By Zachary A. Goldfarb and Brady Dennis
Washington Post Staff Writers
Thursday, January 27, 2011; 10:05 AM
Even as a congressional panel prepares Thursday to release a final report that casts widespread blame for the financial crisis, internal divisions within the group highlight how politically difficult it has been to find consensus about what caused the worst economic calamity in generations.
On Wednesday, ahead of the formal release of the Financial Crisis Inquiry Commission's report, a Republican member of the panel released a lengthy dissent castigating the Democratic majority for how they ran the panel.
"From the beginning, the Commission's investigation was limited to validating the standard narrative about the financial crisis - that it was caused by deregulation or lack of regulation, weak risk management, predatory lending, unregulated derivatives, and greed on Wall Street. Other hypotheses were either never considered or were treated only superficially," wrote Peter J. Wallison, a fellow at the American Enterprise Institute. "The Commission's failures were failures of management."
The commission's nearly 600-page report was approved by the six Democratically appointed members of the commission, but opposed by all four Republicans. It is expected to fault a range of factors, from recklessness and greed on Wall Street to repeated failures of policymakers and regulators in Washington, according to media accounts.
In his dissent, Wallison blamed federal housing policy for the crisis. He wrote that under pressure from the Department of Housing and Urban Development, the government-charted mortgage finance companies Fannie Mae and Freddie Mac purchased huge numbers of risky mortgages that had been extended to low-income and minority borrowers.
Wallison wrote: "If the U.S. government had not chosen this policy path - fostering the growth of a bubble of unprecedented size and an equally unprecedented number of weak and high-risk residential mortgages - the great financial crisis of 2008 would never have occurred."
As one piece of evidence, Wallison cites a 2005 HUD report that said "lenders have been encouraged by HUD and banking regulators to increase lending to low-income and minority households. . . . Sometimes these borrowers are higher risk, with blemished credit histories and high debt or simply little savings for a downpayment. Lenders have responded with low downpayment loans and automated underwriting."
Wallison said the panel's majority ignored compelling evidence of the role of federal housing policy, and took other short cuts that limited input from the panel's Republicans. He said the panel's members never had a chance to discuss what causes of the crisis it would investigate, nor did commissioners have a chance to ask questions of many of the witnesses.
The report was originally scheduled to be released Dec. 15, but was delayed amid squabbling on the panel.
Also being released Thursday are millions of documents and transcripts of more than 700 witness interviews that the commission compiled over the past year. As part of its investigation, the panel held 19 days of public hearings in New York, Washington and communities across the country that were hit hard by the crisis.