Friday, January 28, 2011
Inside Scoop on the Financial Crisis Inquiry Commission
Nobel prize winning economists George Akerloff and Joseph Stiglitz, former Fed chairman Alan Greenspan, leading economists such as Robert Shiller, Anna Schwartz, James Galbraith, former lead S & L regulator William K. Black, former Tarp overseer Elizabeth Warren and many other leading financial experts say that criminal fraud was the primary cause of the financial crisis.
They also say that failing to prosecute that fraud will prolong the crisis, interfere with the ability to stabilize the economy, and cause future crises. And see this.
They make it clear that the most fraud destructive fraud starts at the top: with the heads of the biggest banks, biggest accounting firms, and biggest corporations.
Experts in fraud as a cause of economic crises have developed a set of terms to describe this process, including "looting", "control fraud", "accounting fraud" and "regulatory capture". However, none of these terms appear in the Financial Crisis Inquiry Commission Report.
Why not?
As Josh Rosner of of Graham-Fisher told me:
If one looks closely at the document behind the investigation, it appears the FCIC failed to highlight perhaps the most central issue in the crisis - warehouse lending. Documents in the FCIC archives demonstrate that at least one of the rating agencies was aware, before they began to downgrade securities en masse, that the Wall Street banks were aggressively cleaning out their inventory of securities and selling them to investors. Other documents demonstrate that at least one large firm was aggressively seeking to offload risks they had intended to retain by moving them to sales traders and arming sales-traders with information to use to move those risks, even going so far as to choose specific firms to target. Clearly, they believed in the greater fool theory, the question is did they make honest representations to those they sought to fool. Culpability seems clear, and I would think legal action should follow, but as is the case with most "gold panel" commissions, those who control the game make sure they can skate away.
And in a series of 3 investigative reports, Yves Smith shares insights gained from insiders on the Commission.
Yesterday, Smith noted:
From the very outset, the Financial Crisis Inquiry Commission was set up to fail.
The investigations were further hampered by the requirement that subpoenas have bi-partisan approval along with Its decision to hold hearings with high profile individuals, including top Wall Street executives, before much in the way of lower-level investigation had been completed. The usual way to get meaningful disclosure from a top executive is to confront him with hard-to-defend material or actions; interrogations under bright lights, while a fun bit of theater, generally yield little in the absence of adequate prep.
Recent reports that the panel urged various prosecutors to launch criminal probes were a hopeful sign that the commission might nevertheless come out with some important findings. But correspondence from insiders in the last few days suggests otherwise. One, for instance, wrote, “I’m still in the process of getting the stink out of my clothes.”
These ideologically-neutral sources close to the investigation depict the commissioners as having pre-conceived narratives and of fitting various tidbits unearthed during the investigation into these frameworks, with the majority focusing more on the problems caused by deregulation and the failure of the authorities to use even the powers they had, while the minority assigns blame to government meddling, particularly housing-friendly policies.
These insiders see both sides as wrong, and want to encourage investigative reporters to challenge both the majority and dissenting accounts. They contend that both versions help perpetuate the myth that Wall Street was as much a victim of the crisis as anyone else.From a source close to the investigation:
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