Written by John Lounsbury
Econintersect: Philip Angelides, Chairman of the Financial Crisis Inquiry Commission (FCIC) which issued an official report in January 2011,has written a letter to the U.S. Department of Justice challenging U.S. Attorney General Loretta Lynch to prosecute senior bank executives before the statute of limitations on their crimes expires.
Angelides, a former Treasurer of California, headed the commission which issued a report which was widely criticized, both by those who felt is didn’t go far enough (see references below) and by some commission members who felt it went too far and resulted in conflicting minority reports. The full report and both dissenting views are available here.
Here is what Angelides told the Financial Times this week:
“I ask a simple question: how could the banks have engaged in such massive misconduct and wrongdoing without a single individual being involved? In a sense, it’s the immaculate corruption. It defies common sense, and the people of America know this.”
At the time the Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States was released (January 2011) there were criticisms that the document made no specific referrals to the Justice Department, made only general reference to possibility that there might be criminal activity to investigate. It may be suggested that to do more would have carried little import in light of the fact that the commission was split, with only six commissioners voting to adopt the official report while four dissented.
The dissention was divided along party lines. The commission members were not operating from the same basic assumptions. The majority expressed the opinion that the source of the crisis stemmed from systemic sources. Here is brief excerpt:
We conclude this financial crisis was avoidable. The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand, and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble. While the business cycle cannot be repealed, a crisis of this magnitude need not have occurred.
The two minority reports had a different basis. From the minority report by Keith Hennessey, Douglas Holtz-Eakin and Bill Thomas the thrust was not that there were systemic problems but that the source of the crisis came from specific “defects” in specified corporate functions and government policies. A brief excerpt:
Poorly designed government housing policies distorted market outcomes and contributed to the creation of unsound mortgages as well. Countrywide’s irresponsible lending and AIG’s failure were in part attributable to ineffective regulation and supervision, while Fannie Mae and Freddie Mac’s failures were the result of policymakers using the power of government to blend public purpose with private gains and then socializing the losses.
The minority report by Peter J. Wallison had an even narrower focus – the crisis was caused by government fairness in mortgage lending acts. He wrote:
Three specific government programs were primarily responsible for the growth of subprime and Alt-A mortgages in the U.S. economy between 1992 and 2008, and for the decline in mortgage underwriting standards that ensued.
Reactions to the Three Reports
Yves Smith was one chronicleer of the financial crisis who was outspoken regarding the political basis on which the commissioners were appointed. She published a detailed analysis of criminal activities presented in testimony and data to the commission that were not properly delineated in the final report (or the dissents). She obtained information from non-partisan staff working for the commission who expressed to her their opinion that, because of the political appointments, the FCIC was Set Up to Fail. A more complete post is Insiders: FCIC Was Set Up to Fail. Two other insightful pieces by Yves are
Bank fraud expert William K. Black was another critic. He was especially outraged by the Peter Wallison report. Prof. Black discussed why Wallison’s position was in direct conflict with financial system and, most importantly, mortgage default data. See these posts:
Noteworthy Soundbites
Below are two quotes from Angelides. The first refers to the tens of billions of dollars that the mega banks have paid in settlement of charges of wrong doing against them. The second refers to the practice of banks to package mortgages into securities, selling them and then buying derivatives that would pay off if the mortgages went bad.
“If someone robs a 7-11, they took $500 and they were able to settle the next day for $50 and no admission of wrongdoing, they’d knock over that 7-11 again.”
“It sounds to me like selling a car with faulty brakes, and then buying an insurance policy on those cars.”
Philip Angelides Letter
