Can crisis inquiry live up to 1930s?

January 14, 2010

- By Rolfe Winkler and Richard Beales -

Ferdinand Pecora turned a tame United States investigation of the 1929 Crash into an exposé that spawned far-reaching banking reform. Despite flashes of incisiveness from Chairman Phil Angelides, the Financial Crisis Inquiry Commission’s debut with Wall Street bosses Wednesday lacked that kind of promise. It’s early days, but the panel needs to sharpen up.

Mr. Angelides began on a high note, quizzing Goldman Sachs honcho Lloyd Blankfein about the firm’s dual role marketing financial products to customers and, elsewhere in the organization, at times selling the same products short. But Mr. Angelides didn’t have time to press his point, and the other commissioners mostly offered softer questions.

Jamie Dimon, John Mack and Brian Moynihan, respectively the bosses of JPMorgan, Morgan Stanley and Bank of America, took less flak – but that may be because they escaped questioning from Mr. Angelides, who concentrated on Mr. Blankfein.

Even Brooksley Born, famous for battling former Federal Reserve Chairman Alan Greenspan and other bigwigs over derivatives regulation, didn’t press the bank chief executives very hard.

Of course, this is just the beginning. Aside from looking at Goldman’s apparent conflicts, the American International Group rescue, derivatives trading, bank leverage, credit ratings and other potential financial sector causes of the crisis, the government’s role demands scrutiny, too. That includes not just regulatory failures but also policies that promote and subsidize home ownership – raised by Mr. Blankfein in his testimony – and the extremes of leverage allowed at government-linked mortgage giants Fannie Mae and Freddie Mac, an issue brought up by Mr. Dimon.

With all this ground to cover, there is time for Mr. Angelides’ panel to hit its stride. Back in the 1930s, it took the arrival of Mr. Pecora in 1933 – only as counsel to the Senate investigation, and its fourth one at that – to galvanize proceedings and earn his name’s association with the commission, which led to the Securities Act of 1933 and the Securities Exchange Act of 1934.

If Mr. Angelides wants his own name linked with similarly meaningful results this time around, he needs to knock his team into leaner, meaner shape.

Comments

I did listen to Vice Chairman Bill Thompsons opening remarks and a few of his follow-up questions. He has either been bought by wall street or isn’t competent enough to carry out his duties as a member of the Financial Crises Inquiry Commission. We can only hope that the remaining members are not only competent but ethical and tenacious enough to uncover the truth, recommend where prosecutory measures should be executed and recommend immediate measures that should be taken to remove wall streets stranglehold on America’s ability to produce products that American and world consumers require, not the paper ponzi scheme that wall street created and then sold to the world investors.

One of the nankers stated that they could not foresee the coming crisis. Why then did they earnestly lay off their risk to the citizens and governments of the world?

Posted by csodak | Report as abusive
 

Phil Angelides is the Chairman of the Financial Crisis Commission. Yesterday during testimony he said this to Lloyd Blankfein, the CEO of Goldman Sachs.

“I’m just going to be blunt with you,” he told Blankfein. “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars. It doesn’t seem to me that that’s a practice that inspires confidence in the market.”

(What the company was doing is explained in a McClatchy news article. Most simply it was a set of investments in which the contract created a situation that if the investements prospered, Goldman Sachs made money, but if the investments went sour, Goldman Sachs made even more money. The investor bore all the risk.)

For so much of the time after this unprecedented story of financial incompetence, greed and outright stupidity, public officials have said little but given much to the financial industry. Here is a different voice. Whether in the long term this proves sincere is still a question. But I liked the sound of it. Ethics tends to work well in an environment in which there are penalties for doing wrong. The wrong doers have profited from their actions. This is not the kind of example a country and developing civilization need. It is in fact quite dangerous when a large group of powerful Americans no longer share common interests or abide by the same rules as other Americans.

http://southwerk.wordpress.com/

Posted by southwerk | Report as abusive
 

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