Friday, February 26, 2010

Financial crisis panel to call back bank chiefs

Financial crisis panel to call back bank chiefs
By Tom Braithwaite in Washington
Copyright The Financial Times Limited 2010
Published: February 25 2010 23:00 | Last updated: February 25 2010 23:00

Hands up: (from left) Goldman’s Lloyd Blankfein, Jamie Dimon of JPMorgan Chase, John Mack of Morgan Stanley and Bank of America’s Brian Moynihan face the FCIC

Phil Angelides, chairman of the Financial Crisis Inquiry Commission, a latter-day version of the Pecora commission that examined the Great Depression, said he planned to question overseas regulators to understand similarities and differences with US oversight in the run-up to the crisis.

In an interview before the second public hearing of the FCIC that begins on Friday, Mr Angelides, a former California state treasurer, said he was most struck so far in his inquiry by the way in which Goldman Sachs had been “creating and selling securities and then fully betting against them”.

In a reference to the Greek crisis and the alleged role of securities sold by the bank, Mr Angelides said: “It appears that this action was not confined to creating and selling mortgage securities. It also extended to the creation and selling of foreign debt instruments. I find the practice troubling and it raises questions about fair dealing and trust and transparency in the marketplace.”

Bill Thomas, vice-chairman of the FCIC and the former Republican chairman of the House ways and means committee, said the hearing last month that questioned Lloyd Blankfein of Goldman, John Mack of Morgan Stanley, Jamie Dimon of JPMorgan Chase and Brian Moynihan of Bank of America was not the end of the process for the bankers and “doesn’t mean we won’t get to them again”.

In the dramatic hearing, the four men were sworn in under oath and questioned about their behaviour before the crisis. Mr Blankfein was forced to field more than his share of the questions, with Mr Angelides accusing him of a conflict of interest in creating mortgage-backed securities at the same time as taking a trading position against them.

Mr Blankfein noted that Goldman traded with informed institutional investors in securitised assets who were responsible for their own action but he appears not to have convinced his inquisitor.

Mr Angelides said that the FCIC wielded subpoena power and could demand witnesses and documents from banks and regulators. “Remember this: we do have the ability to get information that other folks do not,” he said.

“So far, knock on fake wood,” said Mr Angelides, drumming the table, “people are in compliance.”

Mr Thomas said: “The corporate world has been pretty co-operative.”

Asked whether his inquiry could extend to issues such as the Greek debt crisis, Mr Angelides, himself of Greek heritage, said: “Our view generally is that the crisis is not a past-tense phenomenon.”

However, he noted that the FCIC had a hard deadline in December to deliver a report to Congress and that would govern the way the commission went about its business. “That’s what’s driving us crazy: the time we have to get a report,” said Mr Thomas.

The report is not supposed to be the “definitive word”, said Mr Angelides. He said it “behooves the country” to pay attention to the product but that “does not mean that the president and the Congress should hold up” on regulatory reform.

“I will say that for the long term, a better common understanding of this calamity is important.” He added that a lot of people had told him the regulatory reform – now bogged down in the Senate – would be completed before his work started. “As it turns out, that didn’t happen,” he noted wryly.

The FCIC session at the American University in Washington, which continues on Saturday, will hear from academics including Randall Kroszner of the University of Chicago and Markus Brunnermeier of Yale University.


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