Off the Hook (The Financial Crisis Inquiry Commission Gets Underway) - Michael Hirsch/Newsweek

[WillyT]

Off the Hook
Wall Street and Washington escape whipping again as the Financial Crisis Inquiry Commission gets underway.
By Michael Hirsh
Jan 14, 2010

<snip>

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.

It was another disappointment in a year full of them. What has been missing most of all since the real dimensions of the meltdown became known is a sustained effort to consider our out-of-control financial system as a whole. Both Washington and Wall Street continue to see the financial crisis as a matter of toxic assets, when the entire financial system has become toxic. It is a system of overlarge and untouchable Wall Street institutions that deal in opaque products with government regulators who remain miles behind. The persistence of Wall Street as the whip hand in the global economy has begun to generate doubts about capitalism itself. The remedies being prepared by the Obama administration and the Congress amount to antidotes to the lingering poison in the system from the real-estate bubble; they do little to address the fact that the system is already generating a flood of new poison infecting the whole economy. As commissioner Brooksley Born pointed out during one of the few productive exchanges at the hearing, the four bankers' firms represent about $230 trillion worth of trade in over-the-counter derivatives, much of which is still going unmonitored (prompting another warning recently from Commodity Futures Trade Commission chairman Gary Gensler, who said in a speech that without new rules, the operation of the derivatives market will continue to be like "buying an apple from the supermarket when the price of the apple is kept private" or "buying 100 shares of a stock for your 401 with no knowledge of where the market prices the stock").

Bankers and regulators alike continue to characterize the disaster of the past two years as a "perfect storm," but as Angelides himself said, the creation of this system was not an act of God, but of people. Which people? Where are they? You can count on one hand the number of top executives on Wall Street and senior officials in Washington who have owned up to even a sliver of responsibility for a system that was a generation in the making.

Oh, sure, everybody is acutely aware that they have to get on the right side of public outrage. That's no doubt part of the reason why President Obama announced a new $90 billion tax levy today on big financial institutions in order to recoup losses from the TARP bailout program. "My commitment is to recover every single dime the American people are owed. And my determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at the very firms who owe their continued existence to the American people," Obama said. But this is mostly political theater. Yes, the CEOs admitted that they are addressing Wall Street's executive compensation practices, which were so central to the disaster and to the conversion of the entire real economy into a optioned-up race to drive up stock prices, come what may. Regulators—especially FDIC chair Sheila Bair, who remains ahead of the curve—are demanding new pay incentives that reward a focus on long-term corporate value, and promoting "clawbacks" of bonuses and salary for instruments that do poorly. But there's already an internal battle over Bair's proposal, and the Wall Street lobby is hovering in ominous opposition.

Above all, most of the culprits of the crisis remain in power, while those who warned most presciently about the systemic issues remain on the outside looking in. Perhaps the oddest thing about the commission's opening hearing was that Born—one of the very few heroes of the whole sordid financial mess—was the last of the 10 commissioners to ask her questions. That's the position usually reserved at congressional hearings for the most junior member of the panel. I couldn't get a straight answer from commission staff on why the only person in Washington who really predicted and understood the dangers to come, and who is clearly more qualified to chair the commission than Angelides, a political crony of Nancy Pelosi's, had been so seemingly marginalized. It seemed akin to batting A-Rod ninth in the opening game of the World Series.

A commission spokesman assured me that Born would go first the next day. Further inquiries revealed that Born was not entirely happy about starting things out with the CEOs. A distinguished lawyer who, as chairwoman of the Commodity Futures Trading Commission, warned back in 1998 that derivatives were getting out of control, only to find herself crushed by the Wall Street/Washington juggernaut, Born would have preferred to build a case more carefully. She wanted to question junior witnesses first, including key people at the Wall Street firms, and only then confront the CEOs with detailed questions about their practices, according to two sources familiar with the internal discussions (Born herself would not comment, and the commission spokesman denied there was any dispute). Bringing in the CEOs first as a headline-grabber and asking them gentle opening questions, said one observer, was like "making Richard Nixon the first witness in the Watergate hearings." Born was overruled, just as she had been in 1998, but sadly for the country, she was proved right once again. After the hearing, when JPMorgan chairman Jamie Dimon was asked why the CEOs hadn't been more apologetic, he responded that questioners have to be "very specific" about what they want him and the others to apologize for. They weren't.

<snip>

More: http://www.newsweek.com/id/230809/output/print

:wtf:

[Jackpine Radical]

1. Thsi is what I was afraid might be happening, all tough talk aside.

We--the middle class, average Americans--are just plain fucked.

Yeah, there's some point in continuing to vote for Democrats. They're more likely to support at least some civil rights for us (GLBT, for example). But on anything that matters to the big-money classes, nobody stands for us.

I'll even cede the Dems a few points on health care. Maybe the currently floating legislation would marginally help some people; God, I hope so. But ultimately it's the kind of legislation that sends insurance industry stocks soaring. And that kind of thing is never a good sign for us little people.

Meanwhile, people continue to lose their jobs while the banksters divvy up their spoils.

And the Democrats continue to get their fix of big money, just like the Republicans.