Will the FCIC report be a whitewash?

September 3, 2010
Barry Ritholtz was unimpressed with the way that the Financial Crisis Inquiry Commission was quite soft on Dick Fuld:

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Barry Ritholtz was unimpressed with the way that the Financial Crisis Inquiry Commission was quite soft on Dick Fuld:

To think that Fuld’s brand of psychopathic revisionism was given a sympathetic hearing is deeply disturbing.

I haven’t written this before, but now I am compelled to: I now fear the FCIC report is going to be an ideological farce. The nightmare report scenario is a collection of false statements, half truths, misunderstandings, confirmation biases, and rhetorical nonsense.

Obviously, the proof of the pudding will be in the eating. But I think Barry is stretching too far, here. Public hearings are interesting and useful, because they give the commissioners the opportunity to ask important questions of the principals in the financial debacle. But there’s no reason why they should set the tone for the final report.

Specifically with regard to Fuld, the FCIC barely needs to call anybody or do anything beyond reading the Jenner Report in full. More resources went into putting together that report than are going into the entire FCIC apparatus, so it makes sense for the FCIC to essentially outsource Lehman to Jenner. Certainly asking questions of Dick Fuld in a public hearing isn’t going to tell them anything they don’t already know, so why bother.

It’s worth noting that Joe Cassano of AIG got off very lightly in front of the FCIC as well. And if there’s any unanimity at all about who belongs in the rogue’s gallery of Top Villains of the Financial Crisis, there’s unanimity over Cassano and Fuld. I doubt that either of them will receive any hint of exoneration in the final report. As a result, they don’t need to be stoned in public as well.

There are also time considerations for the commissioners: there’s little point in them spending a lot of time preparing to grill Fuld and Cassano, since there are relatively few contentious and open questions relating to what those two men did. Instead, their time is better spent working out exactly where the FCIC’s subpoena power can be put to best use in determining the causes of the crisis.

Remember, the FCIC isn’t some kind of court where bankers go to get prosecuted. And the key determinant of how the final report reads is not who said what in the FCIC’s public hearings, but rather who actually writes the report, and who, among the commissioners, has the most political clout when it comes to pushing their personal opinion. If it’s basically put together by the likes of Angelides, Born, and Holtz-Eakin, we’ll get something great. If, on the other hand, there’s a lot of input from people like Thomas and Wallison, we might end up with exactly what Ritholtz fears.

For the time being I’m hopeful, since Angelides is the chairman, he’s smart, and he’s on top of his brief. The commission does seem to have recently lost its lead writer, which is a little bit worrying, but nothing huge to worry about. So long as there’s someone there who can express complicated thoughts clearly, there’s hope yet for this report.


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