Welcome Financial Crisis Inquiry Commissioner Byron Georgiou, and Host Ed Walker (FDL’s massacio).

[As a courtesy to our guests, please keep comments to the FCIC's report. Please take other conversations to a previous thread. - bev]

The Financial Crisis Inquiry Commission was created to look into the causes of the Great Crash of 2008, what happened, how it happened and why it happened. The six Democrats on the FCIC signed off on the majority report, and the four Republicans produced dissents. We welcome Byron Georgiou, a member of the FCIC who signed the Final Report. A brief biography is here.

The preface sets out the conclusions reached by the Majority. The main body contains a detailed history of the events that led to the Great Crash, supported by excerpts from testimony and fascinating details. It is a great story, but the Majority recognizes that it is much more than that, it has had tragic consequences for millions of our fellow Americans and for people around the world.

The Majority says that the leading cause of the disaster was the collapse of housing bubble, which led to a string of failures of financial institutions, exacerbated by derivatives including synthetic CDOs. The increasing losses suffered by financial institutions with massive exposure to the residential mortgage markets culminated in the failure of Lehman Brothers.

The conclusions are sharply drawn:

1. We conclude this financial crisis was avoidable.

2. We conclude widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets.

3. We conclude dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis.

4. We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.

5. We conclude the government was ill prepared for the crisis, and its inconsistent response added to the uncertainty and panic in the financial markets.

6. We conclude there was a systemic breakdown in accountability and ethics.

7. We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.

8. We conclude over-the-counter derivatives contributed significantly to this crisis.

9. We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction.

The Final Report rejects three other possible causes. There was excess liquidity, but that did not cause the disaster. Properly used, it offered the possibility of economic expansion and growth. This is a heavy indictment of Wall Street, which claims that its role in the economy is to allocate capital to its highest and best use.

Fannie Mae and Freddie Mac contributed to the problem, but they were not a cause. Their loans held value much better than loans made by their private competitors. The Final Report concludes that government affordable housing policies, such as the Community Reinvestment Act, were not a significant factor:

Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law.

P. 27 (references are to the .pdf page, not the pages in the Final Report.) Each regulator and every part of the financing business gets its share of the blame for the Great Crash. And it isn’t just mistakes, the Final Report asserts directly that intentional acts were an important part of the disaster. Among those are mortgage fraud and securities fraud.

Here are the Final Report’s discussions of some of the matters we have covered here at FDL.

Timothy Geithner. In May 2005, Geithner’s New York Fed was criticized for its supervision of Citigroup in a review conducted by other Federal Reserve banks. The on-site staff wasted time did poorly, and resources were inadequate. The next peer review in 2009 reached the same conclusions. That contrasts with the supervisory reports of the Office of the Comptroller of the Currency, which criticize Citi for its inadequate risk management, especially in management of its CDO portfolio. Geithner admitted that the NY Fed did not do enough to control Citi. (P. 331).

Jim Wikinson. Wilkinson was Treasury Secretary Henry Paulson’s chief of staff. He sent this to public affairs officer Michelle Davis: “We need to talk….I just can’t stomach us bailing out lehman….Will be horrible in the press don’t u think.” [Sic].

Alan Greenspan. In written testimony, Greenspan said that no regulator could ever have foreseen the crash in the housing market. “History tells us [regulators] cannot identify the timing of a crisis, or anticipate exactly where it will be located or how large the losses and spillovers will be.” P. 31. Among the many failures traced to Greenspan’s Fed, this one stands out: the Fed did not begin routinely examining subprime subsidiaries for predatory practices until Greenspan left the Fed. P. 123.

Ben Bernanke. At several places in the Final Report, the Fed Chair admits to missing the housing bubble. For example, in the Spring of 2006, Bernanke saw a “correction” in the price of housing, and thought the goal of the Federal Open Market Committee should be to make sure that it didn’t affect the rest of the economy. P. 242.

Abacus. These are the synthetic CDOs issued by Goldman Sachs. There is a thorough discussion of these beginning at p. 170.

CDOs. The Final Report provides a detailed look at one CDO, CMLTI 2006-NC2, beginning on p. 99. This deal centered on 4,499 subprime mortgages generated by New Century Financial, which eventually collapsed into bankruptcy amidst allegations of fraud. The CDO had 19 tranches. Turn to page 144 to see the investors, which include an investment fund in China, US and foreign banks, other CDOs, hedge funds, asset managers and even 3 retail investors. By September 2010, 1,917 of the loans were in foreclosure, 579 were seriously past due, and 729 had started loan modifications. P. 430.

Moody’s. Moody’s rated the CMLTI CDO. One of its models assumed that home prices would increase at about 4% per year, and put little weight on the possibility of a decline. P. 148. Moody’s was paid $208,000.

Synthetic CDOs. One of the tranches of the CMLTI CDO, sold for $12 million, was referenced in at least three synthetic CDOs, enabling people to bet on the performance of the fund. P. 173.

Anthony Mozilo. “Even after Countrywide nearly failed, buckling under a mortgage portfolio with loans that its co-founder and CEO Angelo Mozilo once called “toxic,” [p. 48] Mozilo would describe his 40-year-old company to the Commission as having helped 25 million people buy homes and prevented social unrest by extending loans to minorities, historically the victims of discrimination….” P. 133.

Obama. The Majority does not mention the President. The Dissent complains that Dodd-Frank, the bill that tried to mend the disrepair in the regulatory structure, was “unnecessary” and seriously overreaching, and “will almost certainly have a major adverse effect on economic growth and job creation in the United States during the balance of this decade.” P. 561.

The Final Report and the evidence the Commission gathered will be a valuable tool for researchers and for civil and criminal cases.

114 Responses to “FDL Special Book Salon Welcomes Byron Georgiou, The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States”

masaccio February 1st, 2011 at 11:00 am

Hi and welcome, Commissioner Georgiou. To kick things off, could you tell us how the Commission got organized? How did you select a director, hire staff, get offices and how long did that take? When did the work actually start?

Byron Georgiou February 1st, 2011 at 11:01 am
In response to masaccio @ 1

All commissioners reached out to their networks for director and staff, including dissenters. Many were detailed from other agencies. The federal government’s division of procurement assisted with finding an office, equipment, etc. We held one introductory hearing in the fall of 2009. Work began in earnest in the late fall of 2009.

egregious February 1st, 2011 at 11:01 am

Welcome to Firedoglake – thank you for coming today.

dakine01 February 1st, 2011 at 11:02 am

Good afternoon Mr Georgiou and welcome to FDL this afternoon.

Good afternoon masaccio

I have not read your report but do have a question.

I am one of the long term un/underemployed and am curious how all of this is/has impacted the employment problems within the US. While I know the collapse of the housing market has impacted the construction business specifically, I also know a lot of employment problems and lack of jobs pre-date the housing collapse and banking bailouts.

What other connections between the housing collapse, financial melt down, and employment problems were you and the other commissioners able to determine?

Byron Georgiou February 1st, 2011 at 11:02 am
In response to egregious @ 3

Pleasure to be here.

PeasantParty February 1st, 2011 at 11:02 am

Welcome, Commissioner Georgiou! We are very happy to have you hear today.

Looking forward to your insight and how we can prevent the banks from getting paid 5 times for one mortgage.

David Dayen February 1st, 2011 at 11:03 am

Welcome Commissioner Georgiou and thanks for visiting FDL. My question is this: Do you believe we’re still in a financial crisis? Do you see the continued problems with foreclosure, robo-signing and chain of title as simply the next phase of a financial crisis that hasn’t found its resting place yet? And what do you think are the prescriptions for these problems?

Thanks.

Byron Georgiou February 1st, 2011 at 11:04 am
In response to dakine01 @ 4

The unemployment problems have been dramatically worsened by the crisis which has impacted differentially different states.

masaccio February 1st, 2011 at 11:05 am

Did the dissenting group participate in the process of getting organized? Did the Commission hire people they suggested?

leftdcin72 February 1st, 2011 at 11:06 am

Did the Commission examine the question as to whether the banks, e.g., Citibank, had properly reserved against the toxic assets listed on their balance sheets. E.g., Citbank lost more than 600 billion in value on its balance sheets in 2008. Certainly there appears to be an issue of fraud here with respect to apparent management decisions to override proper reserves?

eCAHNomics February 1st, 2011 at 11:06 am

What is the future for your report?

Byron Georgiou February 1st, 2011 at 11:07 am
In response to David Dayen @ 7

Yes. The foreclosures are a big issue and the financial crisis has not yet found its final resting place. It is beyond our scope to suggest the answer to the robo-signing and title issues but many of these issues will be resolved in litigation currently pursued by many state attorneys general.

Byron Georgiou February 1st, 2011 at 11:08 am
In response to masaccio @ 9

Absolutely. All commissioners were fully involved from the beginning. All commissioners reached out to their networks for director and staff, including dissenters. Many were detailed from other agencies. The federal government’s division of procurement assisted with finding an office, equipment, etc. We held one introductory hearing in the fall of 2009. Work began in earnest in the late fall of 2009.

Byron Georgiou February 1st, 2011 at 11:09 am
In response to leftdcin72 @ 10

The commission was empowered to refer any issues of fraud to the pertinent agencies and did so.

masaccio February 1st, 2011 at 11:10 am

Can you tell us a little about the background of the staff, especially the senior members?

Byron Georgiou February 1st, 2011 at 11:10 am
In response to eCAHNomics @ 11

It was ranked #13 on Amazon when it was released and we hope that many more of the American people will read it and that it will inform policy makers in the future.

Byron Georgiou February 1st, 2011 at 11:11 am
In response to masaccio @ 15

Wendy Edelberg, Ph.D. economist has a long history of work at the Federal Reserve as does Greg Feldberg, director of research. Chris Seefer, Director of Investigations is a former banking examiner and a partner at the San Francisco office of the world’s largest plaintiffs’ securities firm representing defrauded investors, Robbins Geller Rudman & Dowd. Gary Cohen, general counsel of the Commission is a partner with the Los Angeles office of the corporate law firm, Sidley Austin.

janeeyresick February 1st, 2011 at 11:12 am

Thank you so much for taking questions from the general public.

What do you think of the theory advanced by some, that very bad mortgages were consciously encouraged to be written in order to supply the necessary fodder needed to create very bad CDOs to bet against with credit default swaps?

Byron Georgiou February 1st, 2011 at 11:13 am

We certainly found some evidence of that which I am sure will be pursued in private litigations currently pending and perhaps in government investigations.

Byron Georgiou February 1st, 2011 at 11:14 am

We hope people will read the report and draw their own conclusions. The Commission spent over a year ago reviewing millions of pages of documents, interviewing more than 700 witnesses, and holding 19 days of public hearings. Based on the facts and evidence gathered in the course of our inquiry, we have written a very powerful report as to the causes of the crisis. We concluded that this crisis was avoidable. It was the result of human actions, inactions and misjudgments and a set of warning signs being ignored. This crisis was caused by:
٭ widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages;
٭ dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk;
٭ an explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis;
٭ key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw;
٭ and systemic breaches in accountability and ethics at all levels.

blackw February 1st, 2011 at 11:14 am
In response to Byron Georgiou @ 17

Chris Seefer was our most effective investigator during the S&L debacle. While working far more than full-time as an examiner he put himself through night courses and got first an MBA and then a J.D. He is superb.

Bill Black

(I worked with Chris at the Federal Home Loan Bank of San Francisco and the OTS’ West Region.)

Byron Georgiou February 1st, 2011 at 11:16 am
In response to blackw @ 21

Absolutely true. Chris was tireless in his efforts as director of our investigations. He is an good example of the caliber of staff that we put together in short order for a difficult assignment.

KrisAinTX February 1st, 2011 at 11:17 am
In response to Byron Georgiou @ 20

I’m assuming that these “systemic breaches in accountability and ethics at all levels” were in large part what led to the prosecutorial recommendations that the Commission made.

Can you tell us what is behind the Commission’s decision to not make these recommendations public?

Scarecrow February 1st, 2011 at 11:17 am

Welcome Commissioner. There’s been an ongoing debate about how much the housing bubble is the primary cause, including the regulatory failure to see or stop it. Another theme has been whether Wall Street deliberately exacerbated and lengthened that by creating an artificial demand for bad loans. Where did the majority come out on the complicity of the funds that kept pressing for more bad loans to feed their securitizations => CDS demands?

blackw February 1st, 2011 at 11:18 am

How harmful do you view the passage of the Commodities Futures Modernization Act of 2000? Was there any disagreement among the commissioners about whether the Act was harmful?

Thank you for your service.

Bill Black

Byron Georgiou February 1st, 2011 at 11:20 am

It is up to the Justice Dept to decide whether to proceed criminally or civilly against these institutions and individuals. As to those against whom no action is taken, it would be unfair simply to identify them as having been referred by our commission. The statutory mandate was to refer to the justice dept and appropriate state attorneys general and no to make the referrals public.

Scarecrow February 1st, 2011 at 11:23 am

Commissioner — your report is exhaustive, many witnesses, docs, hearings, but I suspect there are issues you would have liked to dive into more if you had more time. If you could advise an honest Congressional investigative panel to pursue matters further, where would you point? Which issues do you think still remain unresolved or worthy of further inquiry?

Byron Georgiou February 1st, 2011 at 11:24 am
In response to Scarecrow @ 24

Certainly the securitization process required as its raw material mortgage loans and the incentives provided to all parties involved in the securitization chain from mortgage brokers up to underwriters and rating agencies enabled the funding of many more mortgages that found their way into multiple mortgage-backed securities. This question is answered in some detail in chapters 7 and 8 of the report.

janeeyresick February 1st, 2011 at 11:25 am
In response to Byron Georgiou @ 19

Not very encouraging. If my pension fund tanked because it was the innocent counterparty to one of these frauds, why should it (and I) have to rely on private litigation when criminal investigation is clearly warranted?

On a second matter – Goldman Sachs was fined 550 million for Abacus.(Please correct me if I make any factual errors) Do you feel that the size of the fine was: too small, too big, just right? Do you think it had any lasting deterrent value or do you think it just gets chalked off as “the price of doing business”.

Byron Georgiou February 1st, 2011 at 11:25 am
In response to blackw @ 25

Harmful and there was dispute with the Republican appointed commissioners declining to blame any derivatives other than credit default swaps.

KrisAinTX February 1st, 2011 at 11:25 am
In response to Byron Georgiou @ 26

Thank you. I appreciate a direct answer to that question. Do you feel, in your capacity as Commissioner, that Dodd-Frank will go far enough to address the issues that were brought to light in your investigation? If not, (and I seem to recall reading that the Commission did not think Dodd-Frank was sufficient) what additional steps or regulations would your Commission recommend?

masaccio February 1st, 2011 at 11:25 am

As to the investigation itself, we saw the hearings, which concentrated on high-ranking people from every segment of the finance business. Were you surprised by any testimony? Do you think these hearings were an effective way to investigate as opposed to educate the public? If you could do that part over, would you do it differently?

Bobster33 February 1st, 2011 at 11:26 am

Thank you for coming. Three questions:

1. What was AIG’s role? Did they provide default swaps so banks/investment houses could hide losses (aka Greece)?

2. Was there any evidence that large institutional investors (CalPERS comes to mind) were bribed (with dinners, movies, trips etc.) by large investment houses to accept the junk mortgages without due diligence? OR did CalPERS just do it out of shear incompetence?

3. What has been the reception by DOJ? Have they expressed any interest in pursuing criminal sanctions against any entity?

blackw February 1st, 2011 at 11:28 am

OTS and OCC admitted to the Huffington Post’s investigative reporter that they filed no criminal referrals during the crisis. I prompted that inquiry and I can add that the reaction of the OCC and OTS officials to the question was, “why would we make referrals — that’s what the S&Ls/banks are supposed to do.” The concept that the S&L/bank would not make a criminal referral against it senior officers was beyond them. The FDIC apparently did a few criminal referrals, but apparently not many and not with regard to senior officers. (My guess is that the FDIC changed after 2009 and is now making a non-trivial number of referrals. There’s nothing public on whether the Fed did so. What are the approximate number of criminal referrals that the FDIC and Fed made annually from 2001-2010? Roughly how many of those referrals named “C-suite” officers/directors?

Bill Black

readerOfTeaLeaves February 1st, 2011 at 11:28 am
In response to Byron Georgiou @ 20

dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk;
٭ an explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis;
٭ key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw;
٭ and systemic breaches in accountability and ethics at all levels.

First, thank you for spending time at FDL.

Second, my recollection of the very first session – with a law enforcement officer from Miami, as well as a state AG – made clear from the first session that there had to be massive fraud underlying this situation, and that the federal government had been used to dis-empower state authorities. Is this issue raised in the final report?

Third, are there any recommendations to changes in corporate governance? (I can see that was far wide of the FCIC’s core role, but thought I’d inquire.)

Fourth, it’s my sense that the unregulated markets are about the size of a galaxy, whereas the federal regulatory structures concern themselves with the trying to oversee roughly one or two solar systems within that vast vortex. In other words, this whole problem in many respects appears to be in large part a function of the fact that regulators don’t appear to grasp how much economic activity has been taking place outside their field of vision. Does my metaphor seem roughly accurate in describing this aspect of the problem of poor regulation?

Thx if you have time to address any of my points.

readerOfTeaLeaves February 1st, 2011 at 11:29 am
In response to Scarecrow @ 27

Ditto!

Byron Georgiou February 1st, 2011 at 11:29 am
In response to Scarecrow @ 27

We hope the book will serve as a roadmap. The big issues are how to solve the “Too Big to Fail” which has only grown worse as the concentration of financial assests in the top financial institutions has increased. The other major issue is how to deal with the wave of millions of foreclosures and the crisis consequence that so many homeowners owe more on their mortgages than their homes are now worth, upwards of 70% in Nevada, where I am based. The resolution of this issue will impact homeowners and the financial institutions to whom they owe these underwater mortgages.

mbrownerhamlin February 1st, 2011 at 11:30 am

Commissioner Georgiou,
Thanks for joining us here. Darrell Issa is moving towards a congressional investigation of the FCIC, out of a bizarre search for corruption. While I don’t know what he will find, he is fair to raise the question of whether or not the FCIC was a useful expenditure of congressional monies. With that in mind, how do you respond to these comments by Mike Konczal on your colleague in the minority, Peter Wallison:

This report is exactly what he believed in 2009. Think about this. We paid this guy at a level IV of the Executive Schedule, which is a juicy six-figure salary, for the days he worked. He had a staff, subpoena power, researchers, documents, access, interviewers. And he ultimately had a responsibility to be an investigator. And his final product is a handful of AEI white papers from 2009 stapled together. If there is new evidence from his investigations I didn’t see it on the first pass. He could have not been on the FCIC, we could have put in a conservative who was serious about getting to the bottom of what’s broken with our financial system, and Wallison could have written the same exact thing on his own.

Do you think Wallison’s demagoguery is worthy of congressional scrutiny? What would have a more serious conservative conclusion to your investigations have looked like?

Thanks,
Matt Browner Hamlin

blackw February 1st, 2011 at 11:30 am
In response to Byron Georgiou @ 30

The Republican commissioners doubted that CDOs were disastrous?

That would boggle the mind.

Bill Black

Rayne February 1st, 2011 at 11:32 am

Thank you for joining us today, Mr. Georgiou, and thanks to your staff for their assistance with this process.

A question has been raised about the demand for “bad” subprime mortgages and whether the FCIC should have addressed this issue in its report.

In his book “The Big Short: Inside the Doomsday Machine,” Michael Lewis discusses the specific case of hedge fund trader Michael Burry, who may have given Deutsche Bank and Goldman Sachs the idea of creating CDSs which would depend on a volume of subprime mortgages which would go bad. (See the excerpt about this in Vanity Fair magazine, Betting on the Blind Side.)

It didn’t appear that there were any breaks or barriers to bar the development and institutionalization of such instruments; there were at least three other entities which also encouraged the continued sale of “bad” subprime mortgages to fill the pipeling (i.e., mortgage brokers and loan services pocketing fees, and the White House which wanted the economy to continue to hum along based on building materials demand).

Is there still an opportunity for the FCIC to address this issue — the creation of instruments which thrive on increasingly bad loans?

Thanks again.

Scarecrow February 1st, 2011 at 11:32 am
In response to Byron Georgiou @ 28

Sorry, I’ll be more precise. Did the Commission determine whether certain investment/hedge funds who, via CDS, were betting the housing market would collapse articificially increased/extended the demand for bad loans?

And do you believe that was a major factor in how bad the financial crisis became?

Byron Georgiou February 1st, 2011 at 11:33 am
In response to masaccio @ 32

The hearings were informative and educated the public. Much of the investigation work was done by Commissioners and staff outside of the hearing format. Commissioners sat in on many of the interviews.
The most surprising testimony was that provided by the CEOs, CFOs and Chief Risk Officers and Government Regulators who testified that they did not know the extent of the risk being placed on institutions which ultimately lead to their insolvency and exceptional tax-payer assistance. As detailed in our report, very few people admitted that there were warning signs that were ignored and that the crisis was avoidable and the result of actions and failure to act.

JClausen February 1st, 2011 at 11:34 am

Can you respond to this question posed by Tom Adams and Yves Smith at Nakedcapitalism?

‘” In our view, blaming the regulators is a weak argument.

A much more sensible explanation can be found by asking: what were the financial incentives for such poorly underwritten loans? Why would “the market” want bad loans?

All the report offers as explanation is that the “machine” drove it or “investors” wanted these loans. This is lazy and fails to illuminate anything, particularly when there are other red flags in the report, such as numerous mortgage market participants pointing to growing problems starting as early as 2003. Signs of recklessness were more visible in 2004 and 2005, to the point were Sabeth Siddique of the Federal Reserve Board, who conducted a survey of mortgage loan quality in late 2005, found the results to be “very alarming”.

So why, with the trouble obvious in the 2005 time frame, did the market create even worse loans in late 2005 through the beginning of the meltdown, in mid 2007, even as demand for better mortgage loans was waning?”

Byron Georgiou February 1st, 2011 at 11:36 am

I think the report does deal with the Federal preemption of state law enforcement authority with regard to federally supervised financial institutions which remains a problem and was spoken to in an op-ed by one of the witnesses at our first hearing, Lisa Madigan, attorney general of Illinois.

Byron Georgiou February 1st, 2011 at 11:37 am

Refer to the Shadow Banking section of the report.

masaccio February 1st, 2011 at 11:38 am
In response to Byron Georgiou @ 42

I saw that throughout the Final Report; everyone denied that they knew the scope of exposure at their firms and across the financing business. Do you personally believe it?

person1597 February 1st, 2011 at 11:39 am
In response to Scarecrow @ 41

The early signs of an impending meltdown started in a spasm of corporate repo failures as highlighted by this post on Zero Hedge…

A Repo Puzzle – What Happened in July-August 2007?

Problem: The repo market for corporate bonds experienced a six sigma+ delivery fail event. Why?

A part of the puzzle is that this event was isolated to corporate bonds delivery. MBS, Treasuries, and agencies saw no such spike in July-August of 2007.

Corporate bonds woke up one morning and fell out of bed. That initial shock seemed to cascade throughout the weakened and structurally corrupt financial system… Ergo, systemic collapse. Somebody knew things were going to fall apart soon. Goldman? Maybe… but not necessarily.

Byron Georgiou February 1st, 2011 at 11:39 am
In response to mbrownerhamlin @ 38

The commission looks forward to discussing the report with members of congress. The less than 10 million dollar budget of the commission pales in comparison to the multi-trillion dollars tax payers have expended to bail out the financial institutions.

Read the report, all the royalties from which go the the Federal Treasury to help defray the modest costs of the investigation.

janeeyresick February 1st, 2011 at 11:40 am
In response to Byron Georgiou @ 44

It is addressed in the report. It was interesting to learn that the Commodities Futures Modernization Act specifically defanged state gaming and bucket shop laws. Quite a lot of subtext in that one fact.

Scarecrow February 1st, 2011 at 11:40 am

Commissioner — it was puzzling to the public to know that the Commission was investigating the causes of the crisis, but long before it reported, Congress was already passing legislation with supposed “reforms” to avoid the next one. Did that sequence pose a problem for the Commission? Did it affect which topics you chose to pursue and which you felt might be foreclosed?

Or to ask this another way, suppose Congress had not acted yet but waited for your report. In what ways do you think the reform bill should/would have changed? Did they miss the problem by going first?

Byron Georgiou February 1st, 2011 at 11:40 am
In response to Rayne @ 40

This was a huge part of the commissions work, detailed fully in the report which I commend to your attention.

Jesterfox February 1st, 2011 at 11:41 am

Why do we let investment banks create instruments that they sell to investors and then place bets that those same instruments will fail? Are the investors even notified that the investment bank has done so?

As a homeowner, I would be extremely upset if I bought a house from a builder and then found out that the builder had multiple insurance policies that would pay him if my house burnt down.

blackw February 1st, 2011 at 11:41 am

Henry Pontell, one of the world’s leading criminologists, and I testified before FCIC in their Miami field hearing about the dominant role that accounting control fraud played in driving the hyper-inflation of the bubble and the resultant crisis. You can find our testimony on the FCIC site (my testimony is also on my SSRN page. I would note that the Commission report and both dissents offer strong factual (but often not analytical) support for the dominant role that fraud played. Wallison, for example, emphasizes that the nonprime loans were so large that they hyper-inflated the bubble, but then fails (1) to understand that Fannie and Freddie (who he pictures as the twin Great Satans) were accounting control frauds and (2) that making and selling large amounts of “liar’s” loans inherently requires endemic fraud. I have published four essays at this time, and will expand that series, discussing the FCIC reports if you are interested in the role that deregulation, desupervision and de facto decriminalization played in producing the criminogenic environment. We suffer from recurrent, intensifying crises because the anti-regulatory dogma that dominates finance policy keeps us learning the correct lessons from our prior mistakes.

Bill Black

Byron Georgiou February 1st, 2011 at 11:42 am
In response to Scarecrow @ 50

THe commission did its work on the timeline established in the legislation. Regretably, the financial crisis is still very much with us and we are hopeful that the analysis and conclusions of the report will inform the implementation of legislation and the potential adoption of new initiatives to address the causes we identified.

janeeyresick February 1st, 2011 at 11:43 am
In response to Byron Georgiou @ 42

Don’t you think that’s directly attributable to the Upton Sinclair notion:

“It is difficult to get a man to understand something when his job depends on not understanding it.”

readerOfTeaLeaves February 1st, 2011 at 11:45 am
In response to Byron Georgiou @ 30

Harmful and there was dispute with the Republican appointed commissioners declining to blame any derivatives other than credit default swaps.

Sorry to be a dim bulb, but I want to be absolutely certain that my understanding is ‘scrupulously correct’.

CDSs are different from CDOs.
You are saying that the Republicans were willing to blame CDSs.
But they were not willing to blame CDOs.

Did I correctly understand you?

readerOfTeaLeaves February 1st, 2011 at 11:45 am
In response to Byron Georgiou @ 45

Thank you. Will do.

Ironcomments February 1st, 2011 at 11:45 am

Looking at the several conclusion this reports makes it would seem that the entire collapse was entirely caused by extreme avarice and deception and yet no real prosecutions or real reforms. And again here we are creating another bubble, “corporate profits are up” according to the president, and the back of the recession is broken.

My question to the commissioner is how much of a role do you think did rating agencies such as Moody’s and Morningstar play in propagandizing these faulty securities and what is really stopping them from doing it again, in particular when those same agencies have vested interest in the marketplace as well?

Scarecrow February 1st, 2011 at 11:45 am
In response to Byron Georgiou @ 54

So do we all hope Congress takes this seriously, so the question is, what additional steps do you think Congress should take, now that they have the official report of the Commission they asked to explain what happened? Where would you asked them to focus, beyond TBTF?

Byron Georgiou February 1st, 2011 at 11:45 am
In response to Jesterfox @ 52

That is a potential conflict of interest that is addressed in the report. All underwriters of securities owe a fiduciary duty to the purchasers to whom they peddle the securities to indicate whether they have material doubts that the securities will perform as represented. Certainly most investors would want to know whether the underwriter of a security was betting on its failure at the same time as they were promoting its purchase.

Shoto February 1st, 2011 at 11:47 am
In response to Byron Georgiou @ 48

The commission looks forward to discussing the report with members of congress. The less than 10 million dollar budget of the commission pales in comparison to the multi-trillion dollars tax payers have expended to bail out the financial institutions.

Thank you for taking the time to be here today.

Given the time the commission had and the obvious budget constraints, you have done a remarkable job. What sort of reception do you anticipate with this new Congress? In short, will anything substantive actually be done in the end – like taking some large institutions into receivership, for example? Finally, do you see the DOJ initiating any action based upon your (quite damning) conclusions?

Thank you again for your time.

readerOfTeaLeaves February 1st, 2011 at 11:49 am
In response to blackw @ 53

We suffer from recurrent, intensifying crises because the anti-regulatory dogma that dominates finance policy keeps us learning the correct lessons from our prior mistakes.

Oh my!
That’s kind of like asking whether I might like extra helpings of ice cream on my cake.
Certainly!
Yes, please ;-)

Byron Georgiou February 1st, 2011 at 11:49 am

That is a short hand answer which further examination of the dissenting views will enlighten you. By the way, as a recovering attorney, I regard the so-called dissent of the three commissioners as essentially a concurring opinion which agrees on many key facts and conclusions of the report. All of the opinions are laid out in full in the report and we commend them to your attention.

readerOfTeaLeaves February 1st, 2011 at 11:52 am
In response to Byron Georgiou @ 63

Thank you very much.

Also, on a positive note, I very much appreciated the FCICs use of online technologies. I was able to watch some of the sessions in real-time, others onDemand, and found the website easy to access.
My regards to the FCIC for this aspect, which I believe was a tremendous public service and helps set a standard for more transparency in government.

Knox February 1st, 2011 at 11:54 am

Every member of this small circle of greedy assholes thinks they’re indispensable to the system, though their stupidity nearly destroyed it.

Nothing has changed. They’re still abusing it and causing a lot of hardship and suffering.

And nothing will change so long as politicians and prosecutors continue to treat them as though they were indispensable to the system, though they’re not.

Byron Georgiou February 1st, 2011 at 11:54 am
In response to Ironcomments @ 58

Sunlight is the best disinfectant and the report addressed their role in detail. Of course, additional remedial steps could be taken to address the conflicts inherent in the issuer pay model where the underwriters pay for the rating with the credit rating agencies bearing no financial responsibility in the event the securities they’ve rated AAA fail to perform as represented. The rating agencies did play a role in rating as AAA many securities that have since been downgraded to junk status. The rating as super senior of CDOs that were composed of the riskiest tranches of underlying mortgage-backed securities has always looked like alchemy, an attempt to convert lead to gold, which failed miserably and contributed greatly to the crisis.

Byron Georgiou February 1st, 2011 at 11:56 am
In response to Shoto @ 61

Thank you for the compliment. The commission and its staff worked very hard to present as thorough a document as time permitted. I leave to the advocacy abilities of the American people to determine whether the new congress will address the causes of the crisis. Any actions that were referred will be investigated by the appropriate agencies.

Jesterfox February 1st, 2011 at 11:57 am
In response to Byron Georgiou @ 60

But do the investors have a way to find out?

Teddy Partridge February 1st, 2011 at 11:58 am

Thank you for taking questions today.

Why are the ratings agencies still in business and their executives not jailed? Worse yet, why are their opinions respected by the media with regard to the performance and reliability of sovereign debt? It seems that, far from being completely discredited and their function federalized, these enablers of the meltdown have gone on to engage in the far broader “bond vigilante” business that is taking down entire governments, not simply their economies.

janeeyresick February 1st, 2011 at 11:59 am
In response to Byron Georgiou @ 66

And there is a fantastic diagram that explains the splitting off and re-merchandising of those substandard tranches into a AAA rated CDO. The clearest, most understandable explanation I have seen in all this time of articles dissecting the crisis.

But your answer gives a hint of the disconnect so many feel. You call it “alchemy” where a simple person would call it plain old fraud.

Byron Georgiou February 1st, 2011 at 12:00 pm

Thank you. The commission set out in the beginning to make it a transparent process and we have made arrangements to have the website maintained in perpetuity. There are literally thousands of documents there that have not been seen before including all the testimony, all of which should be useful to interested persons who wish to engage in further study. The report is available online for download.

Byron Georgiou February 1st, 2011 at 12:04 pm
In response to Scarecrow @ 50

The commission was given 22 specific areas to investigate, which we did. It was always expected that would be happening at the same time legislation was underway and is an ongoing process.

By one calculation Dodd-Frank requires that regulators create 243 rules, conduct 67 studies, and issue 22 periodic reports. So we hope that legislators, regulators and the financial industry will use this report as a guidepost as they determine what the future of our financial system will look like.

Ironcomments February 1st, 2011 at 12:05 pm
In response to Byron Georgiou @ 66

Thank you for your response and clarity on this. I am of the opinion, that it is these agencies which are usually at the heart of all our investor bubbles that leave more and more in the poor house for the average small investor while the big fish who can pay for the alchemist,accountants, and lawyers to protect themselves to do it all over again.

masaccio February 1st, 2011 at 12:05 pm

The final report talks about the filing of Suspicious Activity Reports. This area seems very important to me, as SARs are the first line of defense against money-laundering, bank fraud, and at least potentially in the effort to disrupt financing of terrorist activities.

Were you able to interview the people who work for FinCEN? Did they seem aware of the failure of the banks to file SARs?

Byron Georgiou February 1st, 2011 at 12:07 pm
In response to Jesterfox @ 68

That information should be available in the prospectus, available to investors as part of the information they review before purchasing the security. Corporate Governance experts have opined that these conflicted actions by underwriters should be disclosed to investors. I serve on the advisory board on the Harvard Law School on Corporate Governance which hosts one of the leading blogs on corporate governance and financial regulation where you will find a discussion of these issues.

Knox February 1st, 2011 at 12:11 pm
In response to Byron Georgiou @ 66

Sunlight is the best disinfectant

What can sunlight do if there are no prosecutions and other serious consequences? There was no real accountability.

These guys have no sense of shame…

Yves Smith February 1st, 2011 at 12:11 pm

I’d like to follow up on question 43, which comes out of work I did with various market participants. The presentation offered by the FCIC is insufficient to explain what really happened, in particular the “wall of liquidity” phenomenon, the compression of risk spreads across ALL risky types of lending, not just subprime bonds, even as the Fed was tightening. That’s at utterly unprecedented pattern.

And the housing crisis is insufficient to explain the losses to the dealer banks. If this had just been a housing crisis, Bernanke would have been right, it would have been contained, a S&L leve crisis.

Tom Adams and I repeatedly tried to get the attention of Commission members and staff through various channels, we had input DIRECTLY from people on CDO desks who educated us about crisis mechanisms. We were not spoken to until very late in the process when it was clear we were being interviewed as a matter of form.

If we had useful information information and were ignored, how many others were also ignored? How can the public have any faith in this process?

Byron Georgiou February 1st, 2011 at 12:11 pm
In response to masaccio @ 74

See pg 15 of the report, which discusses the SARS and information we obtained from FinCEN. According to FinCEN, the figures likely represented a substantial underreporting because two-thirds of all the loans being created were originated by mortgage brokers who were not subject to any federal standard or oversight. In addition, many lenders who were required to submit reports did not in fact do so.

Byron Georgiou February 1st, 2011 at 12:17 pm
In response to JClausen @ 43

We don’t believe our response was lazy. I for one have asked at every hearing what witnesses believed was the contribution to the crisis of the fact that everyone in the subprime mortgage securitization chain was incentivized at the front end of their participation without regard to whether the mortgage loans they were involved in creating were ever repaid or whether the resultant securities ever performed as represented. This goes for mortgage brokers who received yield spread premiums for steering borrowers into loans more expensive to borrowers and more profitable to lenders, underwriters who were paid upfront for creating securities with no financial consequence if the securities failed and to credit rating agencies which were paid upfront for their AAA rating with no financial consequence to them if the security failed to peform as AAA.

Byron Georgiou February 1st, 2011 at 12:18 pm

We interviewed as many people as we could given the limited resources and timeframe to complete an enormous task.

KrisAinTX February 1st, 2011 at 12:19 pm
In response to Byron Georgiou @ 78

Were any recommendations made in regards to MERS, or a substitute for that system/process? I.e. how to consolidate information while remaining transparent and keeping within the bounds of the law?

Byron Georgiou February 1st, 2011 at 12:20 pm
In response to Yves Smith @ 77

We interviewed as many people as we could given the limited resources and timeframe to complete an enormous task. Please see my response at 79.

readerOfTeaLeaves February 1st, 2011 at 12:21 pm

we had input DIRECTLY from people on CDO desks who educated us about crisis mechanisms

Well, there appear to be some political differences on the FCIC with respect to the significance of CDOs in this mess.

Perhaps that might help explain the lack of follow-up…?
It would appear the GOP members don’t blame CDOs, but it appears this potentially interesting point would have to be fished out by a scrupulous reading of the GOP’s minority report.

Teddy Partridge February 1st, 2011 at 12:21 pm
In response to Byron Georgiou @ 80

Did the Commission ever ask for more time or more resources?

masaccio February 1st, 2011 at 12:21 pm
In response to Byron Georgiou @ 78

FinCEN doesn’t seem to have done much with what they had, though. There were some prosecutions of mortgage brokers, but no link was drawn to higher ups who were buying the garbage mortgages right along. The Report says that FBI Director Mueller thought mortgage prosecutions were low priority.

FinCEN is an arm of Treasury, was there “guidance” from above?

KrisAinTX February 1st, 2011 at 12:22 pm
In response to Byron Georgiou @ 80

It seems that you feel more time and investigation is warranted. Are you 100% satisfied with the report and it’s findings, or do you feel that given more time the Commission could present a more accurate finding?

KrisAinTX February 1st, 2011 at 12:23 pm
In response to masaccio @ 85

Great question.

bmaz February 1st, 2011 at 12:23 pm

Mr. Georgiou, in response number 26 above, you stated:

The statutory mandate was to refer to the justice dept and appropriate state attorneys general and no to make the referrals public.

First off, it is troubling that your mandate prohibited informing the public what acts the commission found appropriate for referral; why was that included in your mandate, and at who’s behest was it so included? The commission served as the representative of the people, why should they not know the conclusions – all of them including bases for referral – how can that be justified?

Secondly, if you must adhere to the party line and keep the public so in the dark in this regard, as you have so indicated, are you at least willing to confirm that by making such a referral the commission believes there exists legal probable cause for the referrals, on whatever the “secret” grounds for the referrals were? If you cannot, even provide this basic information, please specify why it is that you so refuse.

Shoto February 1st, 2011 at 12:24 pm
In response to KrisAinCA @ 86

Copy that. It always seemed that the budget and time constraints were unrealistic, given the magitude of the disaster.

KrisAinTX February 1st, 2011 at 12:25 pm
In response to bmaz @ 88

Thank you for articulating those questions. I’ve been trying to figure out a way to phrase that since I got the response @26.

On Edit – I too am troubled by a mandate in the guidelines of the Commission that prohibits the Commission from telling the public about possible criminal misconduct.

More to the point, what is the purpose of a commission if the commission can’t disclose the systemic risks inherent in the system they’re investigating?

Essentially we’re being asked to let the State AGs prosecute, or not. We’ll never know if they followed through.

Seems to me that this is akin to the type of procedure, containing no checks and balances, that is being investigated in the first place.

Yves Smith February 1st, 2011 at 12:26 pm
In response to Byron Georgiou @ 79

I appreciate the response, but I do investigations of complex phenomena that involve qualitative and quantitative data as part of my day job. Asking witnesses at hearings, particularly senior level witnesses, is not a productive route for getting answers. Executives are seldom very well informed about the working at the transaction level in their organization. They don’t know the tradecraft, and the information they get is filtered through management information reports and staff

It may have been necessary to talk to senior executives, but this was guaranteed not to be a very productive exercise. And I don’t see any evidence that the FCIC staff mined public data that would have allowed for more productive use of witnesses. For instance, I see no sign your staff looked at the excellent work of the Bank of England, its semi annual Financial Stability reports, which were on to the compression of risk spreads, the role of CDOs and CLOs, the concentrated risk at dealer banks BEFORE the crisis, or some of the very good work done by the BIS.

Frankly, this looks like the effort the commission spent was misallocated and not sufficiently issue driven, and never got much past talking to Big Names.

Byron Georgiou February 1st, 2011 at 12:27 pm
In response to masaccio @ 85

In our interview of FBI director Mueller, there were higher priorities than mortgage fraud prosecutions, including terrorism and a variety of others.

Ironcomments February 1st, 2011 at 12:27 pm
In response to Shoto @ 89

Seriously, they reviewed DADT more than the financial collapse, that has caused world wide suffering and is even linked to the events in Egypt.

KrisAinTX February 1st, 2011 at 12:30 pm
In response to Byron Georgiou @ 92

On edit, that was a bad question. Move along, nothing to see here.

STTPinOhio February 1st, 2011 at 12:30 pm

Very late to the discussion, but as one who works with retail clients I just want to add my thanks for your work with this commission, and I hope the findings lead to real accountability for those who helped cause this train wreck.

BevW February 1st, 2011 at 12:31 pm

Mr. Georgiou, Thank you for being here today and discussing the FCIC Final Report with us.

Ed, Thank you for Hosting this great salon.

Everyone, Thank you for your participation,
Have a great week.

kspopulist February 1st, 2011 at 12:31 pm

Thank you so much for coming and for Ed and FDL to host this. Fascinating in it’s substance, amazing that it’s even possible (like this chat the online report and documents etc.), frustrating in the MSM conventional wisdom conclusion.
I understand the work is far from done, investigations, reports, legislation. But already the conclusions are being drawn by many, ‘lessons’ are already being learned and acted on.
What other conclusion is possible except that conning the cutstomer is the only way to make *real* money and if you get caught, deny it til the storm passes and just trade in other sectors. Or, for the rating agencies that ‘value’ depends primarily on capital flows as a function of returns rather than any metric that might look at how the rush might effect the market overall.
It is complicated and I am a neophyte, but economics is half human nature and people will get the ‘lessons’ they get … but I can’t escape the sense that people are learning that crime does pay most of all in finance. And if you get caught you just pay for it, ‘just a business expense’ like someone above said.
How do you feel about what this might say to the culture at large?
I understand that in no way are you responsible except for your findings, in effect, you are a messenger, commissioner :)
thank you again

blackw February 1st, 2011 at 12:31 pm
In response to Byron Georgiou @ 79

Yes, but that’s the key point — why were they incentivized in a manner that bankers have known for centuries creates extreme “adverse selection” and produces a “negative expected value” loan (in plain English, if you make liar’s mortgage loans you will lose money and fail)? This only happens because of accounting control fraud, because making exceptionally bad loans at a premium yield allows the lender to grow extremely rapidly. That (as long as one fails to establish appropriate loss reserves (ALLL)– and the ALLL’s were endemically farcical) mathematically guarantees record short-term reported (albeit fictional)income. Akerlof & Romer (1993) emphasized that accounting income was a “sure thing” and that it made the CEO wealthy given modern executive compensation. The firm fails, but the CEO walks away wealthy, hence their title — Looting: the Economic Underworld of Bankruptcy for Profit. The National Commission that investigated the S&L debacle reported that “at the typical large failure” “fraud” “was invariably present.” No one serious doubts that the Enron-era frauds were accounting control frauds led from the top. The behavior of the liar’s loan lenders and buyers in this crisis makes sense only if they were accounting control frauds. We needed the courage to say that. Too often we get euphemisms and conclusions (loan underwriting quality fell disastrously — a sure “marker” of accounting control fraud) without the analytics as to why this occurs. Effective regulators, some of the nation’s top economists, and the nation’s top white-collar criminologists figured this out in 1993, explained the fraud mechanisms, and tried to warn the nation. We have retrogressed.

Bill Black

Byron Georgiou February 1st, 2011 at 12:31 pm

I would like to thank FDL, its participants and our host Masaccio.

Our number one conclusion is that this crisis was avoidable. It was the result of human actions, inactions and misjudgments and a set of warning signs being ignored.

This report is the first official government report on what caused the crisis. It ties together many aspects of the crisis in ways that have not been done to date.

Congress instructed the Commission to “build on the work of other entities and avoid unnecessary duplication”. Thus, the Commission relied on and benefitted from the work of other investigations including Senate Permanent Subcommittee on Investigations. For example, the Commission found the work it did with respect to Washington Mutual and Goldman Sachs helpful in our inquiry.

If practices in Washington and on Wall Street (practices we outline in our report) don’t change, then I do think we are at risk for another crisis. The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus, nothing could have been done. If we accept this notion, it will happen again.

We hope that this report helps the President, the Congress, and the American people better understand how this devastating financial and economic crisis came to be. Our goal has been to record history for the benefit of the nation’s future.

We hope that legislators, regulators and the financial industry will use this report as a guidepost as they determine what the future of our financial system will look like. By one calculation Dodd-Frank requires that regulators create 243 rules, conduct 67 studies, and issue 22 periodic reports

The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus, nothing could have been done. If we accept this notion, it will happen again.

We present what we have found in the hope that readers can use this report and the information the Commission gathered and has made available on its website to reach their own conclusions, even as the comprehensive historical record of this crisis continues to be written.

Shoto February 1st, 2011 at 12:33 pm
In response to Byron Georgiou @ 92

In our interview of FBI director Mueller, there were higher priorities than mortgage fraud prosecutions, including terrorism and a variety of others.

With all due respect, I would suggest that wrecking an entire economy could be considered, if not a terrorist act, then certainly something that merited heavy-duty investigation. I cannot help but think that the enormous financial power exerted over our lawmakers influences everything they think, do and say, up to and including the way a commission like yours might be permitted to operate.

masaccio February 1st, 2011 at 12:38 pm

Commissioner, thanks for being with us, and thanks for your hard work.

KrisAinTX February 1st, 2011 at 12:40 pm

I’m with masaccio. Thank you for being here Commissioner.

masaccio February 1st, 2011 at 12:42 pm
In response to kspopulist @ 97

This is a good question. The Final Report is sensitive to the anger felt by the population, but I think they and DC politicians wildly underestimate the level of hostility out here in flyover country.

JClausen February 1st, 2011 at 12:43 pm
In response to Yves Smith @ 91

Yves,
That certainly satisfied me./s

Thanks for all you do. ECONNED should be required reading.

bmaz February 1st, 2011 at 12:48 pm
In response to Byron Georgiou @ 99

If you want to thank us sir, how about actually answering my question at number 88 above? I am certain that you saw it well before your “departure time”. You have a duty to the public, how about fulfilling it just this once? Please? It is, literally, the least you can do.

janeeyresick February 1st, 2011 at 12:49 pm
In response to Byron Georgiou @ 99

We present what we have found in the hope that readers can use this report and the information the Commission gathered and has made available on its website to reach their own conclusions, even as the comprehensive historical record of this crisis continues to be written.

reach our own conclusions with the material they have made available? There was no video for this discussion, but this makes me feel like Mr. Georgiou would have been blinking SOS with his eyes if there was.

I thank him for his participation and FDL for making it possible with this forum.

But the upshot is all the usual suspects are still in charge, no one appears interested in criminal investigations, the Republicans (and most Democrats too, despite their pretense to the contrary) are all about DE-regulating even NOW despite the collapse and financial maelstrom that has swept the globe. We are the collective victims of invincible arrogance and greed with no champions on our side.

Elliot Spitzer, please run for President. You are the only one who has ever shown any guts in taking on these problems. And Bill Black for Treasury Secretary.

PeasantParty February 1st, 2011 at 12:52 pm
In response to masaccio @ 103

” but I think they and DC politicians wildly underestimate the level of hostility out here in flyover country.”

Ha! that is putting it lightly. The people are more than hostile. That is a nice word. ;-)

i4u2bi February 1st, 2011 at 12:55 pm

Conswervatives bad…Progressives good. the end

hackworth1 February 1st, 2011 at 1:07 pm

My own drawn conclusion:

If any victim of financial fraud should have managed to hold back a significant portion of his previous coin (by any slim chance), he may now hire an attorney or a team of attorneys and pursue the matter in civil court against a behemoth Corporation with its own permanent team of attorneys, accountants and other hired guns.

Nothing Criminal was done. In fact, the use of the word Fraud was clearly avoided. If anything was done that may have been criminal, it is a secret.

Excellent.

Ironcomments February 1st, 2011 at 1:09 pm
In response to hackworth1 @ 109

Its called “alchemy” not fraud.

kspopulist February 1st, 2011 at 1:09 pm

It seems to me that Commissioner Georgiou has shown due diligence by coming here and explaining their mandate. imo
He kept referring to the report and all it’s attendant documents.
In addition to our numerous reporters here, anybody want to round up a posse and pick this thing apart? It’ll take me a month to read thru it and more if I spend time with the reference materials (interviews and so on posted to the site) which I know I will.
Lemme know! I’ll be over there.

spocko February 1st, 2011 at 1:29 pm
In response to bmaz @ 88

I just want to thank you for your excellently constructed question.
It’s too bad that it wasn’t answered. It reminds me of when Grayson asked where the bailout money was going and was told they couldn’t tell him.

You can almost taste the fear that was put into the Commission. “You will NOT name names in public, no matter how solid your evidence is. Pass it to the AGs and drop it.”

After Enron’s fraud was exposed we got some perp walks. Which is sort of satisfying, but as a resident of California I wanted my money back! We overpaid because of these jerks and set us on the path of Arnold for Gov.

BTW, what ever happened to the idea of Clawbacks? Making CEO’s and others pay back money gotten through fraud?

papau February 1st, 2011 at 7:10 pm

Sad – but the non-answers were what was to be expected – read the report was message he wanted to get out, plus repeat the PR release that there was fraud found and referrals have been made.

Indeed the commentators were the plus here as they added background and spot on questions to be used as a study guide for those “reading the report”. I believe the best phase was someone noting that this is a report of what “NAMES” say, and not a review of what went on in the trenches, or in management of those trenches, and certainly not a report on the motivation as to bonuses for those doing the management of the worker-bees.

I was happy to hear that the GOP sees CDS’s as as bad, as the counter party credit worthiness was always either mis-represented or not even investigated by the risk officer reviewing the transaction. I would have liked an answer to the evil of the 2000 Act – he saw it as evil but did not say why – I assume it was the preemption of state regulation and laws. But I’d have liked to hear directly his thoughts – including why the ENRON regulation under the 2000 Act was blocked from being in the Act by the GOP for 8 years. Indeed I did not hear Greenspan’s name even once in this discussion.

Oh well…… :-)

BooRadley February 1st, 2011 at 9:59 pm
In response to egregious @ 3

x2

Sorry but the comments are closed on this post