Will the FCIC report be a whitewash?

By Felix Salmon
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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Having lived through the crisis as a money manager at a local bank I can tell you that Lehman Brothers touched just about everyone. We’re a mutual savings bank in Maine and we held a small position in Lehman Bonds that we took an 80% loss on.

Having taken a painful haircut due to their failure it’s still hard for me to see what Fuld did wrong that Morgan or Merril did not do.

Try as they might to use the “no lawful method” excuse the fact is that they allowed the other investment banks MS and GS to apply as bank holding companies with in what… a week of Lehman’s failing?

I think 90% of the new financial regs are just extra red tape and expence for minimal new protection. Make all banks hold more capital 12 – 15% and make riskier activities like private equity and trading require more capital still like 20% and your regulatory system is far more sound than the one that existed in say 1970, 1980 1990 or 2000. If you’re going to mark everything to market leverage is a pretty dangerous thing.

Posted by y2kurtus | Report as abusive

Angelides? Dude, the calls are coming from inside the house. You know that.

Posted by Uncle_Billy | Report as abusive

Well when it comes to writing a “collection of false statements, half truths, misunderstandings, confirmation biases, and rhetorical nonsense”, Ritholz is without peer. Virtually every single one of his claims are either complete BS or do not separate LEH from GS or MS or MER.

I think the reason the FCIC hearings are so unsatisfactory is that they seem determined to focus on the issue of capital or derivatives when the real issue for AIG and LEH was liquidity. For all the fuss repo 105 got, I have only seen one person comment online about the games they played with their liquidity pool and it is clear that LEH and BSC and others got into trouble because their liquidity dried up not because of the leverage and certainly not because of derivatives as most of the “problematic assets” were out and out real estate investments and leveraged loans.

Posted by Danny_Black | Report as abusive