The Financial Crisis Inquiry Commission

Yesterday Senate Minority Leader Mitch McConnell (R-KY) appointed me to be a member of a new Financial Crisis Inquiry Commission. I thank the Leader for the appointment, and will do my best to contribute thoughtful, open-minded, rigorous and responsible analysis and inquiry.

The Commission was created by Public Law 111-21, the Fraud Enforcement and Recovery Act of 2009, signed into law by President Obama on May 20, 2009. The purpose of the Commission is “to examine the causes, domestic and global, of the current financial and economic crisis in the United States.”

I am one of 10 members. Here is the full roster, along with the Congressional leader who appointed each:

  1. (Chairman) Phil Angelides (Pelosi, chosen as Chair by Pelosi and Reid
  2. (Vice Chairman) Former Rep. Bill Thomas (Boehner, chosen as Vice-Chair by Boehner and McConnell)
  3. Brooksley Born (Pelosi)
  4. Byron Georgiou (Reid)
  5. Former Senator Bob Graham (D-FL) (Reid)
  6. me: Keith Hennessey (McConnell)
  7. Doug Holtz-Eakin (McConnell)
  8. Heather Murren (Reid)
  9. John Thompson (Pelosi)
  10. Peter Wallison (Boehner)

The statute creating the Commission requires us to “submit on December 15, 2010 to the President and to the Congress a report containing the findings and conclusions of the Commission on the causes of the current financial and economic crisis in the United States.”

Some in the press are comparing this commission to the 9-11 Commission and to the Pecora Commission during the Great Depression. I think it’s too early to draw any definitive parallels.

I expect to write on about my work on the Commission over the next seventeen months. Those of you familiar with my blog should have a fairly good idea of what to expect.

For those who are new to this site, I also have a free mailing list tied to the blog. If you would like to track my work on the Commission, you can subscribe to the mailing list or the RSS feed, and/or visit the blog. I write about a wide range of economic policies, not just financial policies. So don’t be surprised when you see substance from me on anything from taxes and trade, to health care and social security, to energy and climate change, or to the broader macroeconomic and policy picture.

To get things rolling:

  1. I have assembled some background on the Commission. Most of this substance is in today’s papers, but I thought I’d lay out my structural description here for reference.
  2. I am seeking input. Please help educate me so I can do a good job on the Commission. Please use the contact information I provide below.
  3. I am building a preliminary reading list for myself and anyone else who might care. I will post a first draft when it’s solid.
  4. On the top horizontal menu bar you will see a list of subject categories. The “financial” category contains past posts and some of my White House work that is relevant, and it will contain all future posts related to my work on the Commission.

I anticipate that my work on the Commission will become a significant portion of the future content of this blog, so stay tuned. I enjoy solving problems, especially when they’re hard and important. I also like to explain complex and important stuff in a way that non-experts can understand. I hope you will let me try to do that as I gain new and different perspectives on the financial and economic crisis in the United States.

For today, though, let’s get some mechanics out of the way.

Background on the Financial Crisis Inquiry Commission

The Financial Crisis Inquiry Commission was created by Public Law 111-21 (formerly known as S. 386), signed into law by President Obama May 20, 2009.

(I will abbreviate the Commission as FCIC.)

P.L. 111-21 is the Fraud Enforcement and Recovery Act of 2009, a bill strengthening enforcement of various types of financial fraud crimes. The Commission was created by a bipartisan Senate amendment to that bill, offered by Senator Johnny Isakson (R-GA) and Senator Kent Conrad (D-ND). The amendment was adopted 92-4, a good sign of initial bipartisan support. The four Senators opposing were Bunning (R-KY), Grassley (R-IA), Kyl (R-AZ), and McCain (R-AZ).

Here is the text of Section 5 of the law creating the Commission. I will walk through it. This mechanical stuff may seem boring, but it’s important. If you find errors in the following description, I welcome corrections.


The Commission is technically in the Legislative Branch. The purpose is “to examine the causes, domestic and global, of the current financial and economic crisis in the United States.” We are required to issue a report to the President and to the Congress on December 15, 2010.


There are ten members, appointed by the “bicam[eral] / bipart[isan]” leaders. Speaker Pelosi and Senate Majority Leader Reid each get 3 appointments (since they’re in the majority). House Minority Leader Boehner and Senate Minority Leader McConnell each get 2 appointments. Each leader is required to consult “with relevant Committees,” meaning primarily the House Financial Services Committee and the Senate Banking Committee.

The Commission Members cannot be Members of Congress, nor government employees of any sort. They are supposed to be “prominent United States citizens with national recognition and significant depth of experience in such fields as banking, regulation of markets, taxation, finance, economics, consumer protection, and housing.”

Speaker Pelosi and Leader Reid jointly chose the Chairman, Phil Angelides. Leaders Boehner and McConnell jointly chose the Vice Chairman, Bill Thomas.

Functions of the Commission

The Commission has five functions:

  1. “To examine the causes of the current financial and economic crisis in the United States.” A list of 22 specific items for us to review follows.
  2. “To examine the causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009.”
  3. To submit a report to the President and the Congress on December 15, 2010. That report should contain our findings and conclusions on the causes of the crisis. The Chairman can also include reports or specific findings on any particular financial institution that failed.
  4. To refer to the Attorney General and State AG’s as appropriate “any person that the Commission finds may have violated the laws of the United States in relation to such crisis”
  5. “To build upon the work of other entities, and avoid unnecessary duplication, by reviewing the record of” a host of existing bodies, including the House Financial Services and Senate Banking Committees, the GAO, and just about anybody else in government.

Here is the long list of 22 specific causes the Commission must investigate under function (1) above:

  1. fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;
  2. Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;
  3. the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;
  4. monetary policy and the availability and terms of credit;
  5. accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;
  6. tax treatment of financial products and investments;
  7. capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;
  8. credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;
  9. lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;
  10. affiliations between insured depository institutions and securities, insurance, and other types of nonbanking companies;
  11. the concept that certain institutions are `too-big-to-fail’ and its impact on market expectations;
  12. corporate governance, including the impact of company conversions from partnerships to corporations;
  13. compensation structures;
  14. changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;
  15. the legal and regulatory structure of the United States housing market;
  16. derivatives and unregulated financial products and practices, including credit default swaps;
  17. short-selling;
  18. financial institution reliance on numerical models, including risk models and credit ratings;
  19. the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;
  20. the legal and regulatory structure governing investor and mortgagor protection;
  21. financial institutions and government-sponsored enterprises; and
  22. the quality of due diligence undertaken by financial institutions.

Major Powers of the Commission

  • The Commission may hold hearings, take testimony, receive evidence, and administer oaths.
  • The Commission can require “the attendance and testimony of witnesses and the production of books, records, correspondence, memoranda, papers, and documents.” If necessary, the Commission can issue subpoenas to achieve this goal.
  • Finally, the Commission can get “any information related to any inquiry of the Commission from any part of the government.”

I am seeking input

In an attempt to become a well-informed member of the Financial Crisis Inquiry Commission, I am seeking input. Please help educate me.

I am building a reading list for myself. I will post a first draft when it’s solid.

From whom I most need help

I will take help and input from anyone willing to provide it. There are some channels that I know can help me a lot.

In particular, I would value highly:

  1. original writing by individuals with substantive expertise in any of the areas covered by the commission; and
  2. information and insight from those who were involved, from any perspective.

I need the most help from those with direct experience working in the financial sector, especially over the last several years. I will take it from any level of the corporate org chart — those in the “C” suites, and the analysts, associates, and traders who work on the front lines.

I also could use help from the academic community. Please send me your papers or links to them.

I could use help and input from members of the press who have been covering this crisis.

I would greatly appreciate input from those based outside the U.S. We are supposed to “to examine the causes, domestic and global, of the current financial and economic crisis in the United States.” Distance can give perspective, and a comparison with other nations can be enormously instructive.

How to provide input

If you have something you think I should see, please email it to me at: kbh [dot] fcic [at] gmail [dot] com

As part of your email, please include your name, profession, contact information, and relevant professional background. I will take anonymous input, but may weight it less heavily, depending on the apparent reason for the anonymity.

Shorter is better. If you send me a short email, I’ll read it. If it’s a 1-3 page memo, I’ll do my best to read it. If you send me a 100-page treatise, I expect I’ll skim it.

If your email includes the phrase “secret global conspiracy” or is in all caps, or contains more than three curses, you should assume that I’ll skip it.

Please assume that your input is basically one-way. In almost all cases, don’t expect a private email dialogue with me based on your input. You should anticipate that most of my feedback will come publicly through this blog. This is more efficient and transparent.

This is not a substitute for formal input to the commission

I assume there will be a formal process for submitting input to the Commission. This is not that process.

In particular, the Commission is supposed to refer to the Attorney General of the United States, or to State AG’s as appropriate, “any person that the Commission finds may have violated the laws of the United States in relation to such crisis.” Please provide any information you have with respect to this mission directly to the Commission, through official channels, and not directly to me through this channel.

This input channel is to help educate me to be a better member of the Commission, not to serve as a generic inbox for the commission, and especially not to serve as an inbox for accusations of criminal wrongdoing.

What we’re supposed to inquire about, learn, and figure out

I have a fairly strong knowledge base from my experience in the Bush White House from 2002 through 2009. There is more for me to learn, and I am directing my studies to match the formal mandate of the Commission. You can help me most by tailoring your input to fit some part of this mandate.

We are supposed to:

  • “examine the causes of the current financial and economic crisis in the United States;” and
  • “examine the causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009.”

In the future I may pose some specific questions where I need help and education. For now, if you want to provide input, please put yourself in my shoes. Help me achieve the above two goals, and in particular tell me into which of the 22 subject-matter buckets listed above your input falls.

A little bit about me

I imagine that with this post some readers are discovering this blog and mailing list for the first time. You can find my bio here. Here are a few facts salient to the FCIC:

Thanks for reading. If you’re new to this blog and mailing list, I hope you will subscribe and return.

(photo credit: All that’s left! by pfala)

I escaped Washington, DC and now teach at Stanford's Graduate School of Business.

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Posted in autos, economy, financial, housing, int'l
42 comments on “The Financial Crisis Inquiry Commission
  1. Tim says:

    I’ve been reading your blog since it was mentioned by Greg Mankiw on his site. Great stuff. I’m very excited about the news of your membership on FCIC and your willingness to educate the “rest of us.” Best of luck and I look forward to following yours and the commission’s progress.

    Warm regards,
    Tim Long

  2. gabriel says:

    Phil Angelides? Are you *****ing me. Former Treasurer for California during its massive leap into fiscal calamity.

    We truly are in the best of hands.

    • robert berlow says:

      What's good for the goose is good for the gander. You may well be right about Angelides but if you are why would you not not wonder about Hennessey who had Larry Summers' job in the Bush White House that presided during the implosion of the national economy. I welcome Hennessey's effort to put a lot of information out there for the little guys to read but am no less skeptical of his ability to investigate than Angelides. I wonder how President Obama could appoint Geithner and Summers no less or more than having Bush put his Mr. Goldman Sachs (Paulson) in his administration. This isn't a partisan issue.

  3. F says:


    Congratulations — I think. I hope this will not prevent you from continuing to analyze and comment on the disaster that this administration is visiting on America. And I frankly think this commission sounds like it has more time than it needs to do what it is supposed to do. Want the cause of the current economic crisis? Look no further than Barney Frank, Chris Dodd, Freddy Mac and Fannie Mae. When you’ve concluded that, turn them over to the AG. Then stand back to see if anything will come of it. But don’t hold your breath. F

  4. Lara Sellers says:

    Great – I’ve been wondering what you were up to these days! Where will you be based? Congrats!


  5. I submit my review of the financial crisis. It references sources like the WSJ and some comments from blog reading. Possibly you will find it useful as a somewhat organized reference to the articles.

    The theme is that the government’s ability to issue guarantees is an unlimited, off-budget, extremely dangerous power. Implicit guarantees were granted to Fannie Mae and Freddie Mac (among other institutions) who used it to command massive capital resources. Used unwisely, this triggered the financial crisis.

    This guarantee business has got to stop.

    We Guarantee It – Government Caused the Economic Crisis

  6. Paul says:

    Dear Keith,

    I sincerely hope this comission can produce functional, concrete, non-partisan steps that Congress and the SEC can take to prevent a similar event. I also hope you can maintain the volume of insightful, non-finance related posts on this blog.

    Best Wishes

  7. John says:

    Bring a Bible to each meeting. Start with prayer. Ask for God’s guidance.


  8. EconLog says:

    Impossible Mission Commission…

    Keith Hennessey writes Yesterday Senate Minority Leader Mitch McConnell (R-KY) appointed me to be a member of a new Financial Crisis Inquiry Commission…The purpose of the Commission is “to examine the causes, domestic and global, of the current fina…

  9. Yes, my elected guy from KY made a good move. I wish you the best of the situation and hope that you will bring a lot to the table to help our country.

  10. Ben says:


    Congrats, and good luck. Although we have differnet political beliefs, I often find your arguments well laid out and persuasive. Any chance you need to hire an aide


  11. JAWilson says:

    “I believe President Bush is running deficits in Washington very deliberately. His plan is to finally run up so much debt that it inevitably creates pressure on the funding of things that count, in terms of the long-term strength of the society: educating kids, retirement security for American families. A mini version of that is going on in Sacramento.” </b.That would indicate some agenda of your chairman. You might find yourself putting out political back fires more than true analysis.

  12. myles aldridge says:

    please add me to your mailing list

  13. Dawood says:

    Nice article! If you’d like to know when experts anticipate the end of financial crisis check this link below:

  14. historical viewpoint note: recognize the number of crisis events closely tied to Fed created money bubbles — meddling with the economy
    versus protecting the dollar. rhs

  15. MGUYH8 says:

    Good Afternoon Keith:
    For an unbiased (I think) point-of-view you should read an Article written by John J. Xenikas (an economist) entitled, “The Economic Outlook for 2009. How we got to where we are today, who’s to blame and where we’re going in 2009.”

    John hosts a website entitled Generational Dynamics and his articles purport to …”take no sides in any political battles (such as Republicans vs. Democrats) or in any international conflicts (such as Israelis vs. Palestinians), and we don't use any religious interpretations. If we have any bias at all, it's that we're pro-American.”

    I started reading articles at John’s website because is, indeed, pro-American. A link to John’s article follows:…

    I am hopeful that you can find the time to read this pithy article.

  16. Stephen says:

    I applaud the appointment of this commission and it's members, and anticipate greatly the Commission's dedication to it's purpose: Recognizing the obvious. You see, the cause of this financial crisis is well understood by the average stiff on the street and the whole world. The American mortgage industry is pure racketeering from top to bottom, has had no oversight and literally interprested deregulation to mean above the law. I personally rejected daily demands for inflated appraisals by brokers who told me "We own Washington" and "Of course it's fraud, It's all fraud, what did you think real estate was?", and "It's good for the economy".

    So I will wait with baited breath to see if this Commission can refrain from whitewashing the need for the total elimination of the real estate industry, whitewashing what the FBI identified many years ago, and scattering of blame all over the countryside to protect the racketeers and actually place blame where everyone knows it belongs: Fraudulent mortgages created by real estate "Professionals" at the strong encouragement of the mortgage bankers.

  17. Jackson says:

    Mr. Hennessey, is a transcript of the initial meeting available anywhere? Thank you-

  18. Thomas W. Tripp says:

    In a software patent application in October, 1998, we predicted that the adjustable rate mortgages (ARMs, later referred to as the sub-prime mortgages) would collapse en masse as soon as the threat of inflation returned, as evidenced by the Federal Reserve increasing interest rates. That is precisely what occurred. In January, 2009, we submitted a 95-page proposal to the Chairman of the Federal Deposit Insurance Corporation (FDIC), which included a three-prong proposal to resolve the sub-prime mortgage crisis, the credit crunch and the recession. In April, we received a letter from the Chief Economist of the FDIC, which stated, that if our proposal was properly implemented, then it would resolve these problems.

    The answers to the financial crisis are available, even the solutions are available; but only, if this commission's members wish to properly look into this subject matter. We will send copies of the FDIC Proposal, and the response we received from the Chief Economist of the FDIC to anyone who requests them. Simply send your request to

    Thomas W. Tripp, CEO
    Real Monetary Reserve, Inc.

  19. John L. Gregg says:

    I want to send a formal letter to the commission. What address should I use?

  20. Richard Rainey says:

    What happened to cause the financial crisis? Well the people on Wall St. printed about 27 Trillion dollars of financial instruments on a basis of about 1.8 Trillion dollars of mortgages. Whether those mortgages were prime or sub-prime didn't matter because both tpyes of mortgages would windup having the same negative effect on the bundled financial instruments they were used to underwrite. Defaulting, re-financing or paying off those mortgages eroded those instruments much faster than any one had anticipated.
    But the faster they moved them the more money they made on commissions and fees. The re-financings were the true culprit they out numbered the defaults and the pay-offs many times over.
    Those financial instruments became "fools gold" and were woth nothing from the beginning.

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