WASHINGTON — Of all the things missing from a House Financial Services Committee hearing on the inconclusive Financial Crisis Inquiry Commission report on the causes of the financial meltdown, the most obvious was any sense of irony.
Lawmakers' chief criticism of the report — that it broke down into a partisan skirmish with a fractured and confusing narrative about the causes of the crisis — was only mimicked and amplified by their own behavior.
Much as the commission itself, committee members splintered the debate by pointing fingers at each other and harping on their own pet issues.
Though the commission itself could not agree on causes, some Republicans used the issue to attack Congress itself for passing regulatory reform legislation last year before the report had been completed.
"Most problem solvers would recognize a problem, study the problem and then find a solution, and it seems only Congress could recognize a problem, pass a solution and then study the problem," said Rep. Steve Stivers, R-Ohio.
The hearing featured testimony from the crisis commissioners, led by Chairman Phil Angelides, a Democrat and former California state treasurer and Vice Chairman Bill Thomas, a Republican and former House Ways and Means Committee chairman.
The majority report, led by Angelides, concluded that the crisis had been preventable and that human error was to blame. It faulted to some degree virtually every actor, including financial institutions, regulators and investors; products that encouraged unsustainable homeownership levels, the credit bubble and circumstances like excessive leveraging and risk concentration.
During his opening statement Rep. Patrick McHenry, R-N.C., criticized the majority for its view, which he said "reads like a clipping service of the financial crisis."
In Thomas' dissenting Republican minority report, his chief criticism of the majority's report was that, instead of pinpointing the root of the crisis, the majority blamed virtually every actor and event leading up to the market meltdown. His report also said the majority had failed to properly put into perspective the global nature of the crisis.
A final dissenting view was led by American Enterprise Institute fellow Peter Wallison, who chiefly blamed the housing policies of the Bush and Clinton administrations, which he said had pushed for unsustainable homeownership levels, and the government-sponsored enterprises, which largely funded homeownership opportunities.
At the hearing, Democrats pointed to ways that the Dodd-Frank Act addresses problems they believe contributed to the crisis — lax regulation, undisclosed swaps counterparty risk and predatory lending. Republicans criticized the commission's process for being too partisan and Dodd-Frank for overreaching.
Rep. Maxine Waters, the committee's No. 2 Democrat, said that the disputes between lawmakers at the hearing really reflected the ideological divide over whether regulation can keep financial players in line or thwarts growth.
"There is a fundamental debate that's growing in the Congress of the United States today. This fundamental debate is about regulation," said Waters of California. "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. … My colleagues on the opposite side of the aisle are saying that regulation is a job killer. And so this debate is so important because it's about which way America goes."
Waters asked Angelides whether the commission had concluded that weak regulation was to blame.
"You said that the crisis was a result of human action, inaction, mismanagement, not Mother Nature. … in your discussion did you find that there was indeed a consensus … in some shape, form or fashion about the failure of our regulatory agencies to do [their] job?"
Angelides cited several factors, including mortgage fraud, housing price escalation and major institutions that were unaware of their subprime exposures.
"We believe that this was avoidable," Angelides said. "There was a twin phenomenon here of deregulation, gaps in regulation [and] failures of regulators to use the powers they had."
Republicans repeatedly questioned why the commission wound up with three reports, asking whether GOP perspectives had been left out of the process.
"Did the majority give you complete bipartisanship [access] with staff and resources and to the areas that you were going to be as a commission studying and investigating and finally reporting upon?" asked Rep. Scott Garrett, the capital markets subcommittee chairman.
Thomas said the commission's splitting along party lines was a fait accompli.
"I thought it was pretty obvious when the move was made at the beginning of the Congress to create a committee which was structured on partisan lines, six to four," Thomas said. "It was clear from the beginning it was a partisan environment. … When you wind up with a series of 6-to-4 votes that literally, in my opinion, split the commission on a partisan basis, the result is a partisan conclusion, and I have no qualms [about] that. That's what I thought it was going to be to begin with."
Other Republicans challenged Angelides on whether Democrats shaped the commission around their preconceived notions.
"The accusation has been made that the commission failed to conduct an objective investigation," Rep. McHenry said to Angelides. "Can you give me a specific example where you changed your mind based on findings and research. … Is there a preconceived notion that you had that was changed?"
Angelides responded, "I did not necessarily assume that this crisis was avoidable. When I looked at all the facts, the broader narrative was, no one saw it coming. What changed my mind was when I saw the full record, for example with the Federal Reserve, what they knew about predatory lending, what they knew about lending standards from the late 1990s on; yes, it changed my mind and I came to the conclusion that the Federal Reserve failed badly in its job."
Democrats used the hearing to emphasize elements of Dodd-Frank and other standing regulations that they believe should be preserved.
Rep. Barney Frank, the panel's top Democrat, said that Dodd-Frank was right to go beyond causes of the crisis to try to close gaps in regulation in order to prevent other breakdowns, and he fought back against some GOP criticism, such as Wallison's assertion that the Community Reinvestment Act was a chief cause of the crisis.
"On this question of the notion that Fannie Mae and Freddie Mac and CRA caused it, it's one thing to say they were exacerbating factors, once the problem started," Frank said.