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DISSENTING STATEMENTISSENTING STATEMENT
HOW OUR APPROACH DIFFERS FROM OTHERS’
During the course of the Commission’s hearings and investigations, we heard fre-
quent arguments that there was a single cause of the crisis. For some it was interna-
tional capital flows or monetary policy; for others, housing policy; and for still
others, it was insufficient regulation of an ambiguously defined shadow banking sec-
tor, or unregulated over-the-counter derivatives, or the greed of those in the financial
sector and the political influence they had in Washington.
In each case, these arguments, when used as single-cause explanations, are too
simplistic because they are incomplete. While some of these factors were essential
contributors to the crisis, each is insufficient as a standalone explanation.
The majority’s approach to explaining the crisis suffers from the opposite prob-
lem–it is too broad. Not everything that went wrong during the financial crisis
caused the crisis, and while some causes were essential, others had only a minor im-
pact. Not every regulatory change related to housing or the financial system prior to
the crisis was a cause. The majority’s almost -page report is more an account of
bad events than a focused explanation of what happened and why. When everything
is important, nothing is.
As an example, non-credit derivatives did not in any meaningful way cause or
contribute to the financial crisis. Neither the Community Reinvestment Act nor re-
moval of the Glass-Steagall firewall was a significant cause. The crisis can be ex-
plained without resorting to these factors.
We also reject as too simplistic the hypothesis that too little regulation caused the
crisis, as well as its opposite, that too much regulation caused the crisis. We question
this metric for determining the effectiveness of regulation. The amount of financial
regulation should reflect the need to address particular failures in the financial sys-
tem. For example, high-risk, nontraditional mortgage lending by nonbank lenders
flourished in the s and did tremendous damage in an ineffectively regulated en-
vironment, contributing to the financial crisis. Poorly designed government housing
policies distorted market outcomes and contributed to the creation of unsound
mortgages as well. Countrywide’s irresponsible lending and AIG’s failure were in part
attributable to ineffective regulation and supervision, while Fannie Mae and Freddie
Mac’s failures were the result of policymakers using the power of government to
blend public purpose with private gains and then socializing the losses. Both the “too
little government” and “too much government” approaches are too broad-brush to
explain the crisis.
The majority says the crisis was avoidable if only the United States had adopted
across-the-board more restrictive regulations, in conjunction with more aggressive
regulators and supervisors. This conclusion by the majority largely ignores the global
nature of the crisis. For example:

• A credit bubble appeared in both the United States and Europe. This tells us
that our primary explanation for the credit bubble should focus on factors
common to both regions.