The ‘dry rot’ eating away at the financial system

Introduction

President Obama has been talking a bit tougher about Wall Street these days — prompting complaints from some quarters that he’s being mean to investment bankers.

Meanwhile, the chairman of the federal Financial Crisis Inquiry Commission, Phil Angelides, also has some strong words for Wall Street — and Washington as well.

“We’ve seen a stunning disconnect between Wall Street and Washington and the rest of the country,” Angelides declared as the FCIC held a hearing today in Sacramento.

“Many in authority in New York and the nation’s capital claimed they ‘did not see it coming.’ But if they had paid a visit to Bakersfield, Las Vegas, Miami or Sacramento, they would have seen how dry rot was eating away at our financial system,” said the former California state treasurer.

Marc Lifsher at the Los Angeles Times has more on the FCIC’s hearing, including testimony from a law professor who says mortgage securitization rewarded “investment houses creating the riskiest loan pool that the rating agency would bless with high ratings,” which in turn encouraged lenders to make “the largest and riskiest loans” that borrowers would sign.

The commission was appointed by Congress last year to investigate consumer mortgage fraud and abuse, accounting practices, bank capital requirements, and other issues related to the financial crisis. It must submit a report to Congress by Dec. 15.