Of all the events that led up the great financial collapse of 2008, in my mind, one truly stands out: The decision by super-bank JP Morgan to demand billions of dollars in collateral from the troubled Lehman Brothers in mid-September of that year. The move, according to senior Wall Street executives, was akin to a death knell for the firm, which was just about on life support already. JP Morgan demanded some $8 billion, it said, for clients that traded with Lehman. It didn't even matter that Lehman couldn't make the full payment. Once word went out that JP Morgan was nervous about Lehman's ability to survive, a bank run ensued. Lenders pulled lines of credit; Lehman couldn't trade with its counter-parties. In less than a week, Lehman had declared bankruptcy and the entire financial system began to implode, and would have, were it not for a massive government-led bailout.
You would think if you were investigating the root causes of the financial crisis and were ordered to prepare the definitive account of the collapse of Lehman (and the rest of Wall Street), investigating the circumstances behind JP Morgan's collateral call would be high on your list, right? Well not if you're Phil Angelides, the chairman of the Financial Crisis Inquiry Commission, the Congress-mandated body led by the former treasurer of California. The Commission's website boasts a "nonpartisan mission to examine the causes of the financial crisis that has gripped the country and to report our findings to the Congress, the President, and the American people"; all of which makes it so irresponsible that the commission has no plans to seek testimony from senior officials at JP Morgan, including its CEO Jamie Dimon, about the now infamous collateral call that sent Lehman into oblivion, and nearly the rest of Wall Street as the markets crumbled during those dark days in the Fall of 2008.
Instead, the commission has been busy, of late, beating up on everyone's favorite financial collapse villain, Goldman Sachs. Angelides and his people made headlines a few weeks ago when they disclosed that Goldman at first didn't want to turn over documents to his committee, and then when it did, it basically backed up the truck and dumped thousands of pages of notes, emails and whatever else the firm kept records of during the past 10 years right on its doorstep. Okay, that was a little bit of an exaggeration. But Angelides, according to senior people at Goldman, asked for a lot of stuff, and then asked Goldman to give his committee a road map on the most incriminating emails and records. Goldman kind of refused, and Angelides went public with that refusal. And that makes Goldman a bunch of crooks, at least in the eyes of the committee, which today is taking testimony from the firm's No. 2, the famously testy Gary Cohn. Both Cohn and CEO Lloyd Blankfein built the modern Goldman Sachs, the firm that doesn't think twice about selling "crappy" investments to its clients; the firm that made gazillions shorting the housing market when everyone else was still buying those crappy mortgage bonds; and the firm that received a backdoor bailout from the AIG bailout. Goldman --despite its spin to the press and public statement to the contrary-- really was bailed out because when AIG received public assistance, the insurance policies held by Goldman to cover its toxic debt investments were now money goods. As a result, Goldman was reimbursed 100 cents on the dollar for those policies, known as credit default swaps, after the taxpayer bailout of AIG.
All of this sounds like pretty sleazy stuff (Goldman has counter-arguments to each and every point I just made, which I won't bore you with in this column), but it's also ground that's been covered time and time again; by the Angelides committee earlier in the year, but also by more than a handful of other investigative bodies not to mention just about every major news organization.
I'm not exactly an apologist for Blankfein & Co. In fact, late last year when it became clear that despite the company's spin, Goldman was indeed bailed after the AIG rescue, I called for Blankfein's resignation in a column for the Huffington Post, which didn't exactly endear me to my former employer, particularly when I went on air and said basically the same thing.
Today, Blankfein is clearly in a more precarious state given the myriad of investigations swirling around the firm, the recent civil charges filed by the SEC accusing Goldman of civil securities fraud, and the non-stop bashing of the firm's business practices under his watch by the press, Congress and now Angelides. My dad, a former Marine, would Goldman and its top executives "open wounds." Unlike the great Jamie Dimon -- the notoriously hot-headed King of Wall Street who has the ear of the president and takes no shit from anyone -- the people who run Goldman are a beaten and bruised bunch, and given the media frenzy surrounding the firm, very easy to pick on. But then again what's the point?
And that's my problem with the Angelides Commission--there really isn't any point to it. The commission's hearings are nearly universally boring and bereft of new information. Blankfein testified earlier in the year, but if he said anything interesting, I can't remember. A couple of weeks ago, he called Jimmy Cayne, the former CEO of Bear Stearns, to testify about the firm's 2008 implosion only to hear tell Cayne that there "does seem to me that there was an extraordinary level of risk taken" by his firm. Cayne's response: "That was business."
Quick, stop the presses!
Maybe the commission, which has to conclude its work and provide its findings to the president and Congress, by December, should just start over, and begin to ask questions that matter. The JP Morgan collateral call might not sound sexy, but it was important. People at JP Morgan say they were simply doing their jobs, and holding Lehman financially accountable for its poor investment decisions.
But people at just about every other firm I know of say JP Morgan was being heavy handed; it didn't need to turn the screws when it did, and only did so because Lehman wasn't just a creditor who owed the bank money, but also a competitor, which vied for business with JP Morgan in the markets. (JP Morgan made a similar collateral call at that time on Merrill, also leading to that firm's forced sale to Bank of America.) It's one of the many downsides of the dissolution of the Glass-Steagall law, which once separated investment banking from commercial banking. Once the financial supermarkets were created, firms like Citigroup and JP Morgan could squeeze competitors like Bear Stearns and Lehman by refusing to lend them money.
I met Phil Angelides once, and he seems like a smart guy, but a little too nice, and kind of a wimp, which is why I will wager a nice meal anywhere in New York, that there's a greater chance of Jimmy Cayne making a comeback on Wall Street, than Angelides' commission forcing Jamie Dimon to testify about the Lehman collateral call.
It was never intended to shine a light on what REALLY occurred; a Pecora Commission, this is not.
It's simply a bunch of "company men", stooges and functionaries whose only job is to protect the financial interests of the oligarchy.
The bottom 40 percent of households, have 12.4 percent of pretax income, and and 14.3 percent of after Federal tax income. Factor in the effect of State sales taxes and most state income taxes which are flat, and their share of after tax income is less than their share of pre-tax income.
Remove the cap on the wages taxed and used for benefit calculation under Social Security, and we can cut the SS payroll tax by about 2% as the extra benefits gain by the rich are quite costly in taxes for the rich(which makes "means" testing just a code word to change SS into welfare so it can be cut like the GOP always cuts welfare programs).
Obama's deficit commission run by billionaire Pete Peterson is saving SS from hazards that do not exist (age 69 2050 retirement age plus removal of the wage cap is all that is needed). Pete's goal is to never make rich pay back the bonds given SS to fund the Bush tax cut for the rich. SS cashing out a bond is the only evil that Pete Peterson wants to stop since China buying bonds to replace the cash, or the rich paying more tax, are options that offend the billionaire leader of the commission.
It is all smoke & mirrors with nothing accomplished; except for great sound bites on the evening news.
Where are the criminal charges?
The Corporate Fascists are doing the investigation of themselves and it's all Kabuki.
And isn't it strange that this dog-and-pony show is not expected to have "findings" until December 2010? Meanwhile, quick, everyone cheer for Financial Reform - NOT.
Please read:
http://www.huffingtonpost.com/sen-russ-feingold/standing-up-to-the-unholy_b_630834.html