Financial Crisis Inquiry Commission Phil Angelides

Chairman of the bipartisan Financial Crisis Inquiry Commission discusses how the fallout on Wall Street is impacting Main Street and lessons learned.

Phil Angelides has expertise in several fields, including housing and corporate and financial market reform. He's also won praise for his innovative work in urban reinvestment and green investment. The California native and Harvard grad has an equal passion for politics and was previously the state's treasurer, Democratic Party chair and gubernatorial candidate. He chairs the Apollo Alliance and the Financial Crisis Inquiry Commission, a bipartisan panel created by Congress that recently issued its analysis of the U.S. fiscal crisis in '08.

TRANSCRIPT

Tavis: Phil Angelides is the former state treasurer here in California who now heads up the 10-member Financial Crisis Inquiry Commission. The findings of his group are due to the president and Congress in December of this year. Phil Angelides, good to have you back home for a few days.
Phil Angelides: It’s good to be with you, Tavis.
Tavis: You’ve been in D.C. a lot this year.
Angelides: I’ve been in D.C. a lot. A lot of cross-country flights.
Tavis: You and I were talking before we came on the air here and we’ll get some of these details in a second, but I was asking your assessment of the media and its coverage of this. Everybody wanted to talk about the meltdown and when the commission was named, between the two of us, honestly, I was like, “Phil’s a great guy but he ain’t going to get no traction on this. Nobody’s going to come forth and tell the truth. The media ain’t going to cover this because it ain’t sexy and they’re hearings.”
But to my surprise – my assessment, and I want to hear yours – I’ve seen a lot of coverage of the hearings.
Angelides: Yeah, well, here’s what I think. First of all, you’re right – there is a lot of fascination about the meltdown itself, but the real story is how as a country do we get to the point where our financial system almost collapsed and the only supposedly rational choice was to put trillions of dollars of taxpayer money in to support the system.
Here’s why I think there’s still a lot of interest in this issue. There’s 27 million people out of work, can’t find full-time work, stopped looking for work. Two million families have lost their homes, another 2 million families are in foreclosure, another 2 million are behind on their mortgages. People have lost much of their life savings, and people want to know what the heck happened.
How did it come to be that the wealthiest economy in the world had this kind of boom and this spectacular bust? They want to know who, why this happened.
Tavis: I want to talk more about details in a second, but to your point now about everyday people wanting to know who, what, why and when and where, reminds me of that old adage that all politics – Tip O’Neill – all politics is local.
You, of course, as I mentioned, were the treasurer of this state, you ran for governor of this state, so you know the state well. California is one of a number of states, but California specifically just recently missed its second constitutional deadline to balance a budget. How is all this fallout on Wall Street impacting states, local people?
Angelides: Okay, so first of all, it’s interesting – this is almost like there was an earthquake and the only buildings left standing were the gleaming skyscrapers at the center. There’s rubble all over this country, high unemployment, state and local governments devastated, insubstantial debt.
Now, I will say a lot of it’s the fallout. Here in California there’s also culpability because the state borrowed very heavily, lived beyond its means when times were good, and in some ways the state’s story is the same story as what happened to a lot of the financial institutions on Wall Street.
They borrowed heavily, they were reckless in the good times, and so when the bump came they fell particularly hard. But there’s no question that the financial crisis has now morphed into an economic crisis that is likely to be with us for years and years and years.
Tavis: I want to give you a blank slate to fill this in, so let me just ask a generic question by design. What are you learning, what have you learned so far, about what happened?
Angelides: All right, so I’ve learned a lot, and of course we’re a little bit – our commission is like a jury. We’re supposed to hear all the facts, all the evidence, hear the whole case before we render our judgment. But let me just give you a few things I’ve been struck about.
First of all, I was someone who was in real estate and investment most of my life, and I was treasurer of the state of California, so I’m not unfamiliar with the financial system. I have been struck by the extent to which our financial system went from one that supplied capital to build businesses and create jobs and build our economy to one that became a huge casino.
It’s as if I walked into the community bank and I opened a door and then I saw a casino as big as New York, New York. Take the housing finance area. The old system was a 20 percent down-payment mortgage. The lender would then sell those mortgages to investors.
Obviously what happened was something very different – mortgages being made that were negative amortization, low teaser rates being made to people who never should have had those mortgages. They were then packaged up, sold to investors, repackaged, repackaged.
It became an extraordinary betting parlor. Enormous leverage – companies on Wall Street levered 40 to one, which means almost no equity, so the minute we had a bump, they would come tumbling down, so struck by just the huge risks and gambles being taken without regard to its consequence for the economy.
I think I’m also struck by in the wake of this disaster how few people in power, public and private corporations, have suffered any consequence. CEOs made tens of millions of dollars; they’re still there – hundreds of millions of dollars. Public leaders who failed to see all the warning lights still in positions of control. The real consequences of this has not been felt in Wall Street or in Washington, but it’s been felt around the country.
I think the final thing I would say is I’ve been struck by the extent to which everyone points fingers away. Take Alan Greenspan. He pointed to everyone else, but he headed the Federal Reserve, who was the one agency that could have regulated subprime lending, and despite all the flashing red lights, the FBI warning that mortgage fraud was an epidemic in this country, the clear evidence that there was predatory lending going on, the Federal Reserve did nothing. They sat on their hands.
Greenspan then said, “Well, we refer things to Justice.” In seven years, two cases to the Department of Justice for unfair lending.
Look, it’s easy to look back and say, “Well, you should have caught all these warning signs.” But as a society, if we ignore all the warning signs that were out there about abusive lending practices, mortgage fraud, rampant speculation, and we don’t soak those in, we’re doomed to repeat this crisis again.
Tavis: To your point about Greenspan, and that’s a long list – we can talk about Greenspan, Robert Rubin, these guys have been (unintelligible).
Angelides: Right, and by the way, this is without regard to party.
Tavis: Exactly. So the question is a two-part question – your take on the accepting of responsibility by the persons who you know were involved in this. Assess that for me, and assess for me the stonewalling that you’ve gotten in certain places.
Angelides: Okay. So first of all, the commission’s actually done about 800 interviews to date. Before it’s over we’ll probably do 1,200, 1,300. We’ll have a remarkable oral history of this disaster for people to learn from. We’ve reviewed millions of pages of documents, so there’ll be a real body here of what happened. We’ve found a lot of people have been forthcoming, but a lot of the leaders have not been.
Take Alan Greenspan. He said in the end he was in charge of monetary policy. He could have regulated subprime lending. At the end of the day he said he was 70 percent right and 30 percent wrong.
Well, the captain of the Titanic was 99 percent right and 1 percent wrong. (Laughter) It’s the size of the mistake. Take Bob Rubin. He served our country. I think all these people are honorable people in many respects. But at Citigroup he was paid guaranteed $15 million a year – an enormous sum of money. When Citigroup collapses, requires a $45 billion bailout from the U.S. government, $300 billion in guarantees by the taxpayers, Robert Rubin’s position was, “Well, I had no operational control.”
The reason responsibility is important is not so we can pillory people, but unless people are willing to admit mistakes, take responsibility, I don’t think we’ll ever get the self-examination we need to have true reform. And here’s the thing -
Tavis: But that ain’t Washington works, Phil Angelides.
Angelides: Well, and that’s not how Wall Street is working right now. Because what happened is in the wake of the crash in 1929 businesses dissolved. There was real consequence. But Wall Street was spared consequence by the infusion of trillions of dollars of taxpayer money, so we’re going to have to work particularly hard as a country to do the self-examination or we’ll get back to the same old business, and I think that’s where Wall Street would like to go. Things were good; they were churning out money quickly.
One last thing – take the credit rating agencies. Their job was to rate securities for investors. Moody’s in 2007 rated nearly $900 billion in mortgage securities. Eighty-some percent of those had to be downgraded. They got it completely wrong, but there’s been no changes to the credit rating model.
They were a AAA factory, they were churning out AAA ratings that investors relied on, and despite all the warning signs the housing market was crashing, all they wanted to do was keep making their fees, churning out their ratings.
There needs to be a coming to grips with the magnitude of what’s happened here.
Tavis: Speaking of coming to terms with it, coming to grips with it, there is going to be, we suspect, in some shape, form or fashion a financial reform package the president wants on his desk by July 4th. How is it that we can reform the financial sector before the report comes out in December that tells us all the stuff that went wrong? Is that a little backwards?
Angelides: It’s a little backwards, but we were given a hand and we’re going to play the hand we were dealt. I’m not going to tell people who are elected people in Congress or the president to sit around on their hands. Based on what they know, they ought to be moving ahead.
But I think the reform movement is just starting, not ending. We’ve learned more about practices on Wall Street this year – Goldman Sachs selling securities and betting against them, a whole set of other practices that have come out at the rating agencies.
I think a lot more is going to be learned in the years ahead, and reform doesn’t just happen with a sweep of a pen. It requires regulators who’ve got political will. We had regulators before. We had an SEC, we had a Federal Reserve. They chose not to constrain reckless behavior.
It’ll take regulators with political will, resources capacity. It’ll take a new ethical compass on Wall Street. So I think we’re just starting down the road. In the 1930s and the New Deal, it took a decade.
Tavis: What about the notion that we hear is advancing, if ever so slowly, the notion of creating a consumer protection agency? Your thoughts about that?
Angelides: Sure. Look, consumers ought to be protected. A lot of the products that were in the marketplace, mortgage products, should have never been out there. They were reckless, they were predatory. The Federal Reserve in 2001 knew that there were real problems. States all over the country were trying to fight predatory lending while the federal government was trying to hold them back.
In 2001 the Federal Reserve adopted regulations they thought would cover 38 percent of the subprime predatory lending out there. It covered 1 percent. Clearly, regulators, consumer protection, did not exist. You had negative amortization loans, low teaser rates, deceptive interest rates and look; we need to make sure that our financial system as well as our families aren’t subject to those kind of toxic products.
Tavis: Here’s the exit question, Phil. I went back the other day, just because I was curious and I knew you were coming on. I went back in my research to look at the 9/11 Commission and all the recommendations they made, and I wanted to get a sense of how many of those recommendations in 2010 have actually been adopted.
It’s he 9/11 Commission, here we are in 2010. We’re on a whole new president now and the overwhelming majority of those recommendations have never been adopted after 9/11.
Tell me why you believe that your recommendations are going to be adopted, and is it just enough to lay out an oral history – that’s got value, to be sure – or does there need to be more here?
Angelides: Okay, so first of all, on 9/11. I think their most important contribution was to tell the big story, that the tragedy could have been avoided and that the country was unprepared. I do think as a result of that there’s been more thinking in this country about how to be prepared, how to protect our citizens against terrorism. There’s a heightened focus, and I think the 9/11 Commission deserves credit for that.
In our instance, our charge is to lay out what happened, to get to the causes, and my hope is that we’ll be part of a deeper self-examination. If we point out huge deficiencies in protecting consumers, reckless gambling in the marketplace, no responsibility by corporate executives, all up side, no down side, hopefully we can contribute to a deeper dialogue in this country.
I’ll tell you right now, I believe that I, along with other commissioners, even after we present our report, we’re going to need to stay at this. Again, nothing’s really changed from the circumstances that existed before the meltdown. That still is yet to be done.
Tavis: He served honorably as treasurer here in the state of California, once ran for governor in this state and is now the man back in Washington getting to the bottom of what happened with the financial meltdown. He is, of course, Phil Angelides. Phil, good to have you on.
Angelides: Nice to be here, Tavis.
Tavis: Thanks for coming to see us.

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Last modified: April 26, 2011 at 12:28 pm