Does anyone care about the report of the Financial Crisis Inquiry Commission? Keith Hennessey, Bill Thomas, and Douglas Holtz-Eakin write,

Brookings Institution economists Martin Baily and Douglas Elliott describe the three common narratives about the financial crisis. The first argues that the primary cause was government intervention in the housing market. This intervention, principally through Fannie Mae and Freddie Mac, inflated a housing bubble that triggered the crisis. This is the view expressed by one of our co-commissioners [Peter Wallison] in a separate dissent.

The second narrative blames Wall Street and its influence in Washington. According to this narrative, greedy bankers knowingly manipulated the financial system and politicians in Washington to take advantage of homeowners and mortgage investors alike, intentionally jeopardizing the financial system while enjoying huge personal gains. That’s the view of the six majority commissioners.

We subscribe to a third narrative–a messier story that emphasizes both global economic forces and failures in U.S. policy and supervision.

Read the whole thing. Although their analysis is more nuanced than that of the commissioners they criticize, in the WSJ op-ed they fail to discuss the role of bank capital requirements and regulatory capital arbitrage in creating an unstable financial system. In their more extended dissent they talk about capital regulation.

Regulatory capital standards, both domestically and internationally, gave preferential treatment to highly rated debt, further empowering the rating agencies and increasing the desirability of mortgage-backed structured products.

A big point that they make is that many simplistic explanations of the crisis do not explain its international dimensions. As the above paragraph indicates, bank capital regulations can account for the international aspects.

I still recommend Not What They Had in Mind and What Caused the Financial Crisis?