Streams

How We Got Here

Wednesday, January 13, 2010

The Financial Crisis Inquiry Commission begins hearings today, where the CEOs of Goldman Sachs, JPMorgan Chase, Morgan Stanley and Bank of America are expected to answer questions about how we arrived at the current economic situation. Business Week's Diane Brady reflects on what we've learned during the first hours of the hearings.

What would you ask the CEOs? If you were on the panel, what would be your number one (brief!) question? Comment below!

Guests:

Diane Brady

Comments [49]

Jennifer from Queens

I'm afraid to as, but how do Goldman Sachs execs see their place in our society vis-a-vis other working Americans? Given their parasitic, unproductive "work," how do they justify to themselves, their children, their neighbors, and others what they do day-in/day-out?

Jan. 13 2010 07:05 PM
Voter from Brooklyn

Well, hjs, that was an unfortunate typo on my part.
In any case, see you in the bubble of 2015! No one will see it coming.

Jan. 13 2010 05:23 PM
hjs from 11211

voter
i agree "americans need to learn to except less."

Jan. 13 2010 04:47 PM
Voter from Brooklyn

J and HJS,
I’ll be short.
Americans need to learn to accept and except less. Until this happens, they will continue to be exposed to the bitter (the current environment born out of greed) AND the sweet (real estate resale/flipping and higher yields on 529 savings plans, 401Ks, etc. to name a few) in regards to Wall Street.
Markets should be regulate and reforms like reinstating Glass-Steagall—as a start—need to happen, but anyone who is an investor is also a coconspirator in greed to a certain degree. What is and investment but an expectation of profit not by the sweat of one’s brow?
I’m a capitalist, however I’m also a realist. Americans need to decrease their dependency on credit, increase their savings, live at or below their means, and should they invest, accept the risks that comes with the rewards of investing.
I have a lot more to say, but I’ll spare ya ;)

Jan. 13 2010 03:42 PM
j from bklyn

hey voter, the problem with the greed part has to do also with the fact that even small amounts of investment/savings in regular banks are subject to the larger context here because of the connection to investment firms. [glass-steagal, which i want back, FTR] also, some people had their lifes saving in mutual funds, pensions through professional org's, etc.
and yes, the firms knew about this back in 2005-6. a friend of a friend of mine who worked at one of the finance firms said everyone was holding their breaths. and i think the 2006 credit card act/bill that made people pay a full 2% on their debts minimum payments monthly was the finance co's trying to get ahead of the curve again. if you lose your house, that's material, but credit is everything when you need an valid identity in this capitalist consumer based society.

Jan. 13 2010 02:27 PM
hjs from 11211

voter
I'm asking for reform not communism. while the world needs credit it doesn't need the wall st game. while wall st makes money for a few elites, the nation's pension funds are just there to generate fees for broker bonuses. sorry you're on the side of the wealthy.
1 i have an account on paper but as of now it's just numbers. no cash for 25 years. (and i stopped playing the market about 4 years ago when the clues said this did not add up. I got back in when I thought we hit the low) this account is a gift from my employer not my choice.
2 NO i wish i knew we could get free money without collateral but i wasn't "smart enough."
3 this was not about a cash only economy. this was about greed for a handful of people. if the bank on the corner stuck to lending money instead of playing the markets the world would be fine today.

Jan. 13 2010 02:22 PM
Voter from Brooklyn

Then hjs, right or wrong, you’ll have the same forecast on life that your great-grandparents (or maybe grandparents, if you’re older than I assumed) had. However, that wasn’t my question.
My question was: 1. Have you at any point relied on the greed of Wall Street to enrich yourself, e.g. any kind of investment account or interest from an interest-bearing account? 2. Did you benefit from the housing bubble selling real-estate at what were then inflated prices; if you did, will you return your ill-gotten gains? And 3. Are you willing to live an all cash lifestyle where you can only reap what you’ve sown?
If you’re not willing to live outside of the financial industry and walk away from the casino then their greed is your greed.
(BTW, this isn’t meant to be an attack on you, but to illustrate that the expectations and habits of Main Street are part of the problem with Wall Street.)

Jan. 13 2010 01:03 PM
hjs from 11211

38] Voter
I wish they had been worried about my retirement. thanks to what they've done to my nation I'll probably be working until I drop.

Jan. 13 2010 12:40 PM
Nate from Manhattan

On free market capitalism:

Wall Street always decries any regulation at all.

They find develop "innovative financial instruments", a euphemism for opaque ways for the insiders to make money with minimal risk.

Wall Street makes tons of money.

Abetted by the Main Stream Media, they marginalize and ridicule anyone warning about the perils of their methods.

Something goes wrong.

Main Street pays.

Wall Street makes tons of money.

Wall Street says "No one could have seen this coming."

For me, the biggest missing piece in all of this is that economists use the word market to obfuscate the fact that it is all a bunch of people. Many people will be good; some will be dishonest.

That is why the free market can NEVER police itself adequately and why we need regulation.

Jan. 13 2010 12:35 PM
Gary from Upper Left Side

Where the f&#k is Citigroup's CEO Vikram Pandit? Oh, I remember. He has a meeting with his corporate counsel to figure out a way to justify the 2009 comp package of $40MM when Citi's stock has fallen 97.3% during his tenure. Good going, Vik! And thanks for getting Citi to buy your hedge fund, Old Lane Partners, at the market peak for $800MM. Of course, the fund's assets are worth two cents on the dollar now. Ah, that Columbia Ph.D. in finance sure paid off. Didn't it, Dr. Bandit?

Jan. 13 2010 12:31 PM
Nate from Manhattan

Sorry this isn't so brief:

The banks had access to very cheap money through low interest rates at the Fed.

They needed to make money on that money.

They were desperate for more ways to lend money, since normal avenues were glutted.

They started lowering their requirements for lending to a ridiculously loose degree.

The compensation provided to those vetting the borrowers were based on number of loans, not how much was paid back; vetters were incentivized to grant loans to those who couldn't afford it.

The mortgages were repackaged into securities and hid the risk; the rating agencies went along.

The loan terms, in many cases, allowed for great affordability at first, and then ballooned.

The glut of people having access to loans meant more people bidding on each house, artificially inflating home values.

People's affordable terms began to run out; they couldn't afford the inflated terms; foreclosures started; house prices fell

And no one at any of these firms so this coming? Many state governments did, but their Attorneys General were prevented from regulating the mortgages and securities by the Bush administration.

Jan. 13 2010 12:19 PM
sanych from NJ

"Complexity", "sophisticated investors", "risk management" ...

Does not this remind of - "if you don't see emperor's new cloth, you must be stupid"?

Jan. 13 2010 12:18 PM
Petrov from New York Queens

Wall Street should have shown much better face to the nation by working for free all this year. All those who earned over one million in 2008 should have worked for free all of this year! Bonuses were not earned because of last year and the bail out from our nation. This way, the nation is stuck with the bill for the mess Wall Street caused to the nation's economy and to the the world; We all knew well that derivatives market was a huge risk that securitization of the subprime was a very risky business, but many did it to make money ...how about losing money then? Greenspan made mistake as his foolish logic of free markets brought us to this difficult crisis; since "to big to fail" were bailed out last year instead of going under, they should have reorganized. We should have never rescued Wall Street in the way it was rescued; ; the story about talent and all other things simply does not make sense; the army of people serves Wall Street working crazy hours and getting paid modestly; in other hand "the big wigs of loss" are distributing the "gains Washington works for Wall Street it is a known fact; we all work for Wall Street. The current non regulated banking and investment banking is a shame for our nations and earlier generations of americans.

Jan. 13 2010 11:46 AM
PaddyC from Boston, MA

Ditto to Michael, comment number 36.

With stock options, if the value rises, the option is sold on on the market for cash, the withholding taxes taken out of the net proceeds and the net cash delivered to the employee who exercises the option. In other words, the public shareholders pay the compensation, not the company. This is hardly a step in the right direction given the high level of arrogance and entitlement that we are dealing.

Love your show.

Jan. 13 2010 11:40 AM
Voter from Brooklyn

The answer to your question is this @ 10: The Americans have more power than they realize. Just don’t look, just don’t buy!
Overvalued housing… Don’t buy it.
Crazy investment schemes… Save your money independently. Do not invest, don’t expect something for nothing if you can’t handle risk.
I could go on and on but if consumers didn’t pump money into these systems, they wouldn’t exist. Life would be more Spartan, but maybe Americans should learn to live with less and not expect to live half their lives in leisure.
Sucks, doesn’t it… but if we did we wouldn’t be in this position.
Also, hjs, in response to what financial institutions do and if it has any worth, riddle me this:
Do you have any retirement, medical, or educational accounts where you expect money for noting other than your investment?
Can you buy a car, house, or pay for your education in cash?
If you have a business, can you make payroll, buy equipment, or buy new inventory with cash?
In other words, can you live without credit or do you live beyond your cash means?

Jan. 13 2010 11:39 AM
michael from new york

Goldman shorts the CDOs they're selling/promoting to clients.

"Fraud is generally defined in the law as an intentional misrepresentation of material existing fact made by one party to another with knowledge of its falsity and for the purpose of inducing the other party to act, and upon which the other party relies with resulting injury or damage. Fraud may also be made by an omission or purposeful failure to state material facts, which nondisclosure makes other statements misleading.

Am I missing something? Where are the indictments?

Jan. 13 2010 11:34 AM
Patrick Carmody from Boston, MA

I love your show. About stock options: with stock options the public not the company pays the compensation (after they ramp up the stock's value. Great show, and thanks for your efforts.

Jan. 13 2010 11:32 AM
hjs from 11211

goldman always wins

http://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine/print

Jan. 13 2010 11:31 AM
Chris Garvey from Amityville

Tulip Bulbs In 17th Century Holland
or
The Greater Fool Theory

Copr. 1993 C. Garvey

There is always
a still greater fool, Wit-
ness
the high prices of tulips.
They look very nice
And their increasing price
Makes them better investments than blue chips.

Oh, the more of the throng learns what's there,
The more speculators will dare.
For tomorrow, crowds may,
Think the goods, bought today,
Are increasingly valued and rare.

You may think that the price is too tall
For something so worthless and small,
But, it's not what we need,
It is what we perceive
As desired and valued by all,

That's what makes rising prices a trend.
'Cause we know,
round the very next bend,
There'll be buyers galore,
Who'll pay still even more
And the price will just rise without end.

But, when all-who-will
are interested,
And, their spare cash
they've fully invested,
Then to sell, if you try,
You'll find no one to buy,
Your peak price can't now still be digested.

Yes, there's always one more greater fool,
But take care if you live by that rule,
When the smoke clears away,
Let the mirror not say,
"You're the last and the greatest of fools."

Jan. 13 2010 11:30 AM
MichaelB from Morningside Heights

If we believe that no one at any of these firms raised the REAL possibility of housing prices falling (the bubble bursting), that's baloney. Individuals raised the issue, but they were simply ignored, marginalized, or fired.

In other words, party poopers were not allowed to sit at the table. They wouldn't hear what they didn't want to hear.

I believe the risk manager at Merrill who raised the issue was fired.

This is human nature: we don't like naysayers, or people who challenge conventional wisdom. We turn against whistleblowers in our midst (even as we applaud them in the movies!)

We are dumb, we are predictable, and we follow the herd .

Jan. 13 2010 11:29 AM
Patrick Carmody from Boston, MA

I love your show. Why do so many of your guests say that these people on Wall Street are incredibly bright, when the facts indicate otherwise? Respectfully, I would ask you to check guests when they say this. Simply because they are heads of large firms on Wall Street does not mean they are bright, in fact the opposite, they are simply the lowest common denominator it seems. Or at least that is another interpretation of leadership from I can see.

Again, I love your show and listen every day.

Jan. 13 2010 11:29 AM
Voter from Brooklyn

Mr. Dimon is giving the same “how was I supposed to know” that everyone from WNYC reporters and personalities to “Joe Six-pack” gave. I don’t recall a single story on WNYC or broadcasts from NPR, PRI, et al saying how insane it was that housing prices were rising astronomically. I don’t recall any cries of “I’m able to sell my house or apartment for too much”. I don’t see anyone offering to give back the profit they made on their overvalued real estate.
The big banks believed in easy money and no such thing as depreciation, and so did the vast majority of Americans.

Jan. 13 2010 11:28 AM
James

@ Susan

Have you looked into the Move Your Money campaign (ie, take money out of big banks, into community banks and credit unions)?

These large banks like to create an air of inevitability, but none of us HAS to be their customer.

Jan. 13 2010 11:27 AM
superf88

brian -- stress testing sectors for financial firms is an has been a standard product offered by big consulting firms.

Jan. 13 2010 11:25 AM
Susan from Kingston

And we end up paying for your mistakes, Mr. Dimon, through added and hidden fees.

Jan. 13 2010 11:22 AM
superf88

13/HJS
["do u mean the financial firms do anything of value that they need capital for? how can we compare financial firms to tech or pharma, which work to save lives and do other useful things?"]

i mean from a investor's POV... financial, tech, pharma are 3 of the around 14 investment "sectors". that's what i meant.

and as far as comparing financial firms to tech and pharma, of course they are all linked inexorably, ie tech firms borrow money commercially etc.

Jan. 13 2010 11:19 AM
Susan from Kingston

Do we think these guys will ever tell the truth when they make tons of money by deceiving us all? "Not that I can recall" is so typical of the non-answers that these CEO perpetrate on us. Bull Shit!

Jan. 13 2010 11:19 AM
John from Brooklyn

I wonder if they all arrived in DC via their individual private jets...

Jan. 13 2010 11:14 AM
Jake from UES

GREAT to hear whoever that was. Lloyd Blankfein deserves some scrutiny, finally.

Jan. 13 2010 11:14 AM
Derek from 42nd St.

Goldman Sachs need to be siezed and closed down also anybody from any financial firm should be in the FED or Treasury Department. Goldman Sachs is an economic bubble. Take the money back and let these big banks FAIL they are FAILURES and they will FAIL AGAIN.

Jan. 13 2010 11:12 AM
Robert from NYC

he sounds like that character on SNL new who talks and says nothing, don't remember his name but he's the same guy who plays Obama.

Jan. 13 2010 11:11 AM
MichaelB from Morningside Heights

Ask them what they will be contributing to Haitian relief.

Jan. 13 2010 11:09 AM
Nate from Manhattan

Why did the Federal Government intercede on behalf of Wall Street and prevents the many states Attorneys General from regulating the very securities the states knew were trouble and eventually brought on the crisis?

Jan. 13 2010 11:08 AM
Robert from NYC

they just went on break

Jan. 13 2010 11:07 AM
Nate from Manhattan

Why did the firms not go into receivership, as mandated by the Prompt Corrective Action law (TITLE 12, CHAPTER 16, § 1831o), when it was feared they might be or become insolvent?

Here is a link to the law:
http://www.law.cornell.edu/uscode/uscode12/usc_sec_12_00001831---o000-.html

And a link to how it applies:
http://www.pbs.org/moyers/journal/blog/2009/04/william_k_black_on_the_prompt.html

And a link to a discussion on the general topic of the bail out with William K. Black, a regulator during the Savings and Loan Crisis who believes fraud was committed:
http://www.pbs.org/moyers/journal/04032009/transcript1.html

Jan. 13 2010 11:05 AM
Andrew B. from New York City

To all the Wall Street CEOs - the government fattened your balance sheets with a trillion dollar bailout - meanwhile in the last year the economy is the worst since the Great Depression with massive unemployment.

If the government had instead used that money to put people in government jobs building bridges and roads and high-speed rail and solar panels, wouldn't that have helped our economy more than just giving it to you? Especially considering that this kind of policy is EXACTLY what ended the Great Depression of the 1930s?

Jan. 13 2010 10:57 AM
sanych from NJ

It is just mind-boggling that people can believe the b/s these five CEOs are telling the commission. "We have risk management officers reporting to us" (do they really report risk or their job was to hide risk), "we did not put into our models that houses will not appreciate 40% per year" (!? James Dimon), "we just followed the standards at the time" (everybody was stealing, we are no different), and so on.

Jan. 13 2010 10:54 AM
hjs from 11211

super88
"financial firms were desperately competing for growth capital w other sectors, such as tech and pharma, for the first time."

do u mean the financial firms do anything of value that they need capital for? how can we compare financial firms to tech or pharma, which work to save lives and do other useful things?

and yes clinton should have vetoed G-S after the GOP congress passed it

Jan. 13 2010 09:57 AM
Andrew B. from New York City

To the CEO of Goldman Sachs: Retired auto workers, creditors to GM got 50 cents on the dollar following the GM bankruptcy and bailout.

Goldman Sachs got 100 cents on the dollar as a creditor to AIG after Goldman Sachs CEO/Treasury Secretary Hank Paulson arranged an 85 billion dollar bailout for AIG - 13 billion of which went directly to your company.

How do you justify this? Is a company engaging in securities speculation solely to enrich itself worth more to the national economy than one of the world's biggest automakers?

Jan. 13 2010 09:48 AM
superf88

to be fair josh/8 i blame larry and bill along w ALG for opening the gate (and a gop congress) but good leadership calls for continuous adjustment.

the fact is that the repeal of glass steagall was experimental. it was exciting to break the status quo during a time that financial firms were desperately competing for growth capital w other sectors, such as tech and pharma, for the first time.

but by 2001 the problems were all evident. fortune 100 accountants were all stressing over how to valuate derivates, desperately fearful that values were becoming unreal. Then, suddenly, they stopped caring. why? an atmosphere of lack of rule of law, for starters, pushed ever further by a complicit public. millions of people voted for more risk.

my point is that indeed blame can be squarely laid on a string of arrogant, ignorant actors during the 90s and 00s for this crash, including the presidents. But time marches on. What will Obama do? The financial climate is his to craft.

Jan. 13 2010 09:47 AM
hjs from 11211

my question to the american people why do u let wall st control our government? when are u going to stand up?

Jan. 13 2010 09:45 AM
Andrew B. from New York City

1) To CEO of Goldman Sachs : The New York Times has reported that your firm made multi-billion
dollar bets against the very CDOs ( Credit Default Obligations) that you were selling
to your clients, violating federal law.

Did you thus not profit BOTH from the pumping up of the mortgage bubble AND from the popping of the same? And why has it taken so long for the SEC to investigate you? Is it because of the large number of Goldman Sachs alumni in both the Bush and Obama administration?

Jan. 13 2010 09:39 AM
Josh from Brooklyn

I really want to hear from Lawrence Summers and Bill Clinton to why we're here in the first place. Everything these banks did was legal. It was Larry and Bill who de-regulated the industry to allow the instruments exploited by the banks. Before them, these practices were outlawed. They opened the gate. And why is Mr. Summers the one to clean up the mess? He caused it. Asking him to clean this up is like asking George Bush to close Gitmo.

Jan. 13 2010 09:22 AM
asdf

can i have some?

Jan. 13 2010 09:09 AM
superf88

What have you learned?

Jan. 13 2010 09:01 AM
Mike from Brooklyn

My question is for all 4 gentlemen: Which will it be, a punch or a kick?

Jan. 13 2010 08:55 AM
Laurent from Paris, France

Not really linked to the beginning commission: It would be useful to know what they think regarding what's comming next.

Some people are beginning to raise alarms concerning speculations on raw materials (oil, gold, ...) and states debts that could cause another bubble in the near term.
It seems like banks didn't learn from the crisis. What CEOs could say about that?

From anybody's point of view, banks still have the same selfish behaviour. They caused the crisis, and one year after the bailout that rescued them, they earn huge amounts of money. For sure bonuses are a way to motivate employees, but in these trouble times, won't CEOs think of a different way to distribute the money banks are earning? In my opinion, a part could be used to support the real economy. For instance, this could help to support loan guarantee programs for small and medium businesses.

Don't banks think that as the people helped to bailout banks, banks could return the favor with initiatives that could help to stimulate investment, create jobs, ...?

Jan. 13 2010 04:47 AM
smith from ny

why do you need so much when so many have so little? to what end?

Jan. 13 2010 02:22 AM
j from bklyn

has christopher cox ever been made to testify? i want to hear from him and hank paulson, so hear what they thought they knew and didn't know. [that would be enlightening, but probably not in a good way.] also robert rubin.

Jan. 13 2010 02:17 AM

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