Only a Few More Weeks!

What?? It is April?

Yes, despite what the weather tells us, it is in fact April. And I only have until the 25th to keep on enjoying this wonderful European experience!

I thought it might be intersting to post a summary I made of a meeting I attended this week, conducted by Chairman Angelides on the economic crisis as it struck us on 2008.

Presentation by Chairman Phil Angelides of the conclusions of the US Financial Crisis Inquiry Commission (FCIC) 12/4/11

Mr. Angelides has served as the California State treasurer for 1999-2007. He is chairing this special committee. He currently has a private business in real estate. He met with the CRIS Committee. His committee's role was to look at financial institutions. The US Attorney General was told of any violation they found. On January 27th the conclusions of the committee were presented. There is a widely available report at www.fcic.law.stanford.edu. Twenty-six million Americans were without work in some manifestation when the report was released. Eight to thirteen million families will lose their homes.

The question they asked themselves as they did the report was, how did we get the 2008 dilemma?

Introduction to Topic by Mr. Angelides

• This crisis was avoidable, there were many warning signs.
• The heads of finance did not look at the problems.
• The 1990's had bad lending processes, and we took part in risky trading activities.
• Financial firms did not examine anything.
• Wall Street did a load of mortgage securities (Moody's especially had many securities).
• Alan Greenspan and US Presidents espoused the "self-correcting nature of markets," but the markets did not correct themselves.
• We dealt with over-the-counter derivatives, the shadow-banking system, and federal oversight was done by the weakest supervisors.
• The Federal Reserve and Security and Exchange Commission could have stepped in, but they didn't.
• There were no regulations on banks. Regulators kept saying that firms were regulating fine. There was thirty years of deregulation.
• Firms were expected to have self-preservation but they didn't, and top executives acted wrong. Financial institutions got too big to manage and they failed. There was also a lack of transparency. Before 2008, companies borrowed a lot. Five big banks were operating on extraordinarily thin capital. Borrowing was short-term and had to be replenished often. Transparency was not required or wanted.
• A $13 trillion shadow-banking system was larger than actual banking system.
• Key policymakers were unprepared.
• Risk had not been diversified, but concentrated.
• The Federal Reserve Bank of NY looked into it all with Fannie Mae and Freddie Mac only a month before it fell apart.
• The crisis was fueled by lack of morality and loss of confidence.
• Borrowers defaulted on mortgages. Concerning financial firms, critical information about the quality of mortgages were not exposed. There were no systematically-funded institutions.

His personal answers:

Little critical self-examination was done in Wall Street. TARP was the tip of the iceberg in a government attempt to prop up the public sector. The Security and Exchange Commission brings in more fees and fines than the proposed budget. In order to prevent these mistakes from happening again, Chairman Angelides supports an accelerated pace of reform, which can be helped along by a new law from Obama and Congress if the law is fully implemented. Financial laws must be enforced right, and the rule of law should not exempt those with law and power. There must be corporate responsibility.

Answers for questions with EPP Members

• The EU and US need a regulatory framework.
• A new budget by Rep. Paul Ryan will strip away valuable provisions.
• Regulatory leverage is a game Wall Street will play hard.

Answers for questions from Christian Democrats

• Chairman Angelides thought that more bilateral discussions between regulatory bodies would help prevent the crisis.
• The US citizens need to see themselves as prudent insurers.
• The Dodd-Frank Bill covers carried interest, and how it should be taxed.

Answers for questions from the Social Democrats

• Mr. Angelides was surprised at the level of warning bells and substantial information. Compensation systems were a big driver.
• Up until 2007-2008, everyone thought that the market would correct itself. The ideology of free markets unbounded had taken hold.
• The quickness of Wall Street versus the speed of any enforcement regulators is not matched - Wall Street moves fast.
• Alan Greenspan was not inclined to do more regulations. He said that we do not need regulation, but law enforcement.
• Between 2000 and 2006 the Federal Reserve referred 3 cases only. Citigroup, for example, came clean too late, and there was no deterrence.
• Concerning credit regulating agencies, there was some regulatory change, but not as far as they needed to go.
• Chairman Angelides wants investors to pay for ratings.
• Concerning the Community Reinvestment Act, banks need to make loans in places they red lined (such as poor areas), thus making the banks socially responsible.
• The current structure for board of directors and public sectors is not working. The board of directors were not guiding the companies.
• Warren Buffett owned 20% of Moody's. Fifty-five percent was with his other shareholders. He feigned ignorance.
• Chairman Angelides admitted that the playing field is tilted for certain individuals running for public offices.
• The US has a policy deficit when it comes to generating profits at home.
• The global crisis financial debt has caused a huge impact on the public sector. California, for example, was spending more than it was putting in. Chairman Angelides also ran against Governor Arnold Schwarzenegger. There was $41 billion less generated revenue than 2007. The median pension for California teachers was $2,400/month.

Answers for Questions from the Left

• The technology bubble made it look like the Federal Reserve would allow something like what happened to happen. The technology bubble was similar to the economy bubble (banks helped Enron arrange their debt, without openness and honesty).
• The commission Mr. Angelides chairs is composed of 10 individuals. Six were reported by Democratic leadership, with five being Democrats and one Independent. Four were chosen by Republican leadership, with four being Republican. To be on this commission, the individuals had to be involved in housing, finance, or banking, and not holding public office.
• At the end of the investigation, Republicans could not agree on their positions on the economic matter. Republicans had a concurring opinion. They could agree on mortgage fraud being rampant. However, they could not assign responsibility to actions.
• The decision to let certain banks go and others not went case-by-case.
• Many academics warned of the possibility of a meltdown.