Financial regulators, lulled into inaction by soaring bank and Wall Street profits, failed to protect Americans from the 2008 financial crisis, senior U.S. officials told an investigative panel on Thursday.But don't worry. They can handle the health care system no sweat.
In testimony that urged stricter oversight in future while admitting past errors, Federal Deposit Insurance Corp Chairman Sheila Bair headlined a second day of public hearings by Congress' Financial Crisis Inquiry Commission.
"We're gonna do more of the same, but we're gonna do it better. Trust me."
"Not only did market discipline fail to prevent the excesses of the last few years, but the regulatory system also failed in its responsibilities," she said.
"Legislation, in fact, poured gasoline on the fire. It'll never happen again, of course..."
"Record profitability within the financial services industry also served to shield it from some forms of regulatory second-guessing," Bair told the commission.
"If you've got lotsa money nobody's gonna bother you, even if you're sitting on a house of cards. They assume you know what you're doing."
When financial firms are making money, even amid questions about how they are doing it, it can be difficult for regulators "to take away the punch bowl," she said.
Especially when the regulators are getting their own beaks wet, or even dunked...
The 10-member panel, in its first public hearing on Wednesday, heard a tale of misjudgments and regret from top banking executives, but got no outright apology or any new explanations for the debacle that shook world markets.
"We hosed it. We're real sorry the bottom fell out when it did. We can say no more!"
"But you..."
"Conversation's over!"
"But..."
"Finished! Where's my coat?"
The bankers acknowledged taking on too much risk and having choked on their own financial cooking in the subprime mortgage market, but they defended their pay packages and the huge size of their businesses in the face of proposals to break them up.
"Monopolies like us are alway more efficient than smaller organizations. They tech us that in MBA school on Day 3. And if we're really, really efficient then we should have really big salaries, because even though the money's big to us, it's just a pittance compared to the cash that's flowing."
The commission, chaired by former California State Treasurer Phil Angelides,
... And who better to guide a grateful nation out of its financial crisis than a former Caliphornia state treasurer?
is beginning its work amid rising public fury over the crisis, its aftermath and what to do to prevent something like it from happening again.
"What shall we do? Oh, what shall we do?"
President Barack Obama said on Thursday he was determined to impose a fee on big banks to ensure all taxpayer money used to bail them out was recovered.
Right. A fee. On banks. That won't be passed on to consumers.
The banking titans set off a media circus on Capitol Hill on Wednesday, but the regulators met with a half-empty hearing room. Discussion between them and the panel was more subdued than the sometimes combative exchanges with the bankers. Attorney General Eric Holder even left the hearing early, after making a statement, because of another engagement.
Racquet ball again?
In addition to Blair, the commission heard from Securities and Exchange Commission Chairman Mary Schapiro, who said a program set up by the SEC in 2004 to supervise investment banks was a failure.
Actually, we'd guessed that.
The program was ended in September 2008.
We'd guessed it even before the program was ended.
The Consolidated Supervised Entities program, based on voluntary regulation, was inadequately staffed; over-stretched the SEC's traditional capabilities; and unwisely let firms hold lower levels of capital, she said.
Put me in a room next to a very large boodle. I promise I won't have any problem adhering to voluntary regulations. Most of the time.
"We have to conclude that that program was not successful," she said of the ill-fated attempt by the SEC to oversee global giants such as Goldman Sachs, Morgan Stanley, Lehman Brothers, Merrill Lynch and Bear Stearns.
That's what the commander of the Spanish Armada said, too. And Cleopatra, but before they passed her the snake. And Napoleon after Waterloo. And Tojo, the day of the second big kaboom...
Schapiro said the SEC is now reviewing investment bank practices in markets for subprime mortgage-backed securities and collateralized debt obligations in the real estate bubble. "We are seeking to determine whether investors were provided accurate, relevant and necessary information, or misled in some manner," Schapiro said.
"We're not sure how it could have been done, but we're looking into it..."
The FDIC and SEC were deeply involved in the run-up to the crisis that peaked in late 2008 after the collapse of former investment banking giant Lehman Brothers. Bair made waves this week with an FDIC proposal calling for banks with risky compensation schemes to pay higher deposit insurance premiums.
I'm not a campaign fundraising kind of guy so I'll never be head of the FDIC or the SEC. Since I'm a conservative the guys who are won't be asking my advice. But I'll give it, for absolutely free. Call if Fred's Rules of Governance:
- Break up the Malefactors of Great Wealth. Frederick Taylor to the contrary, "efficiency" is not the same thing as "effectiveness," and "effective" and "single point of failure" are mutually exclusive. "Rapacity" is not a desirable characteristic.
- If you keep doing the same thing over and over in the hope of eventually achieving a different result you've gone nutz. If Caliphornia was the epitome of productivity and fiscal stability it would make sense to hire a former secretary of the Cal treasury to find out what went wrong with the bigger operation. Cal's not the epitome, and it doesn't make a whole lot of sense. If I was a former Cal secretary of the treasury I'd have changed my name by now and I'd be looking for a rewarding career in the food service industry.
- If there aren't that many jobs available in a shrinking field you don't have to pay big bucks to attract talent. It's that old supply-demand stuff again. If you haven't noticed it yourself ask your 6-year-old. He/she/it should be able to comprehend it.