Nice report, but where's the action?

What with the brewing revolution in Egypt and the tawdry sexism scandal at Sky Sports, the UK media haven't paid much attention to the report of the Financial Crisis Inquiry Commission in the US, which was published this week. (The website for the report is here). That's a pity. Although there is not much in the report that's new, it pulls no punches, and a lot of its conclusions resonate in London just as much as in New York.

Even the Conclusions section runs to more than a dozen pages, so these are just very brief extracts regarding the key points:

• We conclude widespread failures in financial regulation and supervision
proved devastating to the stability of the nation’s financial markets..... Yet we do not accept the view that regulators lacked the power to protect the financial system. They had ample power in many arenas and they chose not to use it.

* We conclude dramatic failures of corporate governance and risk management
at many systemically important financial institutions were a key cause of this crisis..... Too many of these institutions acted recklessly, taking on too much risk, with too little capital, and with too much dependence on short-term funding.

• We conclude the government was ill prepared for the crisis, and its inconsistent
response added to the uncertainty and panic in the financial markets. As our report shows, key policy makers—the Treasury Department, the Federal Reserve Board, and the Federal Reserve Bank of New York—who were best positioned to watch over our markets were ill prepared for the events of 2007 and 2008. Other agencies were also behind the curve....They thought risk had been diversified when, in fact, it had been concentrated.

• We conclude there was a systemic breakdown in accountability and ethics. Unfortunately — as has been the case in past speculative booms and busts — we witnessed an erosion of standards of responsibility and ethics that exacerbated the financial crisis. This was not universal, but these breaches stretched from the ground level to the corporate suites.

• We conclude the failures of credit rating agencies were essential cogs in the
wheel of financial destruction. The three credit rating agencies were key enablers of
the financial meltdown. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their downgrades through 2007 and 2008 wreaked havoc across markets and firms.

Plenty of blame to go round, then. The bankers were reckless and greedy, the regulators were complacent, the ratings agencies were incompetent. It's tempting to ask why it's taken so long for this to be officially acknowledged; most commentators were pointing these things out even during the crisis, and have been harping on about them for the last three years -- and yes, I am in part talking about myself. (See for example my posting "Banker's bonuses and all that" on September 7, 2009).

What's really remarkable is how little has changed. Sure, there's Basel III, but it's almost certainly inadequate and anyway will not become effective until the end of the decade, which leaves plenty of time for another crisis to occur. There have been no major changes in regulation in any of the key countries, and the ratings agencies continue to demonstrate their inadequacies on almost a weekly basis. Nor is there much hope that the FCIC report will trigger much action. Only the six Democrats on the committee have signed the report, with the Republicans writing dissenting views. Given the partisan atmosphere in Congress and the composition of the new House of Representatives, there seems to be little prospect that the Obama administration will try to force through the kinds of changes that the FCIC report points toward.

Meanwhile the bankers are recovering their swagger. A couple of weeks ago I noted that Bob Diamond of Barclays had said that the time for bankers' remorse and apologies was over. This week in Davos, Jamie Dimon (what's with these guys names??)of JPMorgan Chase warned against excessive regulation, and expressed surprise that some of the regulators who had failed to prevent the crisis were still in post. So they are, Jamie -- but then again, so are a lot of the bankers who caused it.