FCIC Insiders Say Report Gives Wall Street a Free Pass

[seafan]

Yves Smith writes at Naked Capitalism:

January 26, 2011

From the very outset, the Financial Crisis Inquiry Commission was set up to fail. Its leadership, particularly its chairman, Phil Angelides, was seen as insufficiently experienced in sophisticated finance. The timetable was unrealistic for a thorough investigation of a crisis this complex, let alone one international in scope. Its budget and staffing were too small. The investigations were further hampered by the requirement that subpoenas have bi-partisan approval along with Its decision to hold hearings with high profile individuals, including top Wall Street executives, before much in the way of lower-level investigation had been completed. The usual way to get meaningful disclosure from a top executive is to confront him with hard-to-defend material or actions; interrogations under bright lights, while a fun bit of theater, generally yield little in the absence of adequate prep.

.....

Based on further discussions with individuals familiar with how the report was developed, the following shortcomings are evident:


(several detailed examples follow)

.....

As a result, the report underplays or completely misses the real drivers of the crisis. Specifically, it gives short shrift to the obvious epicenters:

– How a previously benign securitization process allowed for the creation and sale of bad mortgages on a widespread basis

– How inadequate disclosure as alleged in a number of recently filed big lawsuits allowed mortgage backed bonds that contained many loans that fell below the underwriters’ promised standards to be sold to investors

– How a shadow banking system ballooned with products increasingly based on dubious financial instruments

– How CDOs that were devised by subprime shorts, most importantly the hedge fund Magnetar, drove the demand for the worst sort of subprime loans, extended the toxic phase of the subprime bubble well past its sell-by date

– How the dealer banks knowingly created toxic products, and via flawed risk management processes, allowed traders to retain significant portions of them via strategies that amounted to gaming of the banks’ bonus systems

.....

Merely reading news releases of the last few weeks will show the shortcomings of the FCIC report. For instance, it skips over the role of the failure of the securitization industry to adhere to its own agreements, even though the FCIC was presented with this information last summer. It also is silent on the sort of abuses coming to light, such as the fact that Bear Stearns was allegedly double-dipping on its own deals, demanding that originators make extra cash payments on bad mortgages they had sold into pools that Bear was selling to investors, while failing to pass those payments on to investors (knowing that they instead would seek to have the bond insurers be the ones who would make investors whole).

Similarly, on the eve of the release of the FCIC report, the SEC, which astonishingly had declared disclosure on mortgage-backed securities to be “robust”, has done a quiet about face and has issued a new rule requiring issuers of asset backed securities to conduct a quality review and disclose to investors what that review consisted of. Note that this closing of a gaping loophole in disclosure has gone largely unnoticed.

The sad thing isn’t that the FCIC did not do its job. As we indicated earlier, that failure was by design. No one in the officialdom wants the mechanisms of the crisis to be exposed in full. It would compromise too many influential people and restoke well warranted public ire about the bailout of a miscreant financial services industry and its ongoing extractive behavior. Ironically, this core element of the dissent’s criticism is spot on, even if their own narrative suffers from precisely the same flaws.

.....

By having the FCIC validate widely accepted, superficial, and ultimately inadequate explanations of the crisis, the Obama administration continues in its policy of looking forward rather than back, when looking back is the foundation of any serious scientific, investigative, or prosecutorial process. The odds are high that the media and the public at large will mistake the extensive use of anecdote in the FCIC report for accuracy and completeness. As with so many accounts of the crisis, the artful use of detail will yet again have the effect of diverting attention from the true drivers of the crisis and thus leave Wall Street free to devise new ways to wreck the economy for fun and profit.

'No one in the officialdom wants the mechanisms of the crisis to be exposed in full. It would compromise too many influential people and restoke well warranted public ire about the bailout of a miscreant financial services industry and its ongoing extractive behavior.'


And this, fellow Americans, is why there is an all-out effort to scapegoat and bury the real truth of this heist.


They are afraid of what a robbed and furiously angry populace will do when this truth rips itself free.

[Jackpine Radical]

1. We are being fuckin had at every turn.

The Overlords just do what they damn well please, and the interests of the rest of the species are irrelevant.

[RKP5637]

3. It's gone so far over the top now I'm questioning if control will ever be reestablished. Perhaps DC

should just relocate to Wall Street.

[glinda]

4. How about prison instead?

[RKP5637]

5. Yeah, they're a few that should be first choice for ... n/t

[slipslidingaway]

2. knr - I remember reading about how bad some of these products were ...

on certain internet financial sites years and years ago, how they were being sold to pension funds and that this would not end well.

Now we have the head of the NY Fed during the buildup as Treasury Secretary :(