The government report on the causes of the financial crisis is finally out and it makes compelling reading. Much of the material is already well known, but even for those of us who think we have read everything, it's cold, matter-of-fact recounting of events is as chilling as any Shakespearean tragedy.
The report doesn't just dwell on the events of the last few years, but plots the evolution of the U.S. financial system through several crises, reminding us that for all its many accomplishments our financial system remains a work in progress.
It is also apparent from the commission's dissenting voices that 'what were the causes of the financial crisis of 2007-8' will be an exam question for many years to come.
The report reads like a bad performance review of both government and the financial system - as if it were saying 'thank you for your contributions to the country, but you really have made a mess of things.'
But we have also created arguably the world's most sophisticated financial system and important benefits flow from that. While financial institutions may have created $36 trillion in debt, they have also built a similar level of assets. It's not all bad news.
The big question is where do we go from here?
We regulate toys more than guns. So when we find WMD in our financial system, it is encouraging that we try to do something about it. But, in this case, more regulation may not be the answer. The report makes clear there was plenty of regulation already in place. It was the supervision that was lacking and sometimes that was conflicting and contradictory.
Financial services firms cannot fail like other companies. The collateral consequences are too great. Even small institutions that fail must be wound down in an orderly fashion. Governments must step in from time to time, and the price of that support is regulation. Some regulation is essential; too much can stifle growth and innovation.
The challenge is to get the balance right.
The report is rich in detail and surfaces many egregious practices. But in the end this was an old fashioned bubble like many before it. Our capitalist system is addicted to bubbles. For every lender there is a borrower. We love the idea of getting rich quickly. In that respect, the financial system is as much a victim of the crisis as a perpetrator.
A copy of the report can be found at: