Wall Street and the Financial Crisis: Anatomy of a Financial Collapse facts for kids
Wall Street and the Financial Crisis: Anatomy of a Financial Collapse is a special report. It was released on April 13, 2011. The report was about the big financial crisis of 2007–2008. It came from a group called the United States Senate Homeland Security Permanent Subcommittee on Investigations.
Senators Carl Levin and Tom Coburn led the creation of this 639-page report. People often call it the Levin-Coburn Report. The team spent two years investigating. They did over 150 interviews. They also talked to many experts. They looked at 56 million pages of documents!
The report found that the crisis was not a natural event. Instead, it happened because of risky financial products. There were also hidden conflicts of interest. Regulators, credit rating agencies, and the market itself failed. They did not control the problems on Wall Street. Senator Levin said that institutions tricked their clients and the public. Regulators and credit rating agencies helped them by not doing their job.
The report had 2,800 footnotes. It looked at four main problems that led to the financial system's failure:
- High-risk home loans.
- Regulators not stopping bad practices.
- Credit ratings that were too high.
- Investment banks misusing the system.
The report also suggested ways to fix these problems in the future.
The Financial Crisis Inquiry Commission also released its own report on the financial crisis in January 2011.
What the Report Found About the Crisis
The Levin-Coburn Report found that four main things caused the financial crisis. These things worked together to create risky situations. This eventually led to the collapse of the global financial system.
Risky Home Loans and Bad Practices
Lenders gave out many high-risk home loans. They then packaged these loans together to sell them. They did not check if buyers could really pay back the loans. They did this to make more money. They often targeted people who could not afford the loans.
Credit Ratings That Were Too High
Credit rating agencies gave these risky loan packages high safety ratings. This made investors around the world think they were safe to buy. This helped sell many of these risky investments.
Regulators Not Doing Their Job
Federal regulators were supposed to make sure banks were safe. They should have checked how banks managed risks. But they failed to do this. This allowed lenders and investment banks to keep doing risky things.
Investment Banks and Conflicts of Interest
Investment banks created and sold complex financial products. These products were made from the high-risk home loans. They let investors bet that these products would fail. Sometimes, the banks even bet against the very products they sold to their own clients. This was a conflict of interest.
How It All Led to Collapse
All these problems together created a huge bubble of investments. This bubble was based on risky home loans. When people who couldn't afford their mortgages stopped paying, the bubble burst. This caused huge losses for the entire global financial system.
How People Reacted to the Report
The report showed a lot of fraud and deception. People and groups reacted to it in different ways.
News Media Reactions
The news media's coverage of the report was not very strong. The Columbia Journalism Review looked at how the media covered it. They criticized Wall Street Journal. This is a major business newspaper. It placed the story in the third section of the paper. It also seemed to avoid the facts and criticisms about Wall Street banks.
However, New York Times praised the report. They said it showed "significant new evidence." This evidence proved that many parts of the financial industry chose profits over doing what was right. This happened during the time when many mortgages were given out.
Matt Taibbi, a journalist for Rolling Stone, praised the Senate's "extraordinary investigative effort." He was upset that Wall Street CEOs seemed to get away with things. He felt they exploited the mortgage market and cheated homeowners. Taibbi also said that a $550 million fine given to Goldman Sachs seemed too small after the report's findings.
Wall Street's Response
Goldman Sachs, a big investment bank, made a statement after the report. They said they disagreed with many of the report's conclusions. But they also said they took the issues seriously. They mentioned they were making changes to improve how they work with clients. They also wanted to be more open and clear.
Goldman Sachs also said they did not know the U.S. housing market would collapse. They claimed they did not bet against their clients. However, the Levin Report found over 3,000 times the term "net short" was used in their internal emails. This term means betting that something will go down in value. As of mid-2011, no criminal charges had been filed.
Government Actions and Laws
The findings of this report and others helped lead to new laws. One important law is the Dodd–Frank Wall Street Reform and Consumer Protection Act. This law aimed to prevent another financial crisis.
Related Topics
- Wall Street reform
- Financial Crisis of 2007-2010
- Subprime mortgage crisis solutions debate
- Regulatory responses to the subprime crisis
