycles periodically, the cycles are inevitable.

they may be inevitable, but theg are damn painful.odic and if there's anything we can do to avoid them, i think w need to be trying to avoid them. and i think you all's work,k perhaps, will have a very important sal you story wor effect -- sal you story effectry in that, and i appreciate all of the work that all of the commission has done. my good friend, mr. thomas -- >> thanks very much. wor >> -- who wasn't always my good friend when he was here. >> no, we were good friends, we just disagreed on things. >> you know i'm joking. >> but that's how it works. >> yeah. >> can i hate to keep repeating this in a small article of the --on >> i heard that one. >> no, no, no, this is win different. it's on your point, and that isd he said that in looking back onk what's happened where we got complacent pause we think we

did -- because we think i we did control the universe which was one of our problems that maybe, i mean, no one could get electet standing up and saying i think we should have a lot of little recessions.hat but had we had a few more little recessions, we wouldn't necessarily have had the great big one that we had. and he wants us to focus on the belief that if you can control, you just need a few more regulations, just need more this, more that, that you are kidding yourself about some of the dislocations not just in this country, but thisis, international world. >>your >> well, i understand that, but you s can have a bubble in the international capital market and still people have to make a decisions about how to use that capital. that's why, i mean, i had a major disagreement with what you were saying.at maybe that was, did create the a environment for this to happen, but somebody had to make someid

decisions, and the industry mada somep bad decisions, the regulators made some bad decisions, and to the extent that we can incentivize people to avoid those decisions in the future, we need to do it.me b mr. angelides. >> yes, very quickly. can we do not believe you can repeae the business cycle, but we don't think you need to end up with 26 million americans out of work, can't find full-time work, stop looking for work. we don't think we needed to endf up with four million families losing their homes or $11 trillion worth of life savings s and retirement wiped away. as to where we go from here, again, i hope our report, i hope everyone has a chance to readaw it, draw their own assessments.g if we stir a healthy debate, that is healthy. but where we go from here is an important question. i very studiously with mr. thomas focused on the work,w in front of us, but my belief i we need to fully implement the

new law and provide the resources to do it.work we need regulators with backbone, will and capacity. i talked to ben bernanke about wall street's a little greased pig. they keep moving fast. we need to give them resources, we need to have the talentas there.pig, i believe we need to stay vigilant because the financial system is constantly evolvinge very, very quickly. i do think there's been an absence of self-reflection on wall street partly because the u.s. taxpayers bailed out -- >> the time has expired. if you could wrap up the answer in 30 seconds, please. >> i will.ers a new ethos is responsibility,nk and if laws have been broken, prosecutors should pursue where civil and criminal violations have occurred. there ought to be a sense of fairness.n, >> i yield back. >> the gentleman's time has expired.nal chair now lek nices the -- recognizes the chairman from north carolina for five minutes. >> thank you, mr. chairman. mr. angelides, the accusation'se been made that the commission

failed to conduct an objective investigation. and so i know you discussed this immediately to mr. frank, his question to you about edward pinto's report and what he said. you referenced page 219-221.pint you're being a bit generous. i mean, you used threeyo paragraphs to rebut -- well, to explain mr. pinto's report. and the crux of the, what pinto is saying is that there are 49% of the mortgages out in 2008 in america were at a or subprime -- alt-a or subprime or equivalent to that. pinto counts 45% that were purchased or guaranteed by gses. in contrast, the gses categorize fewer than three million of their loans as

subprime or alt-a. did you verify mr. pinto's work? >> yes. let me just say one more time -- >> why is that not included in the report? >> first of all, it is discussed in the report, and the staff'say analysis of mr. pinto's work, full analysis -- >> where is that? >> -- placed on the web.d it t is footnote number 11 and 2 in this chapter., so you can see, first of all, everyone can see, first of all, the staff did an analysis. is staff put together a database o. 25 million loans to see howne c loans purchasing guaranteed by the gses performed, how those lo guaranteed by fha performed, hoe those created by wall street and other private lenders performed. and the fact is that we did that analysis and an analysis of mr. pinto's work.r and here's something that's very important. nal you can't just lump all those loans togethermr. they perform differentially. >> obviously. >> now, the gses were a

disaster. >> sure. >> but can i point somethinggeth out, sir? if you take, for example, loans purchasing guaranteed by the gses and versus those created by wall street and private lenders. for similar loans to borrowers with fico scores below, credit scores below 660, by the end ofo 2008 the default rate in gse-guaranteed or purchase loans was 6.3%. for the wall street or other20 private firms, it was 28%. >> okay. we're spending my time. i certainly appreciate that. >> are okay.te >> i just wanted to -->> >> the information's available. >> sure, i read that in the report, and you outlined that very well. the gses are saying there's three million, mr. pinto is saying it's closer to 12 million that are these lower quality. did you analyze the gses portfolio? >> yes, we did. that workre is available?lity >> i believe we did a staff analysis as a high-quality staft

analysis prepared for the full commission available on the web. i don't have it hanky at this point -- handy at this point. >> you two gentlemen are fantastic at filling the time, so i do want to ask short questions here. can you give me a special example, mr. angelides, wherert you changed your mind afterre. doing research, after a lot of input, looking at the facts, where you changed your mind about this financial crisis? give me an example.a lo >> well, for example -- >> is there one? >> yeah. i didn't come in with a a predisposition about fanniebo ae freddie's lowell, and, frankly, i looked at fannie, their management practices -- >> is there a preconceived notion that you had that was changed? >> and you might -- well, the other was that i did not necessarily assume that this crisis was avoidable. but when i looked at all the facts -- because a lot of the narrative is no one saw it coming. w what changed my mind was when i saw the full record, for

examples of course of what was before the federal reserve, whad they knew about predatory lending, what they knew about lending standards from the late 1990s on.dera yes, i changed my mind, and i came to the conclusion that thet federal reserve fell down badly on the job. >> reclaiming my time. congressman thomas. >> look, you know, there's thise sort of notion that, you know, you were there just to sort ofcg battle it out.omas that, you know, that at the end of the day they were going to go their own path, and it was going toer be a 6-4 vote. walk us through this. i mean, at what point did things turn where you realized that that's -- you're not going to have a unified narrative, that they didn't really care about that? >> it, to me, was difficult froe the beginning because i chaired a number of committees in my 28i years in the house, and the only way you can get to a, almost a near unanimous or unanimous position is, frankly, accommodation and compromise.

and there virtually was no reals accommodation and compromise. there'll be any number ofof indications where we were able to do this or do that. i invite you to listen to peter wallenson in trying to direct where we might be going in terms of the investigation. this was a top-down structure from day one.ect he was the chairman, i was the viceth chairman. so i tried to deal with it asths best with i was able to create a broader willingness to share. early on it was easy. it's easy to share on all the easy stuff. to >> chairman thomas, the time ofr the gentleman has expired.ea >> when it came down to the crunch -- >> chairman thomas? >> >> all the voted were -- >> chairman thomas?man >> thank you. >> the time has expired.red. the chairman now recognizes mr. lynch for five minutes. the >> thank you, mr. chairman. i don't find the lack ofu.

unanimity at troubling, i find it as a strength.ormi especially with the respect to the position of the dissent thad asserts that derivatives weree not a major factor. i don't want the majority to cave on that issue. i don'tth want to you to -- i don't believe it, and the reason i don't believe it is because i've been sitting here for the past ten years. had an opportunity to listen to secretary paulson and chairman bernanke sit at that same table you're sitting at right now, and they were unable to tell us when the meltdown started to occur. the first meeting they had with us they said we had this, we have a problem be, it's not a t major problem. we got a good sense of the size of it. and we're going to take a

necessary steps to stop this meltdown. then three weeks later after the meltdown continued to occur, they'd come back in. and they say, well, we've got it contained.down it's worse than we thought, but we've got it contained. and then we'd have them in three weeks later or a month later.we and the problem they had as bright, as brilliant as theyhem are, we had a completely dark market for derivatives. they could not tell the the exposure, they could not tell the range of counterparties that were out there. at one point if it wasn't so r disastrous, it'd be laughable. we had e. stanley o'neal come out and report a $4 billionlaug loss. eas and then nine days later he comes out and says, sorry, it's a $14 billion. and then 20 days later he comess out and says it's a $21 billion loss. the reason he couldn't tell us the markets was because he

didn't know his exposure because the markets were so dark. there was no need to register,se we didn't know who the counterparties were. derivatives, if you read -- and i'm not just, although i've read everything that is out there in terms of including your report on this crisis -- you listen to warren buffett, someone that both sides respect, calls derivatives the weapon of mass financial destruction. you read michael lewis' book,oth excellent book, "the big short." gretchenwe morganson, another writer who i greatly respect. hank paulson, alan greenspan who said, you know, sitting here before the committee he made a mistake. so there's an abundance of consensus out there that the danger that derivatives presented. not only because of its opacityh there, a dark market, but also the leverage it allowed us toerv have this massive leverage, it

allowed banks to reduce their capital requirements, and it provided the impact for this, for this financial crisis. and i liken it to the, the economy being the titanic and derivatives being the iceberg. that's ha brought this economy -- that's what brought this economy to the bottom, because of the uncertainty it created, the leverage, the impact. and because it was beyond the ability of leaders in theted, financial industry to understand the impact and the implications that were at hand.in t so i'm glad in this report that we have a difference between the majority and the minority as to the play of derivatives here. and, mr. angelides, i just want

to -- i know you cited that $79 billion in credit ce fault swaps in your -- default swaps in your report, there was also 150ill billion that the u.s. taxpayerde had to contribute to aig to cover collateral calls on aig's derivatives, collateral debt obligations. a lot of that money went over ts direct pay over to goldman sachs at 100 cents on the dollar.ves, but i just wanted to, you know, hear from you as to the majority's assessment regarding the impact of derivatives on this, on this crisis. >> yes. very quickly let me be just say that ms. bourne, of course, cang speak in more detail on this. but we found there were threely, principle impacts. first of all, credit default swaps enabled the creation of a lot of the mortgage-backedpal securities, so that's one way in which they contribute.

and, of course, aig wrote those with no capital behind them, and it created a huge wave of collateral calls. secondly, they allowed for the creation of synthetic mortgage securities which were merely bets, as you know, on real mortgage securities. so instead of having one investor, you know, investing or betting so to speak on a mortgage security, this was amplified many times over. the bets on the housing market were multiplefold because you had synthetic securities. >> and cbo squared -- in the time of the gentleman has expired. could you, please, wrap up your answer? >> yes. >> finally at the end there was such confusion about derivative positions,, it's only four weeks before the crash of lehman that the federal reserve is trying to figure out what exposure ist th created by 900,000 lehman derivatives contracts. this was a completely opaqueosur

market and, therefore, it contributed to the panic. >> time of the gentleman from massachusetts has expired. >> i thank the chairman. thank you.e >> the chair now recognizes thea gentleman from new mexico for five minutes. fr >> thank you, mr. chairman. mr. angelides, if -- if i'm trying to get some>> understanding, you're saying that cdss pushed through the mgss, the mortgage-backedh securities. that was a key to what wasro go on, is that correct? i just want a yes or a no.. >> yes. tha i believe they helped create the collateralized debt obligations and made it possible for senior -- i b >> okay. so, basically, you have -- >> yes. >> -- you have mortgage-backedit securities that don't have much value. those mortgage-backed securities are based on a combination of individual loans that have very little value, is that correct?us just yes or no. are >> well, what the cds did is gaf gave the purchasers thele

quote-unquote assurance -- >> i understand.co but the mortgage-backed securities were, basically, packs of loans -- packages of loans that had almost no capability d to repay be. >> yes.pu theyrc were highly defective, y, sir. >> and they were worthless because we hadn't reduced the, we had reduced the underwriting standards for the loans. >> terrible. >> and the underwriting standards that were reduced were accelerated by the federal reserve trying to prop the system up. in other words, the ability toee repay is based on our income any the price of the house combinede and so a the federal reserve was driving the price of interest down to where people could dedicate a larger stream to them principal payment and keep the illusion alive, so we're moving lower and lower. and mr. greenspan in testimony d said we're having a little problem with this housing bubble, but we're going to work it out.

so i'm seeing this sequence where underwriting standards generated bad mortgages which generated bad bonds which generated bad cdss. and at the heart of it is the decline in underwriting standards. and when i pursue that upstream, then i find an aggressive, full affordable housing policy to be i find an aggressive, full, affordable housing policy to be a culprit. i'm amazed that you draw the conclusion on page 3 that says can of we determine the government housing crisis were not a significant factor in the crisis. i think that -- i'm amazed at that conclusion. can you help me understand why the government's position -- they could -- the government -- the regulators are achieving a

position right now that is not allowing bad loans to be made. and the government therefore could have done this back two years ago. we didn't pass any new loans saying you can't do this. it was an option on the part of the government. for you to draw that conclusion is amazing. >> yeah. we were speaking here about the community reinvestment act and the affordable housing goals at hud. i agree they fell down in setting mortgage standards. >> i'm asking about the policy that says, we're going to lower the underwriting standards and -- >> let me just take, for example, one reason we found the community reinvestment act didn't have an impact. most of these lenders or many of the subprime lenders, the am ameriquest and new centurieses were not regulated or not fannie

or freddie. the worst loans were being made by nonbank financial institutions. they were supported by bank financial institutions. >> sfnt isn't it correct that eventually most of the loans were repurchased by someone, and 50% of the community reinvestment act loans were purchased by fannie and freddie getting a wink and mod from the regulators saying it's okay? again, i drive at the point of your conclusion that the government policies had nothing to do -- they didn't get if your top six. the top six complaints. mr. thomas, do you have a comment? >> yeah. you're right. >> thank you, that's enough. if i get that from you, i'm ready to go. >> but i've still got 30

seconds. when i talk about the overreach, i didn't mean ha there wasn't a need to deal with the derivatives. the move in terms of originate to hold as a mortgage pattern, to originalate to sell was a mar problem. through republican and democratic administrations, the desire to get people into houses as part of the american dream definitely was part of the problem. the cheap money from the fed was part of the problem. if you go out looking for villains and victims, you miss some of the fundamental shifts we ought to be focusing on. i spent more than three decades in government. i will tell you if you want to bet on conspiracy versus incompetency, incompetency wins every time. we need to look at the

fundamentals and not point fingers at various folks. yes, some derivatives, too much. >> the time of the gentleman has expired. >> i yield back the rest of my time. >> the chair recognizes the gentleman from california, mr. sherman, for what i hope it will be five minutes. >> thank you, mr. chairman. i think you've produced a high quality report in both section positive. i realize there are some differences. and that is what the press is focused on. and they focused on arguments amongst the members. whether you guys had a good time preparing this this report. it's an absolute irrelevancy to anyone other than yourselves. my own belief if i was writing this report, it would have been much shorter.

i focus on one thing as the ultimate cause and that's the credit rating agencies. senator franken and i were able to get something in the bill which i think will solve the problem within a year or two. perhaps one of the more brilliant aspects of the report is that both the dissent and the report mr. chief say pretty much the same thing. the report in chiefs we conclude that the failure was essential cogs in the wheel of financial destruction and point out that moodies was giving its aaa stamp to 30 mortgage-related securities every working day and had had to downgrade 83%. and i see our friend, mr. thomas, nodding his head. i don't know if he embraced those exact words, but his part of the report said much the same thing by saying the credit

rating agencies assigned overly optimistic ratings. and that contributed to the creation of toxic financial assets. one thing i didn't spot in the report, not only did it create the toxic assets, but it created a housing bubble, providing all this no questions asked capital to anybody who would sign the painers to move into a home greater than they had ever dreamed of, let alone could board, creates a housing bubble such that good mortgages become bad mortgages. now, the credit rating agencies gave aaa to on alt-a. we've had testimony here that says, well, it's up to the investor. it's up to the portfolio manager to see through the false ratings.

what happens to a portfolio manager's short term if he or she gets 20 or 30 fewer basis points on their portfolio, investing in bonds with a lower rating than the portfolio manager down the street? can a portfolio manager be highly respected getting a lower rate of return on lower-rated instruments and expect to attract additional capital? >> could you just repeat the last part of that very quickly. >> can a portfolio manager who has the brilliance to recognize that the credit rating agencies are wrong and therefore invest in different instruments, instead of seeking the best

rating with the best return, says, the ratings aren't worth anyone. i'm going to try to get the best return investing in things that may be lower rated by the credit rating agencies but in my own analysis are better and then presents to the investors saying, well, instead of investing in aaas i vested in aas. trust me, it's a better portfolio. >> certainly investors have a responsibility to do their own due diligence. one of the important things about dodd frank is that it removes statutory requirements. it makes the rating agencies produce their public models. >> let's say i've got $50,000 to invest and you would advise me to diversify that by investing in a portfolio of 100 different debt instruments, perhaps

through a mutual fund. how many minutes am i supposed to spend of my life to invest that $50,000 looking at the 100 different debt instruments, not to mention the 400 or 500 that i reject? is there any way i can invest $50,000 except by relying on the credit rate agencies? >> on financial advisers that have fiduciary duties. the issues you worked out with mr. franken to take away issuer pay. these are all important. >> it's not so much issuer pay, issuer select. >> the time of the gentleman has expired. if the witness has completed the answer. >> i was going to try to ask mr. thomas to respond. >> the chair will note there are

five remaining members in the room who have had a chance to question. >> is there a way our former colleague could have 20 seconds. >> we will allow the five members who haven't asked questions to question the witnesses so we may dismiss this panel at approximately 12:30. we'll give chairman thomas 30 seconds. >> thank you very much. big, big problem. in your new york testimony, we had people who were former participants in the rating folks tell us highwthey changed their business model. we haven't focused on the short-term financing, the commercial paper, the repo paper, overnight financing. based on the ratings, people would accept or they wouldn't. what scared me was the first regulation coming out of dodd frank was on the rating agencies. they said they wouldn't do it. you guys blinked.

it scares me to death in terms of getting on top of what i think in our dissent, one of the major problems, transparency, the rating agencies and the willingness to accept three letters versus factual investigation of what happened. >> the chair recognizes the gentleman from missouri for five minutes. >> thank you, mr. chairman. in your report, and in the summaries i've read, you talk about the different causes. i have yet to see in there the community banks, credit unions, insurance companies, household lenders. were they a cause of this debacle? >> i do not believe that community banks were a driving cause of this. >> okay. >> they have large real estate portfolios. but the primary losses that set

off the cascade in 2007 were driven by the larger, first of all, nonbank financial institutions. then it went into other areas of the shadow banking. they have suffered greatly. tons of community banks. >> mr. thomas? >> community banks basically when you moo you from that model of originate to hold to originate to sell got pushed out of the home mortgage market. they wound up in the commercial market. and although a number of local community banks failed hanging on to that, it was the depreciates of property. >> basically you agree they were not dinner the list ha i gave you, they were not the root causes of what happened. >> certainly not root causes. >> even though they were a root of dodd frank.