I finally know how Alice felt as she fell through the looking glass.
Driving to the office this morning, I caught snippets of the testimony by the top execs from the nation's four largest banks to the newly formed Financial Crisis Inquiry Commission, FCIC.
It was like an out-of-body experience. So disorienting, I nearly drove off the road.
Formed by Congress, the 10-member bi-partisan FCIC was created to investigate the causes of the financial collapse. Former California Treasurer Phil Angelides heads the panel that is mandated to prepare a special report by Dec. 15, and will be holding hearings year round to take stock of the events that led to the deepest recession since the 1930s.
FCIC is the hottest ticket in town. Today, it was standing room only as the Four Tenors sang for their supper.
Who Knew?
First up on the docket was John Mack, Chairman of Morgan Stanley. His testimony was like an enigma wrapped in a riddle.
Surprisingly, Mack told the panel that the financial crisis made it clear that regulators didn't have the “visibility, tools or authority to protect the stability of the financial system as a whole.” In other words, the banks acted badly because mom and dad were too busy watching re-runs of Gilligan's Island.
From there, it went from astonishing to downright weird.
The testimony of JP Morgan Chase CEO Jamie Dimon sent me reeling. According to Dimon, his firm was able to avoid the “worst outcomes” experienced by others in the banking industry because of “our steadfast focus on risk management and prudent lending.”
Curiously, or perhaps conveniently, Dimon omitted the fact that his firm was in the government dole queue along with the rest of his banking brethren. Lest we forget, JP Morgan Chase got $25 billion from TARP.
Dimon echoed Mack's remarkable view on the lack of regulatory oversight, saying the current system “is poorly organized with overlapping responsibilities, and many regulators did not have the statutory resolution authority needed to address the failure of large, global financial companies.”
To Repeat, Who Knew
In written testimony, the bank chiefs laid bare the mistakes that led to their collective stumble. Each referred to “new and poorly underwritten mortgage products,” “excessive speculation,” and mortgage securitization that allowed people to duck responsibility for poorly underwritten loans.
After telling the Commission no bank should be “too big to fail,” Goldman Sachs CEO Lloyd Blankfein sounded more like Yoda than the head of the nation’s most profitable financial firm.
“After the fact, it is easy to be convinced that the signs were visible and compelling,” Blankfein said. “In hindsight, events not only look predictable, but look like they were obvious or known. But none of us know what is going to happen.”
Like Lewis Carroll, the panel was saving the best for last when it invited newly appointed Bank of America CEO Brian Moynihan to step into the confessional.
Moynihan philosophically reflected that there is “much that can be learned from the process by which the FDIC closes banks today.” In an odd turnabout, Moynihan said the size of banks shouldn't be limited, and that legislation to separate consumer and investment banking, like the Glass-Steagall law that was overturned in 1999, “shouldn't be revived.”
The FCIC, modeled after the Pecora Commission that was convened to determine the root causes of the 1929 Wall Street Crash, already has taken testimony from Treasury Secretary Tim Geithner and Fed Chair Ben Bernanke. Their testimony is yet to be released.
AIG and Citigroup, the two financial firms to receive the largest slice of the federal bailout, were not invited to today's tony tea party. According to an FCIC spokesperson, they will be put on the docket soon.
If their testimony is anything like that of these financial execs, the panel is going to need the assistance of a literary cryptographer more than a transcriber to publish its findings.
John Cohn is a senior partner in the Globe West Financial Group based in West Los Angeles. He may be contacted at www.globewestfinancial.com
