Day two of the Financial Crisis Inquiry Commission, chaired by former California Treasurer Pil Angelides, is underway, with such government officials as Attorney General Eric Holder and FDIC Chairwoman Sheila Bair testifying. But I want to return to some of the highlights from yesterday, which generated some coverage, but not nearly enough, considering the primacy of the financial crisis to all of our lives.
I want to highlight two key portions of the testimony. The first came in questioning from Angelides to Goldman Sachs CEO Lloyd Blankfein. Angelides used one of the most apt metaphors I’ve heard to describe what the banks were doing with their mortgage-backed securities:
He asked Mr. Blankfein to explain how his firm could have sold bundles of troubled mortgages at the same time it placed bets with Goldman’s own money that their value would fall.
Mr. Blankfein tried a variation of the tagline used by the Syms clothing chain: “An educated consumer is our best customer.” He said that Goldman’s clients knew what they were buying and that his firm was simply providing a customer service.
“These are professional investors who want this exposure,” Mr. Blankfein said.
But Mr. Angelides had his comeback: “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.” […]
Mr. Angelides also dismissed Mr. Blankfein’s line about “professional investors” by saying that those same investors represented the savings of teachers and police officers.
After the hearing, Mr. Angelides said he was frustrated with Mr. Blankfein’s answer. “Mr. Blankfein himself never admitted that there was any responsibility of Goldman Sachs to make sure the products themselves were good products,” he said. “That’s very troublesome.”
Angelides created the perfect example for the need for consumer protection in the financial market, which has been rendered non-existent by lax regulation from the Federal Reserve. Blankfein’s “professional investors” claim neglects whose money is being gambled away, and confirms that Goldman has no legal or even moral standards outside of profit-gathering. Blankfein eventually admitted that Goldman’s actions were “improper”. But that’s one word in a hearing.
Here’s the other key moment.
From Jamie Dimon, chairman of JPMorgan Chase, on JPM’s risk management practices before the housing crash:
“We didn’t do a stress test where housing prices fell.”
They didn’t stress test because they didn’t see any need to do so. They knew implicitly that they would be eligible for government support if they faltered – that was the reason for the investment of tens of millions in political candidates over the past decade. The only stress test necessary concerned how much stress they could put on Congress to leverage a giant bailout.
Unfortunately, the value of the FCIC comes largely from public exposure to this kind of arrogance, but the hearings were only shown on the lonely outpost of C-SPAN 2, with few audience members in the hearing room. You would think that the newfound anger over bailouts from the tea party right would at least provoke SOME interest in such a hearing. But they’re not REALLY angry about bailouts and industry mismanagement, right? They’re just using that as a tool, a way to conflate that with necessary actions to stimulate the economy in the wake of the recession, or any effort to secure the kind of revenue needed to run a functioning government. Tea Party organizers are in many cases flat charlatans lining their pockets with the money of the easily led, in many ways no different from the banksters who are busily siphoning the public Treasury.
So instead of a public accountability moment, we get a quiet hearing where CEOs give mea culpas that are disassociated with their actions. From Andrew Ross Sorkin’s article today:
“If the leaders of Wall Street believe regulation is needed, as they stated today before the Financial Crisis Inquiry Commission, then they should tell their lobbyists because they are fighting every serious regulatory change and improvement being considered by Congress,” John Taylor, president of the National Community Reinvestment Coalition, said in a statement after the hearing.
Mr. Taylor also said the banks should be held more accountable for what they sell.
“If the leaders of Wall Street did not consider the possibility of housing prices dropping in their own stress tests and due diligence,” he added, “if they did not know that the F.B.I. had been raising red flags about mortgage fraud since 2004, and if they did not know that high-cost, no-doc, interest-only loans were being made right and left to anyone, then their spirited defense of their employees falls flat.”
“Based on what we heard today,” he added, “they should be firing people, not giving them bonuses.”
There’s real drama here if the media would bother to take a listen.