Wall Street Off the Hook

by Dollars and Sense

Two good items on the Financial Crisis Inquiry Commission; hat-tip to LF. The first is from Newsweek Online:

Off the Hook

Wall Street and Washington escape whipping again as the Financial Crisis Inquiry Commission gets underway.

By Michael Hirsh | Newsweek Web Exclusive | Jan 14, 2010

One sure measure of a successful Washington hearing is the presence of tension, lots of it. Key witnesses are put on the spot. Truths are revealed under close questioning. Embarrassing discrepancies are exposed. Think of the Watergate hearings. Or Iran-contra. Judged by that standard, the inaugural session of the Financial Crisis Inquiry Commission on Wednesday was a failure. Left largely unchallenged, Wall Street's finest might as well have been at home dozing in their dens.

The first sign of trouble came when chairman Phil Angelides thanked the visiting chairmen of Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Bank of America for their "thoughtful" opening statements. Things got progressively more pillowy from there, drifting into outright farce when Bill Thomas, the vice chairman, opened with a drawn-out reflection on the Haiti earthquake and then said that all the questions he could possibly have were already on page A27 of the day's New York Times, which had asked financial experts to suggest lines of inquiry. The remaining commissioners followed with a series of mostly general and scattershot questions that turned what should have been a hot seat for the bankers into a Barcalounger.

Read the rest of the article.

And this is from Paul Krugman's column in yesterday's Times:

Bankers Without a Clue
By PAUL KRUGMAN | Published: January 14, 2010

The official Financial Crisis Inquiry Commission—the group that aims to hold a modern version of the Pecora hearings of the 1930s, whose investigations set the stage for New Deal bank regulation—began taking testimony on Wednesday. In its first panel, the commission grilled four major financial-industry honchos. What did we learn?

Well, if you were hoping for a Perry Mason moment—a scene in which the witness blurts out: "Yes! I admit it! I did it! And I'm glad!"—the hearing was disappointing. What you got, instead, was witnesses blurting out: "Yes! I admit it! I'm clueless!"

O.K., not in so many words. But the bankers' testimony showed a stunning failure, even now, to grasp the nature and extent of the current crisis. And that's important: It tells us that as Congress and the administration try to reform the financial system, they should ignore advice coming from the supposed wise men of Wall Street, who have no wisdom to offer.

Consider what has happened so far: The U.S. economy is still grappling with the consequences of the worst financial crisis since the Great Depression; trillions of dollars of potential income have been lost; the lives of millions have been damaged, in some cases irreparably, by mass unemployment; millions more have seen their savings wiped out; hundreds of thousands, perhaps millions, will lose essential health care because of the combination of job losses and draconian cutbacks by cash-strapped state governments.

And this disaster was entirely self-inflicted. This isn't like the stagflation of the 1970s, which had a lot to do with soaring oil prices, which were, in turn, the result of political instability in the Middle East. This time we're in trouble entirely thanks to the dysfunctional nature of our own financial system. Everyone understands this—everyone, it seems, except the financiers themselves.

There were two moments in Wednesday's hearing that stood out. One was when Jamie Dimon of JPMorgan Chase declared that a financial crisis is something that "happens every five to seven years. We shouldn't be surprised." In short, stuff happens, and that's just part of life.

But the truth is that the United States managed to avoid major financial crises for half a century after the Pecora hearings were held and Congress enacted major banking reforms. It was only after we forgot those lessons, and dismantled effective regulation, that our financial system went back to being dangerously unstable.

Read the rest of the column.

Labels: bailout, financial crisis, Financial Crisis Inquiry Commission, investment banks, Paul Krugman

 

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1/15/2010 10:36:00 AM