The paper includes this basic synopsis of who is responsible. The answer is, well, everybody involved:
The report said there is plenty of blame to go around for the chaos: The U.S. subprime-mortgage industry was marked by poor underwriting standards and "some fraudulent practices." Investors didn't carry out due diligence when they bought mortgage-backed securities.
Banks and other companies managed their risks poorly and didn't publicly disclose the dangers on and off their balance sheets. Credit-rating companies did an inadequate job of evaluating the risk of complex securities. Financial institutions compensated employees in ways that encouraged excessive risk-taking and gave insufficient regard to long-term risks.
The WSJ had this in one of the last paragraphs:
The forum urged financial firms to be more forthcoming about the underwriting standards used, for instance, in the mortgages that underlie complex securities, and to make their own due-diligence work available to investors and to the credit-rating companies.
Likewise, the credit-rating companies should be more open about the uncertainties in their own models, and should address any conflicts of interest in their work.
Let's tackle this one point at a time.
1.) There were no underwriting standards. There were instead medical requirements -- if you had a pulse, you got a loan. What financial firms really need to disclose is the medical records of borrowers to make sure all borrowers were in fact alive when they got a loan.
2.) All the major players -- mortgage brokers, banks, investment banks, rating agencies and the like -- should instead disclose all internal emails regarding their part in this mess. My guess is there is a contingent within each company that knew damn well each respective company was royally screwing up. The reason I think this is a Congressional investigation into tax evasion plans offered by the big accounting firms uncovered similar emails among the respective firms higher ups. The point all the players had to know -- they are filled with very bright and capable people who were well aware of the financial tsunami they would eventually unleash on the US economy.
