Wednesday, January 13, 2010

Financial Crisis Inquiry Commission Hearing

The Banking Big Boys are testifying this morning in front of the FCIC.

"The Commission was established to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." The 10 members of the bi-partisan Commission, prominent private citizens with significant experience in banking, market regulation, taxation, finance, economics, housing, and consumer protection, were appointed by Congress on July 15, 2009. The Chair, Phil Angelides, and Vice Chair, Bill Thomas, were selected jointly by the House and Senate Majority and Minority Leadership. The FCIC is charged with conducting a comprehensive examination of 22 specific and substantive areas of inquiry related to the financial crisis."
You can find the 22 specifics on the FCIC's website.

I'm watching this hearing, where MS's John Mack, JPM's Jamie Dimon, GS's Lloyd Blankfein, and BAC's Brian Moynihan are testifying, and one thing stands out in contrast to previous testimonies that have been held in front of Congressional panels:  The FCIC commissioners are more concerned with actually getting answers to their questions, which is refreshing, since usually we see the members of the House Financial Services Committee or the Senate Banking Committee firing off grandstanding questions in 3 minute time frames without even intending to get real answers.  The FCIC is made up of civilians, some of whom were previously elected officials.

Bess Levin at Dealbreaker has her usually unique "live blog" of the hearings running now, including a reference comparing Lloyd Blankfein's testimony to a classic Mike Tyson blowup.

One thing I definitely miss is Ken Lewis's big red flummoxed looking face. His replacement, Brian Moynihan, looks like a slightly turtled up version of Patrick Swayze (R.I.P).



Anonymous said...

The Chair, Phil Angelides? Sigh. The only thing worse than kabuki theater, is dull kabuki theater.

DB said...

I read a post, on Clusterstock I think, to the effect that Blankfein's explanation of how GS hedged its AIG exposure seemed to confirm the position GS has taken all along, i.e. that they had no material exposure to an AIG failure and, therefore, the $13B GS got wasn't a "bailout" at all.


Kid Dynamite said...

yeah, blankfein's point is twofold: 1) AIG was paying us cash margin on a mark to market basis - as the trades moved in our favor, AIG transferred us money in real time. but then 2) as our gains (their losses) accelerated, the margin payments started to slow down a little, so we got worried and purchased protection on AIG from someone else.. thus 3) if AIG went bust, we were protected.

now, this is a dubious assumption - as, if AIG were allowed to flat out blow up with no gov't assistance at all, the entire financial system could have collapsed - EVERYONE could have gone bankrupt (hard to tell) - but in any case, it's difficult to just assume that whomever sold GS the protection on AIG would have been fine and able to make good on that protection

Anonymous said...

If the tax payer is going to make all claims money good, I guess we can all start buying "cheap" insurance from the local street alcoholic instead of being more careful
about who we buy insurance from.

See how that won't work?

Kid Dynamite said...

anon - i'm not sure what your point is. i can't find anywhere where i advocated taxpayers making all claims money good.

what i said in the comment about was that Blankfein's assertion that GS had no risk because he'd purchased a hedge on his AIG exposure from some other entity was dubious, since the other entity would be at risk also if AIG blew up.

Anonymous said...

Kid - my point above is that GS bought mispriced insurance from folks who weren't going to be good for it (multiple layers, of
course, but still not payable even then...they
would've ended up in bankruptcy court jostling for priority over the remaining assets of the counterparties).
The point was this: once the tax payer had bailed them out, it no longer matters how
the next counter party is....they can do business using the local wino as the counterparty and it will no longer matter.
In other words, it's actually going to get worse, and the next crash is going to be even harder to bail out (size wise)....and
maybe even crush the currency.

The FCIC is sitting around having leisurely discussions with the sharks, when they should be thinking "I'm going to need a bigger boat".

Kid Dynamite said...

anon - we are in agreement