Economy Watch: Financial Crisis Panel Offers Split Conclusion

By Dees Stribling, Contributing Editor

What caused the financial crisis of the late 2000s–one so severe that the United States, and the entire world for that matter, is still living with it? History will have to decide, because the Financial Crisis Inquiry Commission couldn’t quite come to a conclusion, even with the publication of a 545-page report on Thursday after months of inquiries. The panel of 10 ended up offering a Democratic view of the crisis and two dissenting Republican ones.

The majority Democratic position (six members) cites lax regulation and the corporate avarice that flourished in such an environment as the primer for the powder keg. “The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public,” the report asserts. “While the business cycle cannot be repealed, a crisis of this magnitude need not have occurred.”

Also, Alan Greenspan, Ben Bernanke and Timothy Geithner were asleep at the switch during the credit and housing bubbles, the majority says (although that’s not quite how the panel put it). One dissenting Republican member essentially blames government housing policies, while three other Republicans lay the blame largely at the feet of macroeconomic factors, such as a global credit bubble that affected not only the United States, but Europe.

Despite its fractured conclusion, the report nevertheless contains a large volume of interesting–and retroactively scary–detail. For example, according to testimony by Ben Bernanke, the Fed believed that “12 of the 13” top U.S. financial firms were on the verge of collapse in the fall of 2008. The report didn’t specify who the near-imploding firms were, or who the happy exception was either, but Bernanke did say, “Even Goldman Sachs, we thought there was a real chance that they would go under.”

Pending home sales rise in December

According to the National Association of Realtors, pending home sales improved further in December, marking the fifth monthly gain in the past six months. The organization’s Pending Home Sales Index, which is a forward-looking indicator, increased 2 percentage points to 93.7, based on contracts signed in December, from a downwardly revised 91.9 in November.

The index is 4.2 percentage points below the 97.8 mark in December 2009 that was achieved through tax credits. It reflects contracts and not closings, which normally happen one or two months afterward.

“Modest gains in the labor market and the improving economy are creating a more favorable backdrop for buyers, allowing them to take advantage of excellent housing affordability conditions,” says NAR chief economist and die-hard optimist Lawrence Yun in a statement.

Economic activity edges up, says Chicago Fed

The Chicago Fed National Activity Index increased to +0.03 in December from -0.40 in November, the Chicago Fed reported on Thursday. It was skinny positive, but nevertheless the first time in five months that the index came out positive at all.

According to the report, production-related components such as industrial production drove the index toward the positive, while consumption and housing made a negative contribution to the index. The Chicago Fed also said that the direction of the index points to “subdued inflationary pressure from economic activity over the coming year.”

Wall Street turned in a lackluster day on Thursday, with the Dow Jones Industrial Average gaining 4.39 points, or 0.04 percent. The S&P 500 advanced 0.22 percent and the Nasdaq rose 0.58 percent.