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FINANCIAL CRISIS INQUIRY COMMISSION REPORT
were clanging inside financial institutions, regulatory offices, consumer service or-
ganizations, state law enforcement agencies, and corporations throughout America,
as well as in neighborhoods across the country. Many knowledgeable executives saw
trouble and managed to avoid the train wreck. While countless Americans joined in
the financial euphoria that seized the nation, many others were shouting to govern-
ment officials in Washington and within state legislatures, pointing to what would
become a human disaster, not just an economic debacle.
“Everybody in the whole world knew that the mortgage bubble was there,” said
Richard Breeden, the former chairman of the Securities and Exchange Commission
appointed by President George H. W. Bush. “I mean, it wasn’t hidden. . . . You cannot
look at any of this and say that the regulators did their job. This was not some hidden
problem. It wasn’t out on Mars or Pluto or somewhere. It was right here. . . . You can’t
make trillions of dollars’ worth of mortgages and not have people notice.”
Paul McCulley, a managing director at PIMCO, one of the nation’s largest money
management firms, told the Commission that he and his colleagues began to get wor-
ried about “serious signs of bubbles” in ; they therefore sent out credit analysts to
cities to do what he called “old-fashioned shoe-leather research,” talking to real es-
tate brokers, mortgage brokers, and local investors about the housing and mortgage
markets. They witnessed what he called “the outright degradation of underwriting
standards,” McCulley asserted, and they shared what they had learned when they got
back home to the company’s Newport Beach, California, headquarters. “And when
our group came back, they reported what they saw, and we adjusted our risk accord-
ingly,” McCulley told the Commission. The company “severely limited” its participa-
tion in risky mortgage securities.
Veteran bankers, particularly those who remembered the savings and loan crisis,
knew that age-old rules of prudent lending had been cast aside. Arnold Cattani, the
chairman of Bakersfield, California–based Mission Bank, told the Commission that
he grew uncomfortable with the “pure lunacy” he saw in the local home-building
market, fueled by “voracious” Wall Street investment banks; he thus opted out of cer-
tain kinds of investments by .
William Martin, the vice chairman and chief executive officer of Service st Bank
of Nevada, told the FCIC that the desire for a “high and quick return” blinded people
to fiscal realities. “You may recall Tommy Lee Jones in Men in Black, where he holds a
device in the air, and with a bright flash wipes clean the memories of everyone who
has witnessed an alien event,” he said.
Unlike so many other bubbles—tulip bulbs in Holland in the s, South Sea
stocks in the s, Internet stocks in the late s—this one involved not just an-
other commodity but a building block of community and social life and a corner-
stone of the economy: the family home. Homes are the foundation upon which many
of our social, personal, governmental, and economic structures rest. Children usually
go to schools linked to their home addresses; local governments decide how much
money they can spend on roads, firehouses, and public safety based on how much
property tax revenue they have; house prices are tied to consumer spending. Down-
turns in the housing industry can cause ripple effects almost everywhere.
