Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on The Brian Lehrer Show, Phil Angelides, Financial Crisis Inquiry Commission chairman, continued to unpack the Financial Crisis Inquiry Commission findings on the reasons behind the economic meltdown.

Phil Angelides, Financial Crisis Inquiry Commission chairman, is a weekly guest on The Brian Lehrer Show for the month of February. This week he continued to explain the Financial Crisis Inquiry Commission findings on the economic meltdown by looking at the Republican dissent to the Commission's findings.  

Six members of the Commission signed onto the group's final conclusions. Of the six, five were Democrats and one was an independent. Two of the three Republicans on the committee issued a dissent, saying that they believe the crisis was caused not by under-regulation of shadow banking systems on Wall Street nor the mortgage-backed guarantees of subprime borrowers. Instead, they blamed a global credit bubble which engulfed housing and lending. For evidence, they pointed to Europe's similar crisis. Angelides agreed that a credit bubble was taking place, but thinks a credit boom shouldn't necessarily spell disaster. 

There was, in fact, a lot of money sloshing around in the system. There was foreign capital coming into the US looking for safe real estate assets. There were credit bubbles and housing bubbles in other countries. But…just because you have a lot of capital in the system does not condemn you to the fate of the kind of crisis we’ve now suffered… When you know you have that kind of capital available, you have to take the steps…That will make sure you don’t have an extreme bubble and then an extreme collapse.

Former Federal Reserve Chairman Alan Greenspan has said policy should not be to pop a bubble, but Angelides thinks in this case he was mistaken. Canada, he said, also had a large flow of capital, but had tighter regulation and did not experience the same sort of crash.

The presence of well-priced capital, lots of available capital, need not be a disaster for that country. That money, instead of being channeled into mortgages that were wholly toxic…could have been channeled into the production of jobs, enterprises, wealth for the society as a whole, so broadly available capital can be a good thing.

Angelides said he also finds it interesting that no one has gone to jail for fraud in the subprime and lending industries. He said the commission had a legal obligation to turn over any evidence they found of potential violations of law to the attorney general, and they have done so.

In the wake of the Savings and Loans crisis, about a thousand S&L executives were convicted of felonies. In this instance, there’s been very little law enforcement. There’s activities around the country focused on mortgage fraud at the borrower — and mortgage broker-level, but very little has been done, if anything, in terms of the systemic fraud that may have existed in the system. I will say this — in our report we lay out exactly what happened. We’ve done our job, the prosecutors need to do theirs. And I do think there’s a sense in this country, that there hasn’t been justice. There hasn’t been accountability for what’s happened.

Though there have been civil settlements, Angelides said they have been very light, pointing to a case in which a $140 million gain from financial maneuverings only cost the defendant $40 million in penalties. While he would not say that the investigators had dropped the ball, he does think people have concerns over the appropriateness of law enforcement’s investigatory response.

I just think the prosecutorial arm of the American government owes it to the American people to pursue cases where there are cases, and I think there’s a sense in the country that in the wake of this massive breakdown… people expect an aggressive effort and they haven’t seen it.

The chairman conceded that there are both federal and state level prosecutions to pursue, and said he understands that these things take time. Nonetheless, he said, “it needs to be pursued, and people need to feel there’s a sense of real justice.”

With so many banks still holding toxic assets, and some lingering questions about who ultimately bears responsibility for unscrambling collateralized debt obligations (CDOs), Angelides predicts continuing difficulty in clearing up who owes what in the housing market. While he said the involvement of so many parties will make for a difficult process, Angelides said he thinks the administration needs to have a much more aggressive program to help people stay in their homes.

It’s a great irony that the machine that was built in order to create millions and millions of mortgages in the 2000s is now proving extraordinarily difficult to unwind...It’s making it extraordinarily hard to modify mortgages so that people can stay in their homes. It’s hurting the housing market very badly…We need a massive effort in that regard.

A caller asked about situations in which the booming housing market led people to take out loans using the increased value of their home as collateral, only to see that value plummet. Angelides said that the commission investigated that and found that a law that made consumer loans non-deductable, while keeping mortgage interest deduction in place, led people to increase borrowing against their homes for credit. He blames wage stagnation for the consumer needs that ramped up the borrowing for items such as car-purchases or catch-all expenses.

In addition, he said the repeal of Glass-Steagall in 1999 was the result of a long erosion of regulation in banking and certainly influential in the crisis. 

The classic example of a bank that got in trouble through its securities business was Citigroup. I mean, at the end of the day, Citigroup built up about a $55 billion dollar exposure to subprime mortgage securities, and they incurred tens of billions of dollars in losses, and had Glass-Steagall been in place for some separation, that banking institution wouldn’t have been threatened. I don’t know that it was the cause, but it did add some fuel to the fire.

In regards to a question about the practice of securitizing student loans, Angelides ventured a guess about the future.

I will tell you this, if unemployment stays high, if the foreclosure trend in this country stays steady, it will be a consistent drag, and of course these all have ripple effects… all these are continuing threats both to the economy and the financial system. I don’t think we’re out of the woods by any means at this point in time.