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Causes of the economic meltdown

Success has a hundred parents, according to the old saying, but failure is an orphan.

Thanks to the federal Financial Crisis Inquiry Commission, which has at last completed its labors, the hollowness of this proverb is on full display. The commission found a vast array of culprits to blame for the 2007-08 crisis, and dissenting Republican members of the panel, who didn't attend the news conference about the findings, named culprits of their own.

While it's a shame that the commission was divided so sharply on party lines, the main report and the dissent crafted by three of the panel's Republican members can be read together to create a coherent narrative of a perfect storm. The short version is that the Chinese and Alan Greenspan literally gave us too much credit, which drove down interest rates and fueled a housing bubble. Everyone came to believe home prices couldn't go down. Lenders got reckless, as did yield-hungry investors. Bankers made a fortune by securitizing mortgages, thereby multiplying risks they thought they were diluting. Mortgage fraud flourished. Regulators were oblivious or hemmed in by laissez-faire ideology.

The only ones to emerge relatively unscathed - from the investigation, although sadly not from the storm - were the people who borrowed all that money to buy houses they couldn't afford.

Yet these weather analogies are inapt, because unlike the weather, the financial crisis could have been prevented had people acted differently. Indeed, perhaps the most important finding of the commission's Democratic majority is that the failures leading up the crisis were human.

That's not reassuring, since there is no way to abolish human fallibility. But we can at least reduce the chances of a repeat by adopting laws and rules that make us less dependent on the competence of bankers, regulators and borrowers.

Forcing everyone to have more skin in the game would help. Homeowners should have to make higher down payments. Banks could be made to eat their own cooking by keeping more of their loans. Forcing lenders to ante up more capital could harden the system against losses. The Dodd-Frank financial reform legislation - enacted before the commission finished its work - was a good start, but it remains to be seen whether it will be implemented effectively.

Of course, humans sometimes perform well. Treasury Secretary Henry Paulson, Fed Chairman Ben Bernanke and then-Fed official Tim Geithner proved atrocious as fire inspectors before the conflagration, failing to limit the banks when they had the power to do so. In fact, in his capacity as chief executive of Goldman Sachs for years, Paulson presided over a firm that played a major role in the growth of mortgage securities and derivatives, which later would fuel the flames. Yet as firefighters once the conflagration exploded, Paulson, Geithner and Bernanke performed brilliantly to contain the blaze.

There will be another financial crisis sooner rather than later unless we learn from this one. hN