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470 Dissenting Statement

of regulation, lax regulation, predatory lending, greed on Wall Street and among
participants in the securitization system, ineff ective risk management, and excessive
leverage, among other factors. One of the majority’s singular notions is that “30
years of deregulation” had “stripped away key safeguards” against a crisis; this
ignores completely that in 1991, in the wake of the S&L crisis, Congress adopted the
FDIC Improvement Act, which was by far the toughest bank regulatory law since
the advent of deposit insurance and was celebrated at the time of its enactment as
fi nally giving the regulators the power to put an end to bank crises.
Th e forest metaphor turns out to be an excellent way to communicate the
diff erence between the Commission’s report and this dissenting statement. What
Summers characterized as a “cigarette butt” was 27 million high risk NTMs with
a total value over $4.5 trillion. Let’s use a little common sense here: $4.5 trillion in
high risk loans was not a “cigarette butt;” they were more like an exploding gasoline
truck in that forest. Th e Commission’s report blames the conditions in the fi nancial
system; I blame 27 million subprime and Alt-A mortgages—half of all mortgages
outstanding in the U.S. in 2008—and a number that appears to have been unknown
to most if not all market participants at the time. No fi nancial system, in my view,
could have survived the failure of large numbers of high risk mortgages once the
bubble began to defl ate, and no market could have avoided a panic when it became
clear that the number of defaults and delinquencies among these mortgages far
exceeded anything that even the most sophisticated market participants expected.
Th is conclusion has signifi cant policy implications. If in fact the fi nancial
crisis was caused by government housing policies, then the Dodd-Frank Act was
legislative overreach and unnecessary. Th e appropriate policy choice was to reduce
or eliminate the government’s involvement in the residential mortgage markets, not
to impose signifi cant new regulation on the fi nancial system.

* * * *
Th e balance of this statement will outline (i) how the high levels of delinquency
and default among the NTMs were transmitted as losses to the fi nancial system, and
(ii) how the government policies summarized above caused the accumulation of an
unprecedented number of NTMs in the U.S. and around the globe.