Wednesday, April 07, 2010

What went wrong with the banks and how can we fix it?

By Carol Gee

This disturbing headline, "A Congressional Panel, Hobbled in Its Financial Inquiry," is via The New York Times.  Group theory experts would have an interesting challenge in figuring out what went wrong with this commission.  In contrast, the 9/11 Commission seemed to have a great deal more success with its widely read and effectively utilized report.  To quote from the Times:

In recent months, a top investigator resigned, frustrated by delays in assembling a staff. Behind closed doors the panel’s chairman and vice chairman have had heated disagreements over whether to make public preliminary findings or revelatory documents. . .

The people appointed to the Financial Crisis Inquiry Commission last July, six by Democrats and four by Republicans, say they hope to publish, by the Dec. 15 deadline, a volume much like the 9/11 Commission report, which was acclaimed for its narrative sweep and became a surprise best seller.

But that goal seems increasingly out of reach, given what the commissioners themselves acknowledge has been a haphazard approach and a lack of time and resources. Given the delays, the commission’s impact on policy could be modest; the House has already voted on a sweeping financial reform bill, and the Senate could vote on it by summer.
Chairman of the Banking Committee, Senator Chris Dodd will be retiring at the end of his term. As he leads this Congressional reform effort, he does not need to be distracted by reelection issues. Senator Dodd can comfortably push for regulation reforms that can truly protect the nation, and particularly vulnerable consumers, from another Great Recession. If Congress does not go far enough, the next banking greed bubble-and-burst episode could become the Great Depression-II.

My banking reform  suggestions include: 1) Establish an independent Financial Consumer protection agency. 2) Break up the biggest banks -- who are really investment banks, not banks who serve banking customers. 3) Regulate exotic derivatives.See original Democratic Strategist quote at Amplify.

My own initial take on this Financial Crisis Inquiry Commission story is that, as always, it comes down to the qualities of leadership that appointees and staff bring to the task. People associated with the 9/11 Commission were very outstanding. I did not get that same impression regarding the current commission.  To quote further from the NYT article referenced above:

. . . In an interview, the commission’s chairman, Phil Angelides, said the panel was struggling to satisfy a broad mandate to examine the role of 22 factors in bringing about the crisis. He pointed out that the panel had a budget of just $8 million, compared with the $38 million spent by a federal bankruptcy trustee who dissected the collapse of Lehman Brothers.

Even though the panel is backward-looking and will not issue formal recommendations, Mr. Angelides said he hoped its findings would be authoritative and useful for future policy makers.

But Bill Thomas, the Republican vice chairman of the panel and a former chairman of the House Ways and Means Committee, acknowledged, “We are limited by time.”

. . . The commission’s executive director, J. Thomas Greene, was named in September but took several months to assemble a staff of 49, leading one investigator, Martin T. Biegelman, an expert on corporate fraud, to resign during the winter. Twelve staff members are on loan from agencies like the Federal Reserve. The commission struggled to hire researchers and investigators with expertise in areas like structured finance or accounting.

. . . Commissioners also said that Mr. Angelides and Mr. Thomas recently clashed over whether to release preliminary staff reports or some of the 500,000 pages of materials that had been gathered so far. When Mr. Angelides floated the idea of releasing some of the materials to reporters, Republicans threatened to look into the panel’s work if they took control of the House, a person briefed on the dispute said.

Lack of money cannot be used as an excuse for an overly ambitious congressional mandate, too much political bickering, lack of transparency and obviously poor organizing.  The FCI Commission has until the end of the year to finish its work.  The key to its success will be for members and staff to do the best they can from here on out with the marginal hand they were dealt.  This body's work is,  in a very different way -  of course, of comparable importance to the work of the 9/11 commission.  The Great Recession did great damage to our nation.  We need to know why it happened and how to prevent a recurrence, just as we did with the 9/11 attacks.

(Cross-posted at South by Southwest.)

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