FINANCIAL CRISIS

Another take on the financial crisis from the Inquiry Commission Report:

10 essential causes.

1. A credit bubble started in late '90's with China, other large developing countries and big oil-producing nations building up huge surpluses. It created bubbles in US and Europe, causing interest rates to fall. Risk was repriced. Monetary and fiscal policy were loosened (the US, of course, at the turn of century was running budget surpluses) to record levels after 9/11 (and, obviously, we're still there).

2. The large housing bubble in the US (and Europe and many places around world). Price increases well above history norm.

3. Nontraditional mortgages, overly optimistic assumptions, poor origination practices, deception, fraud and lack of homebuyers' responsibility.

4. Failures in credit rating and securitizatioin transformed bad mortgages into toxic financial assets. Credit rating agencies erroneously rated the mortgage-backed securities and their derivatives as safe investments. (S&P, Moody's, etc. paid by investment banks to assign AAA ratings). Buyers didn't do due diligence. Fueled creation of more bad mortgages. Almost half of mortgages by the peak were bad.

5. Financial institutions became heavily concentrated in this risky housing market. Some knowingly, betting on higher prices. Some paid insufficient attention.

6. The financial firms became overly leveraged and or relied on short-term financing in repo and commercial paper markets for day-to-day liquidity. When the housing investments turned sour they ran into liquidity crises.

7. Contagion, "too big to fail", "systemic risk", "counterparty risk". Financial system vulnerability.

8. Unrelated financial institutions and firms failed because they had made similar bad bets on housing and were coming up with huge losses.

9. Financial shock and panic. September '08. Failures, near-failures and restructurings of ten firms triggered the global financial panic. Confidence and trust evaporated. The health of every financial institution in the US was questioned.

10. The shock and panic caused the severe economic downturn.

I'm adding the impact of 9/11 and the wars and spending on security and the ethos of our insecurity since 9/11 as contributing causes.

Bottom line: 9/11 drove us all nuts.