Yesterday Senate Minority Leader Mitch McConnell (R-KY) appointed me to be a member of a new Financial Crisis Inquiry Commission. I thank the Leader for the appointment, and will do my best to contribute thoughtful, open-minded, rigorous and responsible analysis and inquiry.
The Commission was created by Public Law 111-21, the Fraud Enforcement and Recovery Act of 2009, signed into law by President Obama on May 20, 2009. The purpose of the Commission is “to examine the causes, domestic and global, of the current financial and economic crisis in the United States.”
I am one of 10 members. Here is the full roster, along with the Congressional leader who appointed each:
- (Chairman) Phil Angelides (Pelosi, chosen as Chair by Pelosi and Reid
- (Vice Chairman) Former Rep. Bill Thomas (Boehner, chosen as Vice-Chair by Boehner and McConnell)
- Brooksley Born (Pelosi)
- Byron Georgiou (Reid)
- Former Senator Bob Graham (D-FL) (Reid)
- me: Keith Hennessey (McConnell)
- Doug Holtz-Eakin (McConnell)
- Heather Murren (Reid)
- John Thompson (Pelosi)
- Peter Wallison (Boehner)
The statute creating the Commission requires us to “submit on December 15, 2010 to the President and to the Congress a report containing the findings and conclusions of the Commission on the causes of the current financial and economic crisis in the United States.”
I expect to write on KeithHennessey.com about my work on the Commission over the next seventeen months. Those of you familiar with my blog should have a fairly good idea of what to expect.
For those who are new to this site, I also have a free mailing list tied to the blog. If you would like to track my work on the Commission, you can subscribe to the mailing list or the RSS feed, and/or visit the blog. I write about a wide range of economic policies, not just financial policies. So don’t be surprised when you see substance from me on anything from taxes and trade, to health care and social security, to energy and climate change, or to the broader macroeconomic and policy picture.
To get things rolling:
- I have assembled some background on the Commission. Most of this substance is in today’s papers, but I thought I’d lay out my structural description here for reference.
- I am seeking input. Please help educate me so I can do a good job on the Commission. Please use the contact information I provide below.
- I am building a preliminary reading list for myself and anyone else who might care. I will post a first draft when it’s solid.
- On the top horizontal menu bar you will see a list of subject categories. The “financial” category contains past posts and some of my White House work that is relevant, and it will contain all future posts related to my work on the Commission.
I anticipate that my work on the Commission will become a significant portion of the future content of this blog, so stay tuned. I enjoy solving problems, especially when they’re hard and important. I also like to explain complex and important stuff in a way that non-experts can understand. I hope you will let me try to do that as I gain new and different perspectives on the financial and economic crisis in the United States.
For today, though, let’s get some mechanics out of the way.
Background on the Financial Crisis Inquiry Commission
(I will abbreviate the Commission as FCIC.)
P.L. 111-21 is the Fraud Enforcement and Recovery Act of 2009, a bill strengthening enforcement of various types of financial fraud crimes. The Commission was created by a bipartisan Senate amendment to that bill, offered by Senator Johnny Isakson (R-GA) and Senator Kent Conrad (D-ND). The amendment was adopted 92-4, a good sign of initial bipartisan support. The four Senators opposing were Bunning (R-KY), Grassley (R-IA), Kyl (R-AZ), and McCain (R-AZ).
Here is the text of Section 5 of the law creating the Commission. I will walk through it. This mechanical stuff may seem boring, but it’s important. If you find errors in the following description, I welcome corrections.
The Commission is technically in the Legislative Branch. The purpose is “to examine the causes, domestic and global, of the current financial and economic crisis in the United States.” We are required to issue a report to the President and to the Congress on December 15, 2010.
There are ten members, appointed by the “bicam[eral] / bipart[isan]” leaders. Speaker Pelosi and Senate Majority Leader Reid each get 3 appointments (since they’re in the majority). House Minority Leader Boehner and Senate Minority Leader McConnell each get 2 appointments. Each leader is required to consult “with relevant Committees,” meaning primarily the House Financial Services Committee and the Senate Banking Committee.
The Commission Members cannot be Members of Congress, nor government employees of any sort. They are supposed to be “prominent United States citizens with national recognition and significant depth of experience in such fields as banking, regulation of markets, taxation, finance, economics, consumer protection, and housing.”
Functions of the Commission
The Commission has five functions:
- “To examine the causes of the current financial and economic crisis in the United States.” A list of 22 specific items for us to review follows.
- “To examine the causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009.”
- To submit a report to the President and the Congress on December 15, 2010. That report should contain our findings and conclusions on the causes of the crisis. The Chairman can also include reports or specific findings on any particular financial institution that failed.
- To refer to the Attorney General and State AG’s as appropriate “any person that the Commission finds may have violated the laws of the United States in relation to such crisis”
- “To build upon the work of other entities, and avoid unnecessary duplication, by reviewing the record of” a host of existing bodies, including the House Financial Services and Senate Banking Committees, the GAO, and just about anybody else in government.
Here is the long list of 22 specific causes the Commission must investigate under function (1) above:
- fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;
- Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;
- the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;
- monetary policy and the availability and terms of credit;
- accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;
- tax treatment of financial products and investments;
- capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;
- credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;
- lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;
- affiliations between insured depository institutions and securities, insurance, and other types of nonbanking companies;
- the concept that certain institutions are `too-big-to-fail’ and its impact on market expectations;
- corporate governance, including the impact of company conversions from partnerships to corporations;
- compensation structures;
- changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;
- the legal and regulatory structure of the United States housing market;
- derivatives and unregulated financial products and practices, including credit default swaps;
- financial institution reliance on numerical models, including risk models and credit ratings;
- the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;
- the legal and regulatory structure governing investor and mortgagor protection;
- financial institutions and government-sponsored enterprises; and
- the quality of due diligence undertaken by financial institutions.
Major Powers of the Commission
- The Commission may hold hearings, take testimony, receive evidence, and administer oaths.
- The Commission can require “the attendance and testimony of witnesses and the production of books, records, correspondence, memoranda, papers, and documents.” If necessary, the Commission can issue subpoenas to achieve this goal.
- Finally, the Commission can get “any information related to any inquiry of the Commission from any part of the government.”
I am seeking input
In an attempt to become a well-informed member of the Financial Crisis Inquiry Commission, I am seeking input. Please help educate me.
I am building a reading list for myself. I will post a first draft when it’s solid.
From whom I most need help
I will take help and input from anyone willing to provide it. There are some channels that I know can help me a lot.
In particular, I would value highly:
- original writing by individuals with substantive expertise in any of the areas covered by the commission; and
- information and insight from those who were involved, from any perspective.
I need the most help from those with direct experience working in the financial sector, especially over the last several years. I will take it from any level of the corporate org chart — those in the “C” suites, and the analysts, associates, and traders who work on the front lines.
I also could use help from the academic community. Please send me your papers or links to them.
I could use help and input from members of the press who have been covering this crisis.
I would greatly appreciate input from those based outside the U.S. We are supposed to “to examine the causes, domestic and global, of the current financial and economic crisis in the United States.” Distance can give perspective, and a comparison with other nations can be enormously instructive.
How to provide input
If you have something you think I should see, please email it to me at: kbh [dot] fcic [at] gmail [dot] com
As part of your email, please include your name, profession, contact information, and relevant professional background. I will take anonymous input, but may weight it less heavily, depending on the apparent reason for the anonymity.
Shorter is better. If you send me a short email, I’ll read it. If it’s a 1-3 page memo, I’ll do my best to read it. If you send me a 100-page treatise, I expect I’ll skim it.
If your email includes the phrase “secret global conspiracy” or is in all caps, or contains more than three curses, you should assume that I’ll skip it.
Please assume that your input is basically one-way. In almost all cases, don’t expect a private email dialogue with me based on your input. You should anticipate that most of my feedback will come publicly through this blog. This is more efficient and transparent.
This is not a substitute for formal input to the commission
I assume there will be a formal process for submitting input to the Commission. This is not that process.
In particular, the Commission is supposed to refer to the Attorney General of the United States, or to State AG’s as appropriate, “any person that the Commission finds may have violated the laws of the United States in relation to such crisis.” Please provide any information you have with respect to this mission directly to the Commission, through official channels, and not directly to me through this channel.
This input channel is to help educate me to be a better member of the Commission, not to serve as a generic inbox for the commission, and especially not to serve as an inbox for accusations of criminal wrongdoing.
What we’re supposed to inquire about, learn, and figure out
I have a fairly strong knowledge base from my experience in the Bush White House from 2002 through 2009. There is more for me to learn, and I am directing my studies to match the formal mandate of the Commission. You can help me most by tailoring your input to fit some part of this mandate.
We are supposed to:
- “examine the causes of the current financial and economic crisis in the United States;” and
- “examine the causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009.”
In the future I may pose some specific questions where I need help and education. For now, if you want to provide input, please put yourself in my shoes. Help me achieve the above two goals, and in particular tell me into which of the 22 subject-matter buckets listed above your input falls.
A little bit about me
I imagine that with this post some readers are discovering this blog and mailing list for the first time. You can find my bio here. Here are a few facts salient to the FCIC:
- I worked in economic policy for more than 14 years. For more than six years I worked for President George W. Bush at the White House National Economic Council.
- In 2008 and January of 2009 I was the Director of the National Economic Council, a position best known for its current occupant, Dr. Larry Summers. Dr. Summers has my old job.
- I am fairly certain this means I am the only member of the FCIC who worked in government during 2008. I hope this means I have an important perspective to contribute to the Commission.
- Since I launched this blog in late March I have posted many times on issues relevant to the Commission’s mandate. You can find all of them by tracking the financial categoryin this blog (bookmark the “financial” link in the horizontal menu bar right below my name). To get you started, here are posts that I think are the most relevant to the Commission’s work:
- Six month economic policy status update
- What happened to FREE markets in London?
- How much bailout money will taxpayers get back?
- Intro to TARP (a four-part series)
- Should bank stress test results be public?
- A series on the $700 B TARP constraint
- Bonuses and the peril of Congressional hindsight
- While I don’t think it’s central to the financial crisis, the auto loans/bailouts are clearly a major element of our economic problems, and they largely fall within the timeframe of the Commission’s mandate. I coordinated the auto issue for President Bush, and have written a lot about it since then:
- Auto loans: a deadline looms
- Auto loans, part 2: options for the President
- Auto loans, part 3: the Bush approach
- Auto loans, part 4: Chrysler gets an ultimatum, GM gets a do-over
- Auto loans, part 5: The press forgot to ask about the cost to the taxpayer
- Should taxpayers subsidize Chrysler retiree pensions or health care?
- The Chrysler bankruptcy sale
- Mixed results on the Chrysler announcement
- Responding to Chrysler comments
- Understanding the President’s CAFE announcement
- Basic facts on the General Motors bankruptcy
- Understanding the General Motors bankruptcy
- Dr. Goolsbee gets it wrong on the auto loans
- Government Motors discussion on Fox News Sunday (continued)
- I had a semi-public economic policy mailing list when I worked for President Bush. I have posted on my blog most of the emails I sent to that list, the content of which was derived from my work in the White House. Here are some big ones that are relevant to the Commission’s work. You can find all of them in the financial category archive.
- Subprime mortgages (7 September 2007)
- Subprime mortgages (part 2) (13 September 2007)
- Address by President Bush on financial markets (24 September 2008)
- What caused this financial mess?
- Are banks hoarding taxpayer investments?
- President Bush’s speech on financial markets and the world economy (13 November 2008)
- The G-20 Summit in pictures (just for fun)
- What was accomplished at the G-20 Summit?
- If you search hard enough, you can probably find video or transcripts of some interviews I’ve done since early 2008. Here’s one from about a month ago on CNBC. I anticipate being on CNBC tomorrow at about 2 PM EDT with Erin Burnett.