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Fallout: The Financial Crisis

What Congress should be investigating

Jeremy Hobson Jun 11, 2009
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Fallout: The Financial Crisis

What Congress should be investigating

Jeremy Hobson Jun 11, 2009
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TEXT OF STORY

Kai Ryssdal: When you think about all the things that went wrong to get the U.S. economy to where it is today, Bank of America’s takeover of Merrill Lynch last fall might not be at the top of the list. But really it is one of the more curious episodes. Today B of A CEO Ken Lewis told the House Oversight Committee that, yeah, he did feel he was being squeezed by Bernanke and Paulson to close that Merrill deal, but that that was OK.

KEN LEWIS: It was in the context of them thinking that was in the best interest of Bank of America and the financial system.

Both the Fed chairman and the former Treasury secretary will have the chance to give Congress their version of events sometime soon. But in the meanwhile, we asked Marketplace’s Jeremy Hobson what else Congress should be trying to learn about about how we wound up in this mess.


JEREMY HOBSON: Start asking the experts, and you’ll get a lot of different views about what topic Number One should be for Congressional investigators. Here’s banking consultant Bert Ely.

BERT ELY: The tax laws which provide an incentive for both individuals and businesses to over-leverage themselves.

That is, borrow too much. Ely says Congress should also look at rating agencies that gave good ratings to a lot of bad debt. Former Fed economist Morris Davis thinks they should focus on the distorted incentives that led institutions to take too much risk. But he says Congress should be careful.

MORRIS DAVIS: Just because we observed a negative payout doesn’t necessarily mean that there was lots of inappropriate behavior. It means that people were taking risks, and that’s what we want them to do.

Martin Baily, a senior fellow at the Brookings Institution, headed President Clinton’s Council of Economic Advisers. He says all this disagreement proves the need for investigation.

MARTIN BAILY: I think it’s very important that we probe deeper, and I say that because I still hear very different views being expressed by quite well-informed people about what was the main trigger event.

Baily says Congress should take a step back.

BAILY: I would rather see us go a little more slowly on reform, on how to fix the system, until we’ve really made sure we understood exactly what went wrong.

The best way to do that, he says, is a 9/11 style commission, which was just formed by Congress.

In New York, I’m Jeremy Hobson for Marketplace.

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