Can Commission Summon the Necessary Outrage?

If you were hoping for fireworks at the first hearing of the Financial Crisis Inquiry Commission yesterday--as most of us were--chances are you were disappointed.

The bipartisan panel charged with what
Chairman Phil Angelides described in his opening statement as
conducting "a full and fair inquiry into what brought America's
financial system to its knees" led off with the heavies, hauling in
Lloyd Blankfein, Jamie Dimon, John Mack, and Brian Moynihan, the bosses
at Goldman Sachs, JP Morgan Chase, Morgan Stanley and Bank of America,
respectively.

Set 'em up and knock 'em down, right?

Not quite.

For the most part, it seemed like America's Most Wanted were allowed
to do a song and dance about the need for larger capital requirements
(but not too large), admit the proverbial "mistakes were made," praise
their federal regulators for the thorough job they are doing of late,
tout their own skills for having survived the meltdown, and present
their banks as benevolent institutions that have repaid the government
with interest and are doing their best to solve the foreclosure crisis
and extend credit.

But before you give up on this Commission, and the notion that there
can be any accountability for the Titans in our rigged political
system, I submit that there were some encouraging signs to take from
yesterday. If indeed it is the job of this Commission to "dig deep"--as
The Nation's William Greider rightly described it--then perhaps yesterday simply marked the beginning of the excavation.

For one thing, the Chairman at the helm gets it. In his opening
statement Angelides described the financial crisis not as a "historical
event" but as something "still here, and still very real." He alluded
to the 26 million Americans unemployed, over 2 million families whose
homes were foreclosed over the past three years. Retirement accounts
have been "swept away--vanished--like some day-trade gone bad." He sees
the commission as a "proxy for the American people" and "our last best
chance to take stock of what happened" so we can make the necessary
changes and avoid a repeat. He said that the bankers who appeared
yesterday will likely be asked to testify again, and the investigation
would call on any indivdual or institution relevant to the inquiry. He
closed by telling of his father who grew up in the Depression "keenly
aware of the financial recklessness that made his life so much harder
than it needed to be."

I think the Chairman was also successful in giving the public a show
of the kind of hubris that led to this crisis and that is still alive
and well and promising to repeat this devastation if the banksters
aren't forced to change their behavior.

Angelides questioned Blankfein on the propriety of Goldman selling
subprime mortgage-related securities--to the tune of $40 billion in
2006-07--to investors even as Goldman itself was betting against those
securities.

"Mr. Blankfein, you were actually creating these securities," said
Angelides. "As someone that has been in business for half my career,
the notion that I would make a transaction with you, and then the
person I made that transaction with would then bet that that
transaction would blow up, is inimical to me. How do you go to the
rating agencies and persuade them to give [these products] the highest
rating--AAA--at the same time you have credit information that leads
you to believe those securities may fail?"

Blankfein went on and on about this being a part of Goldman's risk
assessment of accumulated positions and addressing exposure, and
concluded, "These are all exercises in risk management."

"I'm just going to be blunt with you," said Angelides. "This sounds
to me a little bit like selling someone a car with faulty breaks, and
then buying an insurance policy on the buyer of those cars. It doesn't
seem to me that's a practice that inspires confidence."

"Every purchaser of an asset here is an institution," a defensive
and oblivious Blankfein shot back, "probably professional-only
investors dedicated in most cases to this business."

"Representing pension funds who have the life savings of police officers, teachers--"

"These are professional investors who want this exposure," Blankfein interrupted, angry.

Angelides remained remarkably cool during the exchange, while
Blankfein seemed--equally remarkably--to be gunning for a fight. But
after the exchange Angelides was antsy, rocking in his chair, and then
he briefly left the room. (It was way too early in the hearing for a
bathroom break, if that's what you're thinking.) There was a sense that
he took this personally, that he needed a moment after Blankfein's
display of continuing arrogance. I take hope in that anger--I think it
will serve the Commission and the public well.

The media which had packed the cavernous hearing room didn't stick
around for the undercard--two more panels. It's too bad, because while
there was a lack of candor from Blankfein, Dimon, Mack, and Moynihan,
there was plenty from subsequent witnesses.

Peter Solomon worked for Lehman Brothers back in the 1960s and
worked his way up to vice chair in the 1980s. He contrasted the days of
privately held corporations where partners were personally liable with
today's publicly held and limited liability corporations. He decried
that "every legislative and regulatory move in the last 20 years has
been towards obliterating the distinctions between providers of
financial services and freeing the capital markets," including the
repeal of the Glass-Stegall Act.

C.R. "Rusty" Cloutier is president and CEO of MidSouth Bank in
Lafayette, Louisiana. He talked about some of the differences between
risk management at community banks compared to "too big to fail"
institutions.

"First of all, I have the opportunity to manage my bank, and nothing
against the large banks you heard from this morning, but there's no one
on earth who can manage $2.3 trillion, nor can they regulate it," he
said.

Michael Mayo, a financial services analyst at Caylon Securities
said, "I'm shocked and amazed more changes have not taken place. There
seems an unwritten premise that Wall Street, exactly how it exists
today, is necessary for the economy to work. That's not true. The
economy worked fine before Wall Street got this large and this complex.
Wall Street has done an incredible job at pulling the wool over the
eyes of the American people. This may relate to the clout of the banks.
The four banks that testified this morning have annual revenues of $300
billion. That's equal to the GDP of Argentina...If it's Argentina
against Sheila Bair, who's going to win?"

Ms. Bair testifies appears before the Commission on Thursday. Here's
hoping she sheds some light on what it's like going up against
Argentina, and how we can help her make that a fair fight.