The bailout bill (I suppose we will have to come to love the soggy official acronyms EESA and TARP, since my much better suggestion has been ignored) contains just two provisions calling for investigations of what went wrong.
* Section 117: “to determine the extent to which leverage and sudden deleveraging of financial institutions was a factor behind the current financial crisis.”
* Section 133: the impact of mark-to-market accounting.
The studies are to be carried out by different bodies, so they won’t even offer a coordinated view of their two fragments.
For a $700 billion fiasco this is a ludicrously inadequate intellectual effort. It cries out for a deep and comprehensive analysis, on the model of the 9/11 Commission, covering all the areas where policy may have failed to prevent the crisis and human folly engineered it. Off the top of my head, these include at least:
* the deregulation that removed barriers between investment and commercial banking;
* the housing boom and the reckless marketing of home loans;
* the exclusion of asset price targets from the Fed’s monetary policy;
* the international impact of the problems and possible failures of coordination (you want to hear what Trichet and King have to say on this);
* the uncontrolled diversification of financial instruments such as derivatives;
* the failure of credit rating agencies;
* the culture of Wall Street and the perverse financial incentives on market participants.
Add your own.
The 9/11 Commission was a bargain at $15 million. Understanding the biggest financial crisis since 1929 deserves no less.
Update
Now that really was well timed.