Stephen Foley: Crisis inquiry will not find smoking gun

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The Independent Online

US Outlook: The chairman of the US commission of inquiry into the financial crisis complains that $8m is far too little money for an investigation of this size and scope. He's right – but thank goodness he wasn't given any more. On the evidence of the past few days, it is clear that $8m is going down the drain.

Don't get me wrong. I enjoy the theatre of it as much as anyone. This week's hearings have thrown up some great moments. Alan Greenspan, the old sage from the Federal Reserve, claimed to have been "right 70 per cent of the time" and called that rate "exceptionally good" for a regulator. Chuck Prince, the former boss of Citigroup, said sorry three times, putting him straight in at No 1 on the league table of Wall Street apologisers. It's a short table.

Bill Thomas, the Republican vice-chairman of the commission, is in his element, launching windy diatribes against finance industry greed and sneering at the witnesses' apologies, but chairman Phil Angelides seems less comfortable, since he appears to actually want to answer the question asked of him: what caused the credit crisis?

At this point, it's a silly question, at least for a commission of inquiry. Mr Angelides is trying to drill down into the details, hauling in witnesses and calling in documents. He's looking for a meeting where a money-hungry board took a fatefully reckless decision, or a hidden fraud. But there are no smoking guns here.

The FCIC must write a comprehensive report by the end of this year. Unlike the 9/11 Commission report, on which this has been modelled, which provided some genuinely eye-opening information on subjects that had not been much debated in the US, this document will take its place on already stuffed bookshelves.

Put simply, we know what happened. On the details, there is consensus. The Financial Crisis Inquiry Commission's mission statement lists 22 factors it must consider, from mortgage fraud and Wall Street's unstoppable securitisation machine, through conflicts of interest at the credit rating agencies to monetary policy and global imbalances. The witnesses who have come before it, asked to describe their view on the causes of the crisis, usually list 21 of them, leaving out only the one in which they feature as a contributor.

The witnesses may be self-serving, but they are clearly not stupid. While everyone tended their patch of the global financial system intelligently, and in most cases diligently on behalf of shareholders or taxpayers, it was the system itself that had become – in the words of commissioner Byron Georgiou – "hallucinatory".

The FCIC has been told that if it finds anyone who has violated the law, it should refer them for prosecution, but this seems deeply unlikely on the evidence so far. True, a $38m investigation by the bankruptcy court overseeing Lehman Brothers did uncover some dirty details of how it misled investors, and maybe if the FCIC budget were tripled or quadrupled, it too might find a new nugget of illegality, but local attorneys-general and the FBI have been covering the same ground for more than two years already. For all the enjoyment to be had from seeing the supposed villains of the credit crisis called to account, the striking thing about the hearings is how non-villainous everyone seems.

The proximate causes of the credit crisis – those 22 factors – are being tackled, albeit imperfectly, through the myriad regulatory and legislative reforms under discussion in Washington, at the G20 and through the Bank for International Settlements. The FCIC is way late to that discussion.

More interesting are the great debates to come about the underlying causes, the reasons for our collective hallucination. The credit crisis is cultural – too much money and power in finance, a lunatic faith in mathematical models, an obsession with home ownership – as well as systemic. The answers to the FCIC's question lie not down in the details but up in the atmospherics, up where economic and political philosophers clash.

And with all due respect to Messrs Thomas and Angelides, philosophers they are not.

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