The Financial Crisis Inquiry Commission that was established in the spring of 2009 to investigate the causes of the previous year’s financial meltdown has released its findings. Who do they think was to blame?

Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; an explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; key policymakers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.

The crisis, in short, was “avoidable” if bankers and regulators had done their jobs properly.

Except not all of the commission’s members agree. None of its Republican members endorsed the report.

Blame

Three published a separate report that attributes blame to the Federal Reserve. The fourth drew his own conclusions and pointed at the heavy involvement of government in inflating the housing bubble that upset financial markets.

Republicans agree that the semipublic mortgage agencies Fannie Mae and Freddie Mac played an instrumental role in the crisis.

Ownership society

The commission cites “regulatory failure,” yet the trouble began in one of the most heavily regulated sectors of the American economy: the housing market.

The first decade of this century saw President George W. Bush’s attempt to bring about an “ownership society” and the country is still suffering from the results of that experiment.

With consistent, all-time low interest rates set by the Federal Reserve, and with an enormous increase in size and scope of the government-sponsored enterprises Fannie Mae and Freddie Mac, Washington promoted homeownership by artificially extending credit to people that couldn’t dream of affording a house, much less pay back their loans.

Free market?

The private sector isn’t free of blame. But consider that Fannie and Freddie, supposedly privately owned, were publicly chartered.

Consider the Community Reinvestment Act of 1977, which “encouraged” banks to lend to uncreditworthy borrowers and sought to end “discriminatory” credit practices in low-income neighborhoods.

Consider that the very banks that let themselves be pressured into participating in this madness were “bailed out” by the government with billions of dollars of taxpayers’ money. Was this the free market at work?

In a free market, failure is always possible and consumers are aware of the risk — with the result that they rationally and voluntarily assume less of it.

What the American economy needs is not more government. What is needs is more personal responsibility.