“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire,” the report states. “The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.”
The Financial Crisis Inquiry Commission, January, 2011
It’s not about “sorry” anymore.
Even before the Wall Street titans were sworn in last week, it appeared as if the goal of the Financial Crisis Inquiry Commission’s chair, Californian Phil Angelides, was to wring an apology from the men whose companies led the nation into an economic abyss. Whereas most Americans, let me venture, would like to wring their necks.
About twenty-five years ago, I wrote about “inseki jishoku,” the Japanese tradition of accepting responsibility for one’s actions and resigning one’s position as penitence. “These social balancing mechanisms are powerfully ingrained within the Japanese culture. In business activity, they create by necessity a ‘state of intimacy’ among management and employees,” William Ouchi, a management expert, told me at the time. I suggested that there would be less corporate crime in this country if American CEOs embraced a similar approach.
That never happened.
So what would be the point of a symbolic apology from the titans of the Money Industry – assuming they would be willing to offer one (they tried hard not to, in the event)?
No amount of apology is going to salve the grievous wound in the American psyche as the banks’ profits and bonuses break records.
Like most Americans, I am having a hard time getting my head around how these companies can claim to be earning a “profit” and their executives billions of dollars in extra compensation after American taxpayers were forced to pitch in trillions of dollars to keep the companies afloat.
The truth is that they were able to get away with it because no one in Washington ever imposed any kind of quid pro quo for the bailout.
No cap on the exorbitant interest rates we now pay to borrow our own money from the credit card companies, for example.
No relief for people trying to keep up with their mortgages and pay the rest of the bills.
If symbolism is what this is all about, I say we’ve moved beyond the “apology” stage. How about sending some of these people to jail for twenty years? Or is it "legal" to destroy an economy and cost Americans their life savings and jobs? I had hoped the Angelides investigation would be the beginning of an intensive investigation that, like the Watergate hearings, would lead to holding people criminally accountable for their actions. Not so far, at least.
As I watched the politicians and the leaders of Goldman Sachs, Chase and Bank of America sashay around an apology at the witness table, it reminded me of a scene from the Empire Strikes Back. Han Solo and the Millenium Falcon have just managed to elude Darth Vader’s entire fleet of starships. Informed that Vader wants an update on the search, Captain Needa replies, “I shall assume full responsibility for losing them, and apologize to Lord Vader.” Vader, using the Force, strangles him. “Apology accepted, Captain Needa.”
The first two days of the long-awaited Financial Crisis Inquiry Commission hearings have been largely rambling and listless, with commissioners leading witnesses around the same debates and issues that even casual observers of the meltdown and bailout have heard many times.
Those with patience were rewarded Thursday with some nuggets of straight talk from FDIC’s Sheila Bair and state regulators skeptical of the benefits of financial innovation.
Phil Angelides is getting some raves for his clash with the head of Goldman-Sachs Wednesday and his knowledge of how the financial system works. Angelides compared Goldman to a used car salesman selling vehicles with bad brakes, and chided the firm’s chairman for describing the financial meltdown as a natural disaster like a hurricane.
I’m not buying it.
One dustup in the middle of two days of hearings did nothing to illuminate the meltdown. Goldman’s thick-skinned and well-paid Blankfein has already stared down the president of the United States and Congress. I doubt he’s going to change course after Angelides’ comments.
Angelides, his vice-chair Bill Thomas and the other commissioners seem to have no sense of urgency or flair for how to hold a public hearing. Angelides and company are either unprepared or appear not to have the stomach to bring out the story in a compelling way or hold bankers and regulators publicly accountable.
We have a long, proud history in this country of public hearings that focused on key issues, electrified the country, and galvanized political change, starting with the hearings on which the current panel is based, the 1930s Senate probe into the financial shenanigans preceeding the stock market crash, headed by Ferdinand Pecora.
Michael A. Perino, a professor specializing in securities regulation at St. John's University School of Law who's writing a book about Pecora, told "Bill Moyers Journal" that Pecora took complex financial transactions and turned them into simple morality plays. “Pecora was, if nothing else, a brilliant lawyer. He knew how to ask questions. He was a pit bull. He would not let people get away with hemming and hawing and hedging their answers. And he would go after them, politely, of course. But he would go after them until he got the answer he wanted.”
In the early 1950s Sen. Estes Kefauver went after organized crime. Later in the decade, Sen. Robert Kennedy targeted corrupt union bosses. In the 1970s, the country was riveted by the Senate hearings into the Watergate scandal, led by a superb lawyer named Sam Dash.
Each of those hearings, from Pecora to Watergate, was characterized by relentless preparation, tenacious questioning and savvy stage managing.
Dash unfolded the Watergate story like an episode of the old courtroom drama Perry Mason. It’s worth quoting Dash’s method at length for the stark contrast with Angelides.
“Having been a trial lawyer, I know that you begin a trial by starting at the very beginning,” Dash told NPR’s “On the Media” in 2003. “It's like a detective story. In this particular case, there was the Watergate burglary; there were the cops that arrested the burglars. And then I would bring in a number of accusers like John Dean who had been counsel to the president who was pointing the finger at the president and [H.R.] Haldeman and [John] Erlichman, and so I was setting up this tension of the police work, the work of the people who were involved as co-conspirators, who were accusing, and then ultimately bring the accused – Haldeman, [John] Mitchell, and Ehrlichman – and in order to make sure that our story would be told in a consecutive and interesting fashion, every witness that I called had been prior called, before an executive committee.
“In other words I knew exactly what my questions were going to be and I knew exactly what the answers were going to be so that I could put it in a form that this would come out like a story, and I think it, it succeeded in the sense that the American people were glued to their television sets waiting for the next episode.”
In Thursday’s session we got the attorney general, Eric Holder, touting his successful prosecution of Ponzi schemer Bernard Madoff and other cases that had nothing to do with the financial crisis. His office continues to investigate 2,800 mortgage fraud cases, Holder said.
No commissioner asked Holder any follow-ups about the recent failed prosecution of Bear Stearns hedge fund managers who were acquitted of lying to their clients about the funds’ mortgage investments, or lessons that the Justice Department might have learned from that embarrassing defeat.
Nor did the commissioners ask SEC chief Mary Schapiro, seated close by Holder, about the SEC’s colossal failure in ignoring repeated warnings about Madoff’s crooked deals.
What’s particularly frustrating is that Angelides appears to have the seeds of a theme: how banks and regulators ignored warnings of trouble prior to the meltdown. He has asked a couple of times about a 2004 FBI report that warned of a looming explosion of mortgage fraud. Surprisingly, though Angelides had raised it Wednesday with the bankers, when Angelides asked Holder about it Thursday, Holder replied that he wasn’t familiar with the warning but said, “We’ll look into that.”
That’s some indication of just how seriously the country’s top law enforcement officer is taking the hearings.
The commission’s second day of hearings focused on regulatory efforts of the SEC and FDIC as well as state efforts at financial regulation.
Amid strong lobbying by the big banks, state regulators have been largely pre-empted from financial regulation. Whether or not to give states back that authority is a key point of contention in on-going debate over financial reform; financial institutions continue to bitterly oppose it.
Sheila Bair, FDIC chair, whose strong voice for reform has sometimes been drowned out by those of other members of the Obama economic team, got a chance Thursday to reiterate her view of the failures that contributed to the crisis.
“Not only did market discipline fail to prevent the excesses of the last few years, but the regulatory system also failed in its responsibilities,” Bair said. Record profits across the banking sector, Bair added, also served to limit “second-guessing” among the regulatory community.
The Texas securities commissioner, Denise Crawford, also offered a sharp perspective not usually heard either on Wall Street or in Washington. “The great minds of Wall Street are probably right now coming up with new securitization products,” she told the commissioners. “It's not just mortgages. It's the entire structure of Wall Street and the super-wealthy that create the demand for new speculative products.”