Panelists say economic conditions still troubling

Conditions that fed the flames of the national financial meltdown three years ago still prevail, a Las Vegas member of the Financial Crisis Inquiry Commission said Thursday.

"Our financial system is not significantly different today than it was four or five years ago, and that troubles me," Commissioner Byron Georgiou, an attorney and overseer of Georgiou Enterprises, said in a telephone interview following the release of the 600-page report in Washington, D.C.

He referred to the "too big to fail" issue, giant banks that the government feels compelled to bail out because their collapse could cripple the country's economy.

Georgiou said 58 percent of financial services assets were held by the top five banks when the economy crashed in 2008 and said the concentration has increased to 63 percent today, because of mergers and bank failures.

Commissioner Heather Murren, founder of the Nevada Cancer Institute and wife of MGM Resorts International CEO Jim Murren, doubts the country will go through another cataclysmic financial crisis in her lifetime, because the consequences were so severe.

The commission concluded that the 2008 crisis was avoidable and caused by human actions, inactions and failure to heed warnings.

"None of what happened was an act of God," Chairman Phil Angelides said during a press conference.

The report blames Goldman Sachs for fueling the subprime mortgage bubble, Merrill Lynch for not telling investors about the true state of its financial conditions and the Federal Reserve for failing to stop troubling practices.

Republican commissioners dissented from the majority and attributed the near collapse of the financial system to the global credit bubble and global capital flows.

"U.S. monetary policy may have contributed to the credit bubble but did not cause it," according to the three dissenting commissioners.

Murren and Georgiou disagreed.

"We found that there was ample regulatory authority, particularly at the Federal Reserve, to rein in risky mortgage lending, and it certainly wasn't used," Murren said. "Our economy is so large, to some extent it drives what happens around the world."

The commission majority concluded that bad corporate governance and management at major financial companies were key causes of the crisis.

Financial firms were borrowing $40 for every $1 dollar in equity they invested in mortgage securities, Georgiou said.

"The kings of leverage were Fannie Mae and Freddie Mac," he said, referring to two government mortgage companies. They borrowed $75 for every dollar they invested.

Georgiou said he was most surprised that top executives at huge financial companies, including AIG and Citigroup, testified that they didn't know the enormous risk their companies were taking with mortgage related securities.

"That reflected a degree of ignorance at the top of those particular institutions that was stunning," Georgiou said.

In 19 days of oral testimony and 700 million pages of documents, no one accepted responsibility for contributing to the financial crisis, Murren said.

In Nevada and around the country, mortgage brokers made loans that were bigger and riskier than their clients should have assumed, the Las Vegas commissioners said. They attributed that to financial incentives that brokers received for making large, risky loans.

"Nobody expects that we can end the economic cycle in America," Georgiou said. "The key is to try to not have (downturns) so calamitous as to put at risk major financial institutions of the country."

The commission was formed 18 months ago. Senate Majority Leader Harry Reid, D-Nev., appointed the two Las Vegans and former Sen. Bob Graham, D-Fla., to the panel.

Murren is chief executive of the Nevada Cancer Institute and a former Wall Street analyst. Georgiou is a businessman and attorney who led plaintiffs in lawsuits over Enron Corp., Worldcom and AOL Time Warner.

Contact reporter John G. Edwards at jedwards@ reviewjournal.com or 702-383-0420. The Washington Post contributed to this report.