The Financial Crisis Inquiry Commission released its report yesterday and went into PR overdrive. Journalists and the public are still digesting the weighty document, and various tidbits, like the report that Goldman did indeed profit from the AIG rescue, are touted as news when the basic facts were already in the public domain.
What is troubling about the report is the manner in which it hews to conventional wisdom. Its ten major findings are hardly controversial, yet they are still insufficient to explain why the financial system seized up and appeared close to failure. And telling a familiar-sounding story assures that the status quo will remain unchallenged, and serves to validate the inadequate reforms now underway. After all, they are premised on the very same superficial beliefs.
I participated in a blogger conference call with FCIC commissioners Phil Angelides and Brooksley Born. I’m clearly not cut out for public life. It was disconcerting to hear them thumping their talking points. For instance, Angelides began by saying that the purpose of the report was to explain why we faced the choice in 2008 of spending billions of dollars to bail out the financial system or let it fail.
That’s a false dichotomy that serves to justify the unprecedented rescues. It implies that the only way the crisis could have been addressed was the course of action taken. We pointed out as the crisis was unfolding that some of the early interventions made matters worse. Even at the peak of the crisis, a range of other actions were possible but were not taken. The bias throughout the crisis was to throw money at the problem with virtually no strings attached, and even in the cold light of day, to take far too little in the way of corrective and punitive measures.
But the stunning part were Angelides’ and Born’s answers to my questions. I’ve been in communication with several disaffected insiders. And contrary to the efforts of Born and Angelides to depict critics as the dissenters (meaning the Republicans), these observers feel the investigation was inadequate and the report excluded critical drivers of the crisis. They have told me in some detail about how the staff performed its work in a vacuum. They reported that the commissioners spent virtually no time with the team leaders, did not provide input into the thinking process or interviews. They also complained of poor resource allocation decisions: that nearly 2/3 of the staff time was taken up with arranging and preparing for the public hearings, which were not terribly productive. And to add insult to injury, the staff prepared questions for the hearings only to find the commissioners ignoring them.
Another problem area was the difficulty in getting subpoenas issued. The process was made difficult by design; it took sign off by commissioners of both parties. As a result, nearly all the document production was voluntary. In litigation, it is common practice in discovery for the target of a document request to stonewall and argue with the judge that the demand is overly intrusive, costly, etc. so as to wear down the other side and get the request trimmed back to as great a degree as possible. Here, with the commission having a very tight schedule to begin with, stonewalling would be a rational strategy, and my sources tell me that happened on a widespread basis, particularly after the firms under the spotlight began to see that subpoenas were unlikely to be issued.
When I said I understood the document production was voluntary and asked why more subpoenas weren’t issued, I got party line: the firms had cooperated because they understood subpoenas would be forthcoming, and when firms like Moody’s and Goldman did not play ball, they were used. They contrasted their 19 subpoenas issued with three by the 9/11 commission (hardly a gold standard of investigation).
Born stressed how many pages were produced (ahem , quantity is not tantamount to relevance), how this undertaking was even larger than the complex litigations she had overseen, and how much staff effort went into analyzing the material. I then asked how much time the commissioners spent with the lead investigators and staff. Angelides said “a ton” and that it varied by commissioner, but that he and Born “dove in”. But if you listened carefully, they did NOT discuss how they worked with staff, but that they read memos, listened to interviews, and so on.
I called one of my contacts immediately afterwards and played back the exchange. The reaction: “I can’t believe they suborned Brooksley Born”. The insider disputed the account, saying that the commissioners did not give the staff any insight into their thinking nor did they participate in the interview process (either providing questions or participating in any interviews to get a feel for the process; listening to them afterwards or reading transcripts is just not the same). Others close to the investigation confirmed his report.
While Born was brave enough in 1996 to engage in a pitched battle with much more powerful figures in Washington to regulate credit default swaps and suffer a humiliating loss, she has not bucked the system in a more fundamental way. Her participation in the FCIC gave it an aura of respectability and seriousness. To see her defend a flawed process and product shows either a lack of discernment or a misguided sense of loyalty to a diseased system.