A renegade group of Republicans tasked with investigating the causes of the financial crisis plan to break away from the bipartisan committee and release a report blaming the meltdown on the Democrats and the government.
But not the banks or Wall Street.
Instead of working with the five Democrats (and one Independent) on the Financial Crisis Inquiry Commission, the four GOPers are expected to conclude that the government was responsible for creating the housing bubble by inflating prices and encouraging Americans to buy homes.
Led by former House Ways and Means Committee chairman Bill Thomas, the Wall Street-friendly report is also likely to downplay the role of banks in the crisis. “During a private commission meeting last week,” reports the Huffington Post, “all four Republicans voted in favor of banning the phrases ‘Wall Street’ and ‘shadow banking’ and the words ‘interconnection’ and ‘deregulation’ from the panel’s final report.”
Speaking to the Huffington Post, Democratic commissioner Brooksley Born said that the panel had gotten increasingly partisan in recent weeks, despite initial consensus among the 10 commissioners.
“Certainly, it’s hard to imagine Wall Street wasn’t involved” in the crash, she said.
It was Brooksley Born who warned in 1998 of the role banks were playing in the financial crisis, pointing to the volatile world of derivatives trading.
Born, a security and derivatives lawyer by trade, was the Clinton-era chairman of the Commodity Futures Trading Commission. She fought tooth and nail with Alan Greenspan, Larry Summers and Robert Rubin to regulate credit derivatives. She noted then, everything everyone is saying about derivatives today:
I was very concerned about the dark nature of these markets. I didn’t think we knew enough about them. I was concerned about the lack of transparency and the lack of any tools for enforcement and the lack of prohibitions against fraud and manipulation.
She was shot down and hounded out of office. Alan Greenspan, then-Chairman of the Federal Reserve Board, Robert Rubin, then-Secretary of the Treasury, and Larry Summers, Deputy Treasury Secretary (and later Treasury Secretary), were touted as the geniuses behind the economic prosperity of the Clinton era and, with their standing in Washington, they convinced Congress to pass a law that would make it impossible for her to make any attempt to regulate these instruments. That was a Republican Congress and a Democratic president. It was a perfect example of how the political system failed to work in the interest of the constituents of the United States but rather, pimped for the banking industry.
We don’t need regulation, they told us. Let the free market handle it. In fact, Greenspan told Born there was no need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him.
So explain how thousands of customers couldn’t figure out that Goldman Sachs had design a CDO product to fail? Because they lied to those customers thanks to misleading marketing material and not telling investors They’d also set up a hedge fund that was betting against the CDO after they sold the product to investors. And they never revealed it. Even the people who designed these instruments didn’t fully understand them. Fabrice Tourre, indicted earlier this year by the SEC, said in an e-mail to a friend on January 23, 2007:
More and more leverage in the system, The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab[rice Tourre]…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!
Those monstrosities cost investors billions. It almost destroyed the economy of Greece. It brought banks in Europe and Asia to the brink of fiscal ruin because people were buying into the mania that gripped this country in those years right through to the recession of 2008.
And all because Goldman withheld “vital information” about its product from its clients, including the fact that senior management thought the product would default.
The fact is, the free market can self-correct, but almost always after the damage is done, only after thousands and thousands of people are adversely impacted.
A self-correcting market violates an old adage: An ounce of prevention is worth a pound of cure. Regulation is the prevention.
Had Brooksley Born been listened to in the 1990s, that package wouldn’t have happened. The financial crisis of 2008 would not have occurred.
What we are left with is proof that an untethered free market cannot be trusted to apply a decent standard of ethics.
It’s worth noting that Larry Summers and Robert Rubin both are economic advisors to the current president. For added measure: Guess who used to be run Goldman Sachs: Robert Rubin.
Of course, the banks don’t want any kind of derivatives reform because derivatives are where the big dollars are. If derivatives are moved onto transparent, fully regulated exchanges, banks stand to lose potentially billions of dollars in earnings because in addition to reducing system-wide risk, transparent trading would lead to more competitive pricing. In fact, the “big five” banks –Goldman Sachs, JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley– are colluding as part of an elite nine-member cabal exerting influence in Washington to keep secret their wheelings and dealings while keeping out potential competitors in the derivatives market. All while preparing to enjoy the most profitable two years in their history.
That’s interesting given they’ve spent the last two years whining about how the government was stifling their growth… except for that brief moment in 2008 when they begged for bailout money from the government.
This issue of the financial meltdown isn’t about partisanship or who was president when (since Bush was president when the economy tanked and entered into a recession). It’s a simple issue of personal fiscal responsibility: From people who stupidly leveraged non-existent credit to buy property that they could never afford, to the banks that recklessly loaned them the money knowing they could dump that loan into the ether of the derivatives market and make a killing –sort of like flipping a house. They ran with that for as long as they could until they went too far and got spanked by the crash.
How can the GOP say that it cares about regular Americans when it’s actually defending Wall Street? No, Wall Street didn’t cause all the problems, but yes they caused a hell of a lot.
Nor is anyone saying that government wasn’t partially responsible for the economic meltdown. But to say the Wall Street didn’t contribute a significant role in this mess is simply dishonest. The government didn’t create all the crazy financial instruments out there.
I guess we all know who the Republican’s true master is –or at least for the four sorry individuals in the Financial Crisis Panel. As the HuffPo piece notes:
The Republicans’ move indicates that the highly-partisan nature of Washington has infiltrated the commission’s work and threatens to derail it. With four commissioners now essentially going around the panel to describe their thoughts on the roots of the financial crisis, the public may not get the full picture when it comes to understanding how the actions of a few led to the worst economic downturn since the Great Depression.
Instead, the public will receive a report that could be discredited as being partisan, and another that is expected to largely conform with a Wall Street-friendly view that blames government for the crisis.
Such action is entirely a disservice to the taxpaying public, but these four Republicans are more concerned about making their party look good. It’s partisan grandstanding while root problems go unaddressed.