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xxii FINANCIAL CRISIS INQUIRY COMMISSION REPORT

many others who labored to stabilize our financial system and our economy in the
most chaotic and challenging of circumstances.

• We conclude there was a systemic breakdown in accountability and ethics. The
integrity of our financial markets and the public’s trust in those markets are essential
to the economic well-being of our nation. The soundness and the sustained prosper-
ity of the financial system and our economy rely on the notions of fair dealing, re-
sponsibility, and transparency. In our economy, we expect businesses and individuals
to pursue profits, at the same time that they produce products and services of quality
and conduct themselves well.
Unfortunately—as has been the case in past speculative booms and busts—we
witnessed an erosion of standards of responsibility and ethics that exacerbated the fi-
nancial crisis. This was not universal, but these breaches stretched from the ground
level to the corporate suites. They resulted not only in significant financial conse-
quences but also in damage to the trust of investors, businesses, and the public in the
financial system.
For example, our examination found, according to one measure, that the percent-
age of borrowers who defaulted on their mortgages within just a matter of months
after taking a loan nearly doubled from the summer of  to late . This data
indicates they likely took out mortgages that they never had the capacity or intention
to pay. You will read about mortgage brokers who were paid “yield spread premiums”
by lenders to put borrowers into higher-cost loans so they would get bigger fees, of-
ten never disclosed to borrowers. The report catalogues the rising incidence of mort-
gage fraud, which flourished in an environment of collapsing lending standards and
lax regulation. The number of suspicious activity reports—reports of possible finan-
cial crimes filed by depository banks and their affiliates—related to mortgage fraud
grew -fold between  and  and then more than doubled again between
 and . One study places the losses resulting from fraud on mortgage loans
made between  and  at  billion.
Lenders made loans that they knew borrowers could not afford and that could
cause massive losses to investors in mortgage securities. As early as September ,
Countrywide executives recognized that many of the loans they were originating
could result in “catastrophic consequences.” Less than a year later, they noted that
certain high-risk loans they were making could result not only in foreclosures but
also in “financial and reputational catastrophe” for the firm. But they did not stop.
And the report documents that major financial institutions ineffectively sampled
loans they were purchasing to package and sell to investors. They knew a significant
percentage of the sampled loans did not meet their own underwriting standards or
those of the originators. Nonetheless, they sold those securities to investors. The
Commission’s review of many prospectuses provided to investors found that this crit-
ical information was not disclosed.

THESE CONCLUSIONS must be viewed in the context of human nature and individual
and societal responsibility. First, to pin this crisis on mortal flaws like greed and