The pre-buttal lays the blame for the crisis squarely at the feet of the government, which (p. 2) "was following a social policy in addition to an investment policy" and "pushed investors toward investing in mortgage debt." Or as the report states on page 3
Through the GSEs, FHA loans, VA loans, the Federal Home Loan Banks, and the Community Reinvestment Act, among other programs, the government subsidized and, in some cases, mandated the extension of credit to high-risk borrowers, propagating risks for financial firms, the mortgage market, taxpayers, and ultimately the financial system.The crisis was also spurred by a loss of confidence, which "exploded into a generalized market panic." The panic was precipitated by, but distinct from "mortgage losses." This is a reprise of John McCain's famous assertion in the midst of the market meltdown that "the fundamentals of our economy are strong" (the parallels shouldn't be too surprising given the McCain's principal economic advisor, Douglas Holtz-Eakin, was one of the pre-buttal's authors).
What was the role of the housing bubble? It was merely an "interrelated event" and not "a sufficient condition for the financial crisis."
Maybe the big banks come in for some blame? Nope, their "primary role ... was that of financial intermediary, providing a link between those who wished to invest in mortgages and those who wanted to take out a mortgage to buy a home."
How about the ratings agencies? They made "mistakes" and did not "appreciate" the risks of declining home prices. The report does allow that "their ratings on MBS (mortgage-backed securities" proved to be severely inflated," but notice the passive voice. The report gives an example of a security with a marginal rating but never mentions the AAA ratings that the agencies bestowed on many securities or how those agencies allowed issuers to make minor modifications to otherwise unsuitable securities to obtain a AAA rating (sort of like a health inspector allowing a restaurant to clean up just enough filth to stay open).
The report also doesn't mention the critical, knife-edge role that AAA-rated securities played.
Fraud and shoddy underwriting in originating the mortgages? The words "fraud" and "underwriting" do not appear in the body of the report ("fraud" is on the front page but only in the title of the enabling legislation), and the word "originators" only appears three times and then only in the context of a "system (that) had worked this way for decades, and worked well."
While underwriting goes unmentioned, the report does include the term "lending standards." But who, exactly, lowered lending standards? The government.
Farther removed from the mortgages, how about the synthetic derivatives (essentially, side bets that referenced but did not include an actual stake in the mortgage-backed securities)--surely, these had some role in over-leveraging the market? Not according to the report, which omits any mention of these.
A report on the financial crisis that omits the words, "Wall Street," "fraud," "underwriting," "collusion," and "derivatives" and that overlooks Wall Street's view of most clients as "suckers" isn't worth the paper it's written on.