Crisis Committee Begins Probe into Root of Financial Meltdown
By: Carrie Bay
The chiefs of four of the nation’s most powerful financial institutions made the trek to Capitol Hill Wednesday – Bank of America, JP Morgan, Goldman Sachs, and Morgan Stanley. It was day one of the Financial Crisis Inquiry Commission’s probe into what caused the near collapse of the financial system in the fall of 2008.
The bankers all admitted that their firms made mistakes and underestimated the severity of the meltdown.
“Over the course of the crisis, we as an industry caused a lot of damage,” Brian Moynihan, CEO of Bank of America said in testimony. “Never has it been clearer how poor business judgments we have made have affected Main Street.”
John Mack, chairman of Morgan Stanley, said the crisis was “a powerful wake-up call for this firm,” while Jaime Dimon, who leads JPMorgan Chase added, “We did make mistakes and there were things we could have done better.”
Phil Angelides, chairman of the Financial Crisis Inquiry Commission and former California treasurer, singled out Lloyd Blankfein, CEO of Goldman Sachs for his company’s trade of mortgage-backed securities during the time leading up to the crisis.
Specifically, Angelides wanted to know how Sachs could justify packaging risky subprime loans into securities and selling them to investors, while at the same time shorting these bonds and essentially betting they would fail.
Blankfein responded, ““I do think the behavior is improper. We regret the consequence that people have lost money in it,” but he said his company had no legal obligation to disclose that its executives were shorting the securities they were selling, adding that the firm’s clients were “professional investors” with an appetite for risk. “I felt good about it,” Blankfein said.
“People are angry. They have a right to be,” said Angelides, whose heading up the 10-member, bipartisan, congressionally appointed inquiry committee. “The fact is that Wall Street is enjoying record profits and bonuses in the wake of receiving trillions of dollars in government assistance while so many families are struggling to stay afloat.”
“You have millions of people unemployed, millions have lost their homes, and Wall Street is having a record year … People want to understand why,” Angelides said.
The commission resumes hearings again Thursday. It’s expected to be an 11-month long inquisition before they reveal their conclusions.
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