Here are some early reactions to the the first hearing, now underway, of the Financial Crisis Inquiry Commission in Washington, D..C and televised on CSPAN 2.
Three hours into the FCICs much-hyped first public hearing, what’s being said is less important than what is not being said.
The bankers, beleaguered as they may like to appear, have little to fear if the questioning continues as it began.
So far, this is no Pecora Commission, the Depression-era investigation into the cause of the financial crash that led to landmark reforms including the Glass-Steagall Act and creation of the Securities and Exchange Commission.
Pecora was a tough, savvy former county prosecutor who understood how to put the pressure on his targets and use the drama of the public hearing as an investigative tool. Pecora also understood that he was not explaining a crisis, he was telling a story.
My own take on the commission’s early performance is based on my experience as a newspaper reporter covering high profile cases in Los Angeles, as well as other trials that received little public attention.
The commission hearing room is not a trial. But it is ostensibly a search for the truth. The commissioners didn’t ask questions crisply in a way that would pin the nation’s bankers down to specifics. Too many of the questions were softballs that the bankers could bat back with stock responses.
The commissioners, led by former California treasuer Phil Angelides, asked too many compound questions, combined with short speeches, allowing the bankers to slither around, and offer pat answers without having to deal with the tougher aspect of the questions. Except for Brooksley Born, who asked about derivatives regulation, the commissioners also didn’t seem to be pursuing a line of questioning, instead jumping all over the place.
Angelides shows no understanding of the storytelling function of his job. He has to shape this complex mass of people and information into a story. This is what top trial attorneys do. The morning's questioning was too incoherent to shed light on the crisis. There were questions about risk, derivatives regulation, the repeal of Glass-Steagal.
There are any number of possible story lines available . Here's one theme Angelides could have developed: there were plenty of warnings about reckless behavior and predatory lending. Those warnings were ignored, He could have started there, with the people who delivered warnings and got no response. Just putting the bankers on and firing random questions at them offers no coherent insight and lets them off the hook.
As the morning went on, Angelides did poke around at a theme, that the bankers had largely ignored a dire warning from the FBI in 2004 that mortgage fraud was mushrooming. But he didn't do it in a sharply focused way that would elicit detail or flesh it out.
Nobody should underestimate how tough and slick these top bankers are. Nothing that the commissioners offered, in the form of the questions or the substance, was likely to surprise them or cause them to break a sweat.
One of the commissioners, Keith Hennessey, pointed out that the bankers who were testifying represented the firms that survived, and he was more interested in hearing about the practices at the firms that failed such as Bear-Stearns and Lehman Brothers.
The question I have is this: what have these commissioners been doing in the nearly six months since they were appointed? The vice-chair of the commission said this morning that the hearing represented only the tip of the iceberg of the work the commission has been doing. But in the two hours that I watched this morning, not a single commissioner referred to a document that the commission might have gathered prior to the hearing, or to prior testimony the bankers have given. What exactly was the commissioners' preparation for the hearing?
I hope that my early impression proves wrong, and that the commissioners get their act together as the hearings go on.
But the bankers have been getting their side of the story out since the crisis began. They hardly need another forum to do that.
The bankers all admitted that they had made mistakes in not foreseeing the housing meltdown that was the immediate trigger of the crisis. Jaime Dimon, of JPMorgan Chase, acknowledged that his firm failed to foresee that that housing market might go down, and failed to account for that in its calculations. Yet Dimon and others insisted that they needed to pay large bonuses in order to compete for talent in the financial industry.
Yet to be asked: why do people in the financial industry who made mistakes, failing to listen to warnings about their loan products and the bubble economy, deserve such tremendous compensation?
Let me know what you think. What are your impressions of the hearings so far?