Modeled structurally on the 9/11 Commission, the bipartisan, congressionally appointed panel will issue a report in December 2010 on the causes of the crisis, and has the option to provide recommendations for reform. According to Chairman Phil Angelides, its work is supposed to "serve as an antidote – much as the Pecora hearings did in the 1930s — to the kinds of market practices that none of us would want to see repeated ever again."
Below, highlights from the hearings.
Day 2: Critical but Yawn-Inducing
Thursday, January 14, 2010 — 4:37 p.m.
The second day of the Financial Crisis Inquiry Commission lacked the fireworks of the first. Testimony from key regulatory agencies: the Securities and Exchange Commission, the Federal Deposit Insurance Commission and the Department of Justice. Questions centered on the regulatory agencies knowledge and capacity to act at various points during the housing bubble and the crisis that followed. The agencies were broadly in agreement on causes (housing bubble, leverage, poor underwriting, inadequate risk management, etc.) All supported more effective systemic regulation with a few differences in emphasis and structure.
As important as the testimony was the commission's attempting to lay the groundwork to effectively investigate. Vice Chairman Bill Thomas confirmed in perfunctory ways that the SEC (Mary Schapiro) the FDIC (Sheila Bair) would soon finalize agreements with the Commission to share information. In what was clearly a planned move, he asked the Department of Justice (first Attorney General Eric Holder and later Assistant Attorney General Lanny Breuer) whether they could expect a similar agreement by the end of the month. There was some hemming and hawing that Thomas ultimately judged as "probably yes."
This is important. The Commission is unique in its ability to look across the various agencies and other participants in the crisis. One the key causes appears to be the interconnectedness of the problems and the gaps among regulators. As a result, getting full and early access to information from each agency is critical. Delays would be a disaster for the commission, which has to deliver its report by December 15. When the 9/11 commission had trouble getting access to the various agencies, pressure from the families of the 9/11 victims was key to overcoming the resistance. The Financial Crisis Commission has to work without the same public support.
Top 10 Metaphors at the Financial Crisis Inquiry Commission
Thursday, January 14, 2010 — 8:56 a.m.
With apologies to David Letterman.
While waiting for today's FCIC's hearings to begin I reviewed my notes and glanced through the statements of the commissioners from their initial announcement on September 17, 2009. Content aside — and now that the FCIC site is up, there is some content, I was struck by the range of metaphors used to frame the crisis. Nothing so far seems to have stuck.
This is interesting because one of the key challenges for the commission is to find a way to connect to people. This will not be easy without a coherent story line and imagery to complement and frame the data. It's also interesting to watch the competing metaphors. For example, early on many bankers were calling the confluence of events "a perfect storm" with "plenty of blame to go around."
Until something substantive takes hold, I thought I'd review some of the current metaphors that have surfaced.
10. What a Dog Returns To
• Brian Moynihan, Bank of America: "We ate our own dog food and we choked on it."
9. Hidden Bombs/Mission Impossible Theme
• Phil Angelides: "... We witnessed the implosion of our financial markets, yet the fuses for that cataclysm were undoubtedly lit years before. It is our job to diligently and doggedly follow those fuses to their origins."
8. The Illiad and the Odyssey
• Brooksley Born: "Some powerful financial instruments have begun to mobilize forces to prevent meaningful reform and return to business as usual. The country cannot afford to listen to the siren song of self-regulation and delay or weaken our response to the crisis."
7. Evicted from the Castle
• Keith Hennessey: "I hope to share some of my insider's view on what happened ... our task is now one of hindsight, where we know what happened."
• "There's a temptation in this kind of process to look for villains, and indeed some have already been found and locked up."
• "In Washington, the easiest solution is often to form an unruly political mob and march on Wall Street ..."
6. (Used to Be) A Wonderful Life
• Byron Georgiou: "We have proceeded far beyond the idyllic banking model of the local building and loan institution immortalized in the Jimmy Stewart classic Christmas movie "It's a Wonderful Life ... "
5. Intensive Care
• Sen. Robert Graham: "The guiding principle of this commission should be do no harm... "
• Financial Institutions are "not only in the intensive care ward, but in the ward for those who are closest to death."
4. Dr. Frankenstein's Lab
• Heather Murren: "The commission has critical role to play in bringing to life the facts surrounding the financial collapse... "
• "I hope to bring light into areas that have been obscured by complexity... "
3. Bubbling Tsunami
• Douglas Holz-Eakin: "It has been likened to a tsunami that swept across the American economy... "
2. This Might Hurt a Little
• Peter Wallison: "... The diagnosis determines the prescription."
And the No. 1 image comes from the vice chairman, Bill Thomas:
1. Lazarus Waking Up in an Infectious Wasteland after an Earthquake
• "... I appreciate a little more than I did before what Lazarus must have felt like... "
• "... we had an earthquake... and one of the inevitable factors with earthquakes is that there are aftershocks."
• "... we're becoming familiar with natural mutations of virus, with manmade viruses, computers and this one of a financial nature."
• "... are we going to be in a jungle? "
After today's hearings I'm going to ask my bartender friend to create a drink we'll call "the Bubbling Tsunami." Take away that punch bowl.
Day 1: Watching Lloyd Blankfein Get Mad
Wednesday, Jan. 13, 2010 — 9:29 p.m.
Spent the day at the opening hearings of the Financial Crisis Inquiry Commission. Fascinating for a variety of reasons, not least of which was watching Lloyd Blankfein get mad.
First, the background: The FCIC is a bipartisan commission tasked with examining the "causes of the financial and economic crisis." It's modeled in some ways on the 9/11 Commission. (They have subpoena power but seem inclined to ask nicely first. No subpoenas yet.) According to Chairman Phil Angelides, its work is supposed to "serve as an antidote – much as the Pecora hearings did in the 1930s – to the kinds of market practices that none of us would want to see repeated ever again."
Today, the commission heard testimony from three separate panels. The first and most interesting had Goldman Sachs Chairman and CEO Lloyd Blankfein, JPMorgan Chase Chairman and CEO Jamie Dimon, Morgan Stanley Chairman John Mack, and Bank of America CEO and President, Brian Moynihan making statements and taking questions under oath. (It was explained that this would be standard practice by the Commission.)
Phil Angelides, the Chairman, said the Commission would serve as "proxy eyes, ears and possibly voice" for the American people. Angelides was particularly impressive in his ability to redirect some of the diversionary cliches that have been used to describe the crisis, e.g. "perfect storm" or "lots of blame to go around."
"But was this a perfect storm or a man-made storm?"
"Maybe it's like the Orient Express. Everyone did it."
Vice Chairman Bill Thomas said he planned to ask questions "the way the American people would, in ways that they can understand it." This explains distracting asides – for example, I now know that in 1950s Southern California the goal for tenants: "Get anything" as a first house and wait for it to appreciate. Some called this blather.
I think Thomas is cannier than that. For example, the other commissioners had to prioritize a few questions because of their extremely limited time. Thomas simply said, "My questions are the New York Times' questions," and requested written responses to them. In one move he asked 10 questions, requested responses under oath, and enlisted the Times' help in checking the facts.
Perhaps he was trying to get under the skin of the CEO's. That seemed to work for Angelides. Largely in response to Angelides questions, Blankfein lit up the room with his energy, intelligence and occasional hints of aggression. Both Angelides and Thomas have to be sensitive to the risk that the hearings will turn into esoteric discussions of leverage and risk management practices at various points of the crisis. That would only weaken the commission's effectiveness and will come out as a result of the investigation anyway. The FCIC needs to establish a baseline for credibility, build a solid foundation of facts, and connect the housing crisis and it's aftermath to the country at large. Thomas' digression makes more sense in this context: "If you could get on the first rung you could get onto the second. That was America."
One memorable turn of phrase from Blankfein in discussion about negligence, market-making and norms of behavior before and after the crisis: "The standards at the time were different."
Let's make sure that's the truth.