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?
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 and more than 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 really 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 brakes, 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 twenty 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.