http://www.nytimes.com/2010/01/10/opinion/10rich.html
By FRANK RICH Op-Ed Columnist
Published: January 9, 2010
THERE may not be a person in America without a strong opinion about what
coulda, shoulda been done to prevent the underwear bomber from boarding
that Christmas flight to Detroit. In the years since 9/11, we’ve all
become counterterrorists. But in the 16 months since that other calamity in
downtown New York — the crash precipitated by the 9/15 failure of Lehman
Brothers — most of us are still ignorant about what Warren Buffett called
the “financial weapons of mass destruction” that wrecked our economy.
Fluent as we are in Al Qaeda and body scanners, when it comes to synthetic
C.D.O.’s and credit-default swaps, not so much.
What we don’t know will hurt us, and quite possibly on a more devastating
scale than any Qaeda attack. Americans must be told the full story of how
Wall Street gamed and inflated the housing bubble, made out like bandits,
and then left millions of households in ruin. Without that reckoning, there
will be no public clamor for serious reform of a financial system that was
as cunningly breached as airline security at the Amsterdam airport. And
without reform, another massive attack on our economic security is
guaranteed. Now that it can count on government bailouts, Wall Street has
more incentive than ever to pump up its risks — secure that it can keep
the bonanzas while we get stuck with the losses.
The window for change is rapidly closing. Health care, Afghanistan and the
terrorism panic may have exhausted Washington’s already limited capacity
for heavy lifting, especially in an election year. The White House’s
chief economic hand, Lawrence Summers, has repeatedly announced that
“everybody agrees that the recession is over” — which is technically
true from an economist’s perspective and certainly true on Wall Street,
where bailed-out banks are reporting record profits and bonuses. The
contrary voices of Americans who have lost pay, jobs, homes and savings are
either patronized or drowned out entirely by a political system where the
banking lobby rules in both parties and the revolving door between finance
and government never stops spinning.
It’s against this backdrop that this week’s long-awaited initial public
hearings of the Financial Crisis Inquiry Commission are so critical. This
is the bipartisan panel that Congress mandated last spring to investigate
the still murky story of what happened in the meltdown. Phil Angelides, the
former California treasurer who is the inquiry’s chairman, told me in
interviews late last year that he has been busy deploying a tough
investigative staff and will not allow the proceedings to devolve into a
typical blue-ribbon Beltway exercise in toothless bloviation.
He wants to examine the financial sector’s “greed, stupidity, hubris
and outright corruption” — from traders on the ground to the board
room. “It’s important that we deliver new information,” he said.
“We can’t just rehash what we’ve known to date.” He understands
that if he fails to make news or to tell the story in a way that is
comprehensible and compelling enough to arouse Americans to demand action,
Wall Street and Washington will both keep moving on, unchallenged and
unchastened.
Angelides gets it. But he has a tough act to follow: Ferdinand Pecora, the
legendary prosecutor who served as chief counsel to the Senate committee
that investigated the 1929 crash as F.D.R. took office. Pecora was a master
of detail and drama. He riveted America even without the aid of television.
His investigation led to indictments, jail sentences and, ultimately, key
New Deal reforms — the creation of the Securities and Exchange Commission
and the Glass-Steagall Act, designed to prevent the formation of banks too
big to fail.
As it happened, a major Pecora target was the chief executive of National
City Bank, the institution that would grow up to be Citigroup. Among other
transgressions, National City had repackaged bad Latin American debt as new
securities that it then sold to easily suckered investors during the
frenzied 1920s boom. Once disaster struck, the bank’s executives helped
themselves to millions of dollars in interest-free loans. Yet their own
employees had to keep ponying up salary deductions for decimated National
City stock purchased at a heady precrash price.
Trade bad Latin American debt for bad mortgage debt, and you have a partial
portrait of Citigroup at the height of the housing bubble. The reckless
Citi executives of our day may not have given themselves interest-free
loans, but they often walked away with the short-term, illusionary profits
while their employees were left with shredded jobs and 401(k)’s. Among
those Citi executives was Robert Rubin, who, as the Clinton Treasury
secretary, helped repeal the last vestiges of Glass-Steagall after years of
Wall Street assault. Somewhere Pecora is turning in his grave
Rubin has never apologized, let alone been held accountable. But he’s
hardly alone. Even after all the country has gone through, the titans who
fueled the bubble are heedless. In last Sunday’s Times, Sandy Weill, the
former chief executive who built Citigroup (and recruited Rubin to its
ranks), gave a remarkable interview to Katrina Brooker blaming his own
hand-picked successor, Charles Prince, for his bank’s implosion. Weill
said he preferred to be remembered for his philanthropy. Good luck with
that.
Among his causes is Carnegie Hall, where he is chairman of the board. To
see how far American capitalism has fallen, contrast Weill with the giant
who built Carnegie Hall. Not only is Andrew Carnegie remembered for far
more epic and generous philanthropy than Weill’s — some 1,600 public
libraries, just for starters — but also for creating a steel empire that
actually helped build America’s industrial infrastructure in the late
19th century. At Citi, Weill built little more than a bloated gambling
casino. As Paul Volcker, the regrettably powerless chairman of Obama’s
Economic Recovery Advisory Board, said recently, there is not “one shred
of neutral evidence” that any financial innovation of the past 20 years
has led to economic growth. Citi, that “innovative” banking
supermarket, destroyed far more wealth than Weill can or will ever give
away.
Even now — despite its near-death experience, despite the departures of
Weill, Prince and Rubin — Citi remains as imperious as it was before
9/15. Its current chairman, Richard Parsons, was one of three executives
(along with Lloyd Blankfein of Goldman Sachs and John Mack of Morgan
Stanley) who failed to show up at the mid-December White House meeting
where President Obama implored bankers to increase lending. (The trio
blamed fog for forcing them to participate by speakerphone, but the weather
hadn’t grounded their peers or Amtrak.) Last week, ABC World News was
also stiffed by Citi, which refused to answer questions about its latest
round of outrageous credit card rate increases and instead e-mailed a
statement blaming its customers for “not paying back their loans.” This
from a bank that still owes taxpayers $25 billion of its $45 billion
handout!
If Citi, among the most egregious of Wall Street reprobates, feels it can
get away with business as usual, it’s because it fears no retribution.
And it got more good news last week. Now that Chris Dodd is vacating the
Senate, his chairmanship of the Banking Committee may fall next year to Tim
Johnson of South Dakota, home to Citi’s credit card operation. Johnson
was the only Senate Democrat to vote against Congress’s recent bill
policing credit card abuses.
Though bad history shows every sign of repeating itself on Wall Street, it
will take a near-miracle for Angelides to repeat Pecora’s triumph. Our
zoo of financial skullduggery is far more complex, with many more moving
pieces, than that of the 1920s. The new inquiry does have subpoena power,
but its entire budget, a mere $8 million, doesn’t even match the lobbying
expenditures for just three banks (Citi, Morgan Stanley, Bank of America)
in the first nine months of 2009. The firms under scrutiny can pay for as
many lawyers as they need to stall between now and Dec. 15, deadline day
for the commission’s report.
More daunting still is the inquiry’s duty to reach into high places in
the public sector as well as the private. The mystery of exactly what
happened as TARP fell into place in the fateful fall of 2008 thickens by
the day — especially the behind-closed-door machinations surrounding the
government rescue of A.I.G. and its counterparties. Last week, a Republican
congressman, Darrell Issa of California, released e-mail showing that
officials at the New York Fed, then led by Timothy Geithner, pressured
A.I.G. to delay disclosing to the S.E.C. and the public the details on the
billions of bailout dollars it was funneling to its trading partners. In
this backdoor rescue, taxpayers unknowingly awarded banks like Goldman 100
cents on the dollar for their bets on mortgage-backed securities.
Why was our money used to make these high-flying gamblers whole while
ordinary Americans received no such beneficence? Nothing less than complete
transparency will connect the dots. Among the big-name witnesses that the
Angelides commission has called for next week is Goldman’s Blankfein.
Geithner, Henry Paulson and Ben Bernanke should be next.
If they all skate away yet again by deflecting blame or mouthing pro forma
mea culpas, it will be a sign that this inquiry, like so many other
promises of reform since 9/15, is likely to leave Wall Street’s status
quo largely intact. That’s the ticking-bomb scenario that truly imperils
us all.
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