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The Financial Crisis Inquiry Commission Should Investigate…

Posted by Larry Doyle on January 11, 2010 9:28 AM |

Will America ever truly learn what happened on Wall Street that brought our markets, our economy, and our country to its knees?

We should not expect the incestuous Wall Street-Washington partners to implicate themselves and thoroughly expose their shortcomings. A full 16 months since the failure of Lehman Bros. and how much have we truly learned? What change has really occurred? Who has been fired in Washington? Who has been indicted on Wall Street? Will the Financial Crisis Inquiry Commission, charged with investigating the factors which facilitated our economic disaster, truly be effective?

The truth may hurt but if the hard questions are not asked, the failings are not exposed, and those responsible are not held to account, then the lessons will not be learned, and the experience will likely repeat itself.

Will the commission pretend to investigate, but ultimately wilt under the pressure of the incestuous pillars of power? Will the commission rise above the fray, hold people and institutions to account, and make our country proud?  Will the commission use its power to subpoena, if need be?

Whom should the commission pursue? What agencies and institutions should the commission target? If I were on the commission, I would recommend pursuing the following targets:

1. FINRA: Wall Street’s self-regulator. Who from FINRA was charged to monitor the business activities at the respective Wall Street banks? What did they report and recommend? Question and if need be subpoena SEC Chair Mary Schapiro to release ALL information regarding FINRA’s internal investment portfolio, especially its hedge fund and fund of fund activities. Additionally, compel FINRA to release all details regarding its Auction-Rate Securities liquidation in mid-2007. Was FINRA merely incompetent in regulating Wall Street or was it actually complicit in this meltdown? It is high time that FINRA is truly introduced to America.

2. SEC: who from the SEC was charged with monitoring the activities at the respective Wall Street banks? What did they report and recommend? How did they interact with their FINRA colleagues? Question and if need be subpoena current SEC Chair Mary Schapiro and former SEC Chairs Chris Cox,  William Donaldson and others.

America should not be duped into thinking that FINRA or the SEC will ever fully investigate and expose their own shortcomings.

3. Rating Agencies: fully expose the relationships between the rating agencies and the Wall Street banks. What were the fee structures? Were there any unscrupulous dealings which facilitated structured transactions? Were there kickbacks involved? Use subpoena powers if necessary!

4. Derivatives: fully expose the pressures applied by Robert Rubin, Alan Greenspan et al to leave this monstrous market largely unregulated. Why was Brooksley Born, then chair of the Commodities Futures Trading Commission (CFTC), pressured by Wall Street and Washington to leave this market unregulated?

5. Freddie Mac/Fannie Mae: revisit and thoroughly expose the failed business practices of these institutions. If necessary, subpoena Franklin Raines and Leland Brendsel. Provide the transparency which Congress never provided in its own questioning of Freddie and Fannie executives. America deserves a comprehensive review of the campaign contributions, lobbying dollars, and other forms of remuneration paid by Freddie and Fannie. Question Armando Falcon, Freddie and Fannie’s overseer at OFHEO (Office of Federal Housing Enterprise Oversight).

6. Originators: the highly structured deals on Wall Street could not have happened without a steady source of collateral provided by mortgage originators. Fully explore and expose the fee structures and relationships between Wall Street and the originators. Fully explore and expose the relationships between the originators and their overseers. Fully explore and expose the relationships between the originators and those in Washington receiving campaign contributions. Let’s start with a subpoena for Angelo Mozilo who ran Countrywide.

7. Goldman Sachs: the commission could be busy investigating this firm, but start with exploring what drove Goldman to short the housing market.

How much has America learned from these parties? Is America supposed to believe that everything and everybody was truly on the up and up? Who profited while America now underwrites and backstops trillions of dollars in exposure?

Will the Financial Crisis Inquiry Commission rise to the occasion? Will the commission be the voice of the American public? Let’s start with the seven points highlighted above and go from there. America deserves nothing less than total truth, transparency and integrity. Will we get it?

LD

P.S. I hope people will want to forward this commentary to friends and colleagues so we can assess just how accountable the commission will be. Thanks for your support.

  • Fed Up

    Wouldn’t it be nice to see Mary Schapiro, Robert Rubin, Tim Geithner, Lloyd Blankfein, Franklin Raines, Angelo Mozilo, Chris Cox, and others all asked to do the following: “Please raise your right hand and repeat after me….”

    On the other side, why do I envision the movie Tin Men when I hear about this commission?

  • Bill

    Guys like Barney Fraud and Christoper
    Dodd would be good witnesses. I’m
    afraid, as in the case of the 9/11
    Commission, some of the questioners
    should be in the witness chair–under
    oath.

  • TD

    Larry…Frank Rich gets the byline, but your work takes the prize. The Other Plot to Wreck America

    http://www.nytimes.com/2010/01/10/opinion/10rich.html?scp=2&sq=frank%20rich&st=cse

    regards, TD

  • Patriot

    Who’s taking the fall? Who’s going down? American taxpayers are putting hundreds of billions of their own money on the line and nobody is taking a fall?

    What’s this touch football?

  • John Wallace

    The Wall Street Journal ran an impressive page one story over the weekend about how the auction rate securities (ARS) debacle is hurting the economic recovery. Some 400 companies are holding more than $20 billion in securities that can’t be unloaded or are worth dramatically less in value. These companies claim they would use this money to bolster their businesses if it were liquid.

    Unlike individual investors who regulators forced Wall Street to make whole, companies who bought auction rate securities pretty much have to fend for themselves. Under the terms of regulatory settlements last year, securities firms who sold auction rate securities to corporations only have to make “best efforts” to make these companies whole because corporate treasurers are supposedly “sophisticated” and understood risks relating to auction rate securities. “Best efforts” is a nebulous term that in practice means “as little as possible.”

    At the end of the day, the auction rate securities market was rigged and its beyond me how or why corporate treasurers should have been wise to the wrongdoing. Moreover, if corporate treasurers should have known about the wrongdoing, why is it that the SEC and FINRA weren’t on to the scheme, particularly as the SEC launched an action against some 15 Wall Street firms in 2006 for rigging the auction rate securities market (link to settlement announcement).

    Regulators were wrong to exempt institutional investors from the auction rate securities settlements. Admittedly, redeeming $20 billion in securities would be a prohibitive undertaking. But Wall Street made the auction securities mess. They should be forced to clean it up – all of it

  • Duke

    Will this inquiry be televised so all of America can see the line of questioning and the responses? Any chance Obama would agree to put this on C-span? Is there any reason why this commission would not be televised. Of all the inquiries on all the topics, is there any other inquiry that should receive more attention?

    This inquiry should challenge Watergate. Lots more money involved.

  • Jim Sherman

    Wow, 1st time on your blog and seems you
    hit all the “usual suspects”, good job.
    But, I’ve not seen one story pointing
    towards the supreme issue, PERSONNAL
    RESPONSIBILITY. There’s for sure enough greed to go around, but when is the homeowner,
    going to stop accusing and start understanding what occurred?
    Most were economically unable and yet, they
    did sign on the dotted line. Amherst
    just released their Option Arm numbers and guess
    what, there is no free lunch. Alot of peop
    are deeply hurt. Why? because they were along evryone else
    stung by greed.
    So, here we are Larry, law suits galore, zero trust in Govt, socialism around the corner. It’s highly unlikely we ever get back to the fluidity of the mgtg markets in our lifetimes. Big Govt (Big Brother) is just around the corner and it is exactly NOT the answer.

    • Larry Doyle

      Jim,

      I should have touched upon this topic of personal responsibility in my response.

      I have written many times on this topic. Rather than rewriting many of the points I’ve raised and topics covered, here is a link to articles specifically addressing or generally touching this most important virtue:

      Sense on Cents articles relating to personal responsibility

      The unintended consequence of the massive violation of moral hazards by Uncle Sam is the fact that they have established enormous precedent for the same violation by many American citizens. The reality of strategic mortgage defaults provides ample evidence of this. We could talk and debate this issue for hours (and have more than a few cold beers while we’re at it) and not solve the riddle embedded in that reality.

      What a world.

      Don’t think that I’ve gone soft on the personal responsibility virtue. It remains a cornerstone of Sense on Cents.

  • Larry Doyle

    Jim,

    Glad you found my blog.

    Wasn’t “personal responsibility” buried with the virtues of god, honor, and country?

    Big Brother??….Ouch, not him.

    Hope you are doing well. Best to all.

    I will share with you, though, FINRA and these other crowds do deserve to be grilled, especially FINRA.

  • Jim Sherman

    Nope, personnal responsibility is alive and well within my lightskinned educated Irish American twang. All the best. Loved your radio show as well. God bless America

  • What should the financial crisis commission ask these financial industry executives?

    Simple. Two things: 1) How and when will you reimburse us — not just the government, but every last American who has suffered because of your actions, and 2) Would you prefer to be interrogated by ex-KGB, or by the mainland Chinese?

    I think we’d soon see significant positive change in their attitudes and actions.
    Stephanie.

  • Bill

    Our Maximum Leader proclaimed awhile back that we
    all lived beyond our means. Guess that’s his
    take on it. End of story.

  • Larry Doyle

    Their ends justified their using our means. Right? I think so.

  • Hector

    No one gives a RATs @XX. We all got burnt by these smucks. Just Google “KB Home Sucks” you may have missed a few more of the players that should be on this list.

  • John Wallace

    Just received a letter in today’s mail from Carolyn Mendelson of the Pennsylvania Securities Division basically stating the same garbage as the 4 prior letter I’ve received from them EXCEPT for one short, one sentence paragraph slid in…… “We would appreciate it at this time if you would advise us as to whether you currently hold ARS through E*Trade and/or if you continue to have a complaint against E*Trade.”

    At first this extra verbage lifted my spirits and gave me a feeling that maybe, just maybe, they are nearing a settlement with E*Trade or one of their possible buy-out suitors. But after thinking about it a bit more, I think their just trying to determine if they can close their investigation into E*Trade and move on. Now that most of the companies which were going to settle without a serious fight have settled, there are no more fees and penalties for the PA Securities Division to scavenge. I say scavenge since PA hasn’t done shit to get anyone to settle. They simply sit in the tree branches and watch while more effective regulators actually force settlements. Then they swoop down to assess fees on the carcasses. Freaking buzzards!!

    I’m going to call Mendelson this week. In writing she won’t do anything but recite disclaimers like a robot attorney. But sometimes, she’ll say a bit more on the phone when she knows there’s no record of what she’s said.






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