The Financial Crisis Inquiry Commission report increasingly looks like a whitewash. Even though the commission has made referrals for criminal prosecution, you’d never know that reading its end product. The references to “fraud” and “crime” are sparing, and ex mention of the SEC’s fraud investigation of Goldman, consist almost entirely of mortgage fraud, which is the FBI’s notion of “fraud for profit” or “fraud for housing”, meaning borrower fraud. The book also acknowledges the fraudulent lending by firms that were prosecuted like Ameriquest. In other words, the notion that the TBTF firms might have engaged in less than savory activity is remarkably absent from the report.
The FCIC has also been unduly close-lipped about their criminal referrals, refusing to say how many they made or giving a high-level description of the type of activities they encouraged prosecutors to investigate. By contrast, the Valukas report on the Lehman bankruptcy discussed in some detail whether it thought civil or criminal charges could be brought against Lehman CEO Richard Fuld and chief financial officers chiefs Chris O’Meara, Erin Callan and Ian I Lowitt, and accounting firm Ernst & Young. If a report prepared in a private sector action can discuss liability and name names, why is the public not entitled to at least some general disclosure on possible criminal actions coming out of a taxpayer funded effort? Or is it that the referrals were merely to burnish the image of the report, and are expected to die a speedy death?
Matt Stoller provides further support for the cynical take. Via e-mail:
I was on a conference call today with Phil Angelides and Brooksley Born, two commisioners of the Financial Crisis Inquiry Commission. During their unveiling of the FCIC report, they used words like deregulation, leverage, imprudent risk-taking, reckless behavior, failures at credit agencies, and failed regulators. Left out were words like crime, fraud, looting, or a specialized form of looting known as control fraud. At every point reporters asked about their referrals of criminal cases, which someone leaked before the report came out, they demurred. “We are not prosecutors”, said Angelides.
I asked about the criminal nature of the crisis. I said I didn’t want to know about any specific case, but whether they thought that fraud or crime was a core cause of the crisis. This is an important distinction, because the real question at hand is whether you trust the system to correct itself, or whether you believe that the people running the system are the problem and must be removed before we can fix the system. It’s obvious, as you’ll see, that Born and Angelides believe the former.
Neither Born nor Angelides would answer whether accounting fraud or crime was a primal cause of the crisis. The gist of the response was “it’s all in the report,” along with an attempt to pretend like they had discovered the systemic mortgage origination fraud that the FBI discussed in 2004. Born also repeated that they wouldn’t disclose specific cases of criminal referrals, even though I had specifically said that I was not interested in such disclosures. It was a filibuster, and an obvious one at that. I kept pressing, and asked them repeatedly to answer my question, and after the third follow-up Angelides finally said they had to go.
With that, the FCIC has completed the final act of oversight for the last Democratic Congress, and it held true to what Democrats in the last Congress believed. Everyone was at fault for the crisis, but no one is to blame. This was Bush’s line in 2008, that “Wall Street got drunk”, and Obama’s line throughout the Dodd-Frank mark-up. The Republicans went after the GSEs and “regulation”, and the Democrats sadly lamented the tragedy of the crisis. Again, everyone’s at fault, and no one is to blame. I saw high-ranking Democrat Carolyn Maloney brag yesterday about her vote for TARP in the hearing on foreclosures, noting that the Dow busted through 12,000 as a sign of prosperity. This is what they believe, in their bones. There was no theft, only tragedy. The American economy lives on the crack of financialization, not the production of valuable services and goods that solve real problems.
You can even read Obama’s Cooper Union speech from 2008, and with a few additions, it’s basically that narrative. Deregulation bad, regulation good. New Deal “outmoded”, excessive pay a problem. (I do find it amusing that Obama in 2008 brought up how other banks spread rumors about Bear Stearns so it would collapse, and then stressed how the SEC “should investigate and punish this kind of market manipulation.” But that’s kind of an exception, an adorable one that suggested there were rhetorical remnants of outrage among elites)
The FCIC report is destined for the same dustbin of history as that speech. It is a document of and by well-meaning insiders that just can’t deal with the corruption they were supposed to investigate. It’s a psychological crutch maybe, or perhaps a denial mechanism, but it doesn’t really matter. This report is just a cover-up, the same kind of cover-up that is allowing the thieves to escape with their loot.
Nothing will come from the generation in power who created this mess. They just don’t have it in them. The bad guys will steal again. I mean, crime pays. Besides, who’s going to call it crime, anyway?