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                          BEFORE OUR VERY EYES










         In examining the worst financial meltdown since the Great Depression, the Financial
         Crisis Inquiry Commission reviewed millions of pages of documents and questioned
         hundreds of individuals—financial executives, business leaders, policy makers, regu-
         lators, community leaders, people from all walks of life—to find out how and why it
         happened.
            In public hearings and interviews, many financial industry executives and top
         public officials testified that they had been blindsided by the crisis, describing it as a
         dramatic and mystifying turn of events. Even among those who worried that the
         housing bubble might burst, few—if any—foresaw the magnitude of the crisis that
         would ensue.
            Charles Prince, the former chairman and chief executive officer of Citigroup Inc.,
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         called the collapse in housing prices “wholly unanticipated.” Warren Buffett, the
         chairman and chief executive officer of Berkshire Hathaway Inc., which until 
         was the largest single shareholder of Moody’s Corporation, told the Commission
         that “very, very few people could appreciate the bubble,” which he called a “mass
                                              
         delusion” shared by “ million Americans.” Lloyd Blankfein, the chairman and
         chief executive officer of Goldman Sachs Group, Inc., likened the financial crisis to a
         hurricane. 
            Regulators echoed a similar refrain. Ben Bernanke, the chairman of the Federal
         Reserve Board since , told the Commission a “perfect storm” had occurred that
         regulators could not have anticipated; but when asked about whether the Fed’s lack of
         aggressiveness in regulating the mortgage market during the housing boom was a
         failure, Bernanke responded, “It was, indeed. I think it was the most severe failure of
                                     
         the Fed in this particular episode.” Alan Greenspan, the Fed chairman during the
         two decades leading up to the crash, told the Commission that it was beyond the abil-
         ity of regulators to ever foresee such a sharp decline. “History tells us [regulators]
         cannot identify the timing of a crisis, or anticipate exactly where it will be located or
         how large the losses and spillovers will be.” 
            In fact, there were warning signs. In the decade preceding the collapse, there were
         many signs that house prices were inflated, that lending practices had spun out of
         control, that too many homeowners were taking on mortgages and debt they could ill
         afford, and that risks to the financial system were growing unchecked. Alarm bells
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