What question should I ask four bank CEOs?
7 January
The Financial Crisis Inquiry Commission has its first substantive hearing next week. The hearing will begin Wednesday morning (details to follow when they’re public). The commission staff has told the press we will have a panel of four financial CEOs/Chairs:
- Lloyd Blankfein of Goldman Sachs;
- Jamie Dimon of JPMorgan Chase;
- John Mack of Morgan Stanley; and
- Brian Moynihan of Bank of America.
I expect each will provide a written statement and some oral testimony. Commissioners will then ask questions. There will be other panels as well, which I will discuss after the Commission staff makes the details of them public.
I am one of 10 commissioners, and there are four people on this panel, and several panels, so I anticipate I will get to ask at most three or four questions, and more likely one or two. I assume I can submit written questions as well.
I am posting to ask for suggestions: what do you recommend I ask these men about the causes of the financial crisis?
I am serious about this request. I was a policy staffer for 14 years and have written hundreds (thousands?) of hearing questions and answers for my former bosses, so I have a few good questions in mind. At the same time, I long ago learned the value of getting input from a wide range of sources, so here’s your chance.
In return, I ask that you take this seriously. Here is how you can best help me.
Please post your question in the comments or email it to me: kbh <dot> fcic <at> gmail <dot> com. Warning: I will impose a stricter comments policy on this post, and I intend to delete comments which stray from the parameters described below. Please take your rants elsewhere, and post or send me only serious questions that meet these criteria.
Please do:
- Suggest questions that are appropriate to ask a firm CEO or Chairman. These are general managers who think about their firm as a whole. Questions should be about the forest or at least big trees, not about leaves and twigs.
- Suggest questions that can elicit information that is not otherwise available but should be.
- Suggest hard questions.
Please don’t:
- Suggest questions designed only to attack or embarrass the witnesses. I won’t ask them. My goal is to elicit information and analysis and, if possible, to encourage debate and discussion of what happened and why. I have no problem asking questions that embarrass witnesses or that they want to avoid, but only if it’s the most effective path to serious policy debate. I will leave the demagoguery to others.
- Send me speeches. I am interested in asking questions that solicit useful answers, not in hearing myself talk. If your question begins “Don’t you think …” then you’re on the wrong track.
The Commission’s mission is 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.”
To repeat: We’re supposed to understand and explain the causes of the current financial and economic crisis. That should guide your questions.
While I will consider questions on any topic related to our mission, when thinking about large financial institutions, I am most interested in questions surrounding the too big to fail concept. I am also quite comfortable asking prospective questions about how well-prepared we are to prevent the next crisis, whatever that may be.
If all goes smoothly, within the next day or so I will post again with similar requests for other panels and witnesses. My goal would be to post again before next Wednesday with the best questions I have received.
To help get your thinking started, here is the key text from the invitation letter sent to the CEO’s by Commission Chairman Phil Angelides and Co-Chairman Bill Thomas. This is already circulating widely among DC insiders and lobbyists, but the public doesn’t have access to it. That’s unfair. Having it will also help explain the written and oral testimony you see from the CEO’s next week, since you will know the questions to which they are responding.
These are good questions, but they do not necessarily reflect my thinking, so please do not feel you need to limit the questions you suggest to the scope described below.
The FCIC is interested in learning what caused financial problems experienced by your company, including losses incurred, and what changes have been implemented as a result. Therefore, your testimony should address the following topics:
- What were the primary errors and business practices that caused the financial problems at your company and what actions have been taken to address them;
- What were your company’s business models and major sources of income (or loss), what changes have been made, what were the reasons for the changes, and what are your company’s current business models and sources of profit;
- What types of lending activities did your company pursue that caused the financial problems, including the amount, Iypes and terms of loans being made, what changes have been made, what were the reasons for the changes, and what are your company’s current lending practices;
- What were the risk management policies and practices at your company, including the types of investments being made, underwriting and approval of investments including reliance on third parties for due diligence, monitoring of investments by management, the board of directors, committees of the board of directors, and any other persons or entities, and the accounting and public reporting of the company’s investments. What changes have been made to your company’s risk management policies and practices, what were the reasons for the changes, and what are your company’s current risk management policies and practices. In addition, what were your company’s risk exposure, what changes have been made to your company’s risk exposure, what were the reasons for the changes and what are your company’s current risk exposure;
- What were the executive compensation plans and practices at your company and how did they contribute to the problems. What changes have been made to your company’s executive compensation plans and practices, what are the current executive compensation plans and practices, and what were the reasons for the changes.
I look forward to your suggestions, and want to thank everyone who has emailed me input for my work on the commission. Please keep it coming, using the same email address provided above. I am sorry I can’t respond to everyone who is sending me stuff – the volume is just too great.
(photo credit: Empty hearing room by talkradionews)
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Is there a relationship between the losses by the major banks in 2008 to the increase of bank service charge increases? The recent increases in banking fees ( late fees, overdraft, etc) has been a large burden to customers of these large banks and seems like another way for the banks to recoup their losses from bad investments. Should there be regulations to curb these hefty increases?
This is some very information, I just completed my paper for class and think I should go re-edit it lol. You may have just made me a regular
what was the revenue and profit from your firms involvement in the mbs and cds maket
06/07/08
what were your underwriting fees
what were your positions in cds- what ultimate p/l did u derive from that sector of your business
which cds were paid off via the gov s injection of aig $
did u own cds on any deals you underwrote
"If we abandon, as opposed to regulate, market mechanisms created decades ago such as derivatives, we may end up constraining access to capital and the efficient hedging and distribution of risk,…," said Blankfein.
If the commission's job is to prevent from similar crisis to happen in the future, you must answer the questions Warren Buffett raised about derivatives. Before derivatives came to the front stage, the direction of financial revolution has been (1) to reduce counterparty risk by reducing duration of transaction, and (2) to make certain an account's financial leverage can be assessed. Derivatives have been effective in undoing both "improvements". We were literally back to where we were in the 1920's. That was what brought our financial system to its knee.
Mr. Blankfein didn't want government to constrain the use of derivatives. The intention is obvious. The distribution of risk is a kind way of saying "If I feel I am going down, I am going to shift that risk so another guy will share the risk with me." That is the interconnectedness the commission wants to do away. In terms of CDS, this counterparty interconnectedness can stretch as long as 5 years. Effecient hedging is a kind of way of saying "We want leverage, and by using derivatives, we can leverage in a way that nobody else knows to calculate our leverage ratio."
If derivatives constitutes a large part of financial operation in our financial firms, nobody will know a firm's long-term worth anymore. The financial market is known to have a ~10-year cycle. The asset priced during peaceful time through the use of derivatives will certainly be worth order of magnitude less during time of high volatility. This is the toughest problem faced by the commission.
regulators…
''sheila bair is over her head and has been on more than washington mutual. trying to sell wachovia for pennies on the dollar didnt work, as wells fargo outbid her give-away. too bad that wasnt the case with wamu. jamie dimon stated that wamu was solvent at the time of 'take down' and he had been bidding on wamu prior to fdic and ots take down. so why did she take it down? why destory so many investors lives? why did the fdic seize a solvent bank, on a thursday, not the normal weekend, a few days before TARP was to come to the rescue of such banks? why did treasury secretary paulson leave wamu OFF the NO SHORT list of financial institutions? wamu was the 6th largest bank in the usa. the shorts were denied the largest 19 banks to short into the ground, but, NOT wamu? why? there are many many questions that need to be answered and wamu needs to be sold for a price that it is worth….and it is worth a lot more than the sub pennies the FDIC got for selling a solvent bank. I trust it will all come out in the court actions pending. there needs to be justice in the usa. wamu did not get such a courtesy.''
Letter to Senator Ensign of the PSI
I am open to any feedback anyone may have. This is the letter I sent Sen. Ensign just now. http://ensign.senate.gov/public/
Good Day Senator Ensign.
I have read that you are a member of the Permanent Subcommittee on Investigation and that the PSI is going to speak with the FDIC over the seizure of Washington Mutual. An Illegal seizure in my opinion. I have followed the WAMU/JPM/FDIC case now for over year. I have read the court documents and files. It makes me sick to see how corrupt our banking system is.
I am requesting that you ask the FDIC a few questions on my behalf. How I wish I could be at that hearing. I would also like to know on what day the hearing will be & if it will be broadcast on CSPAN?
Here is a list of the questions I would like to see asked. I truely hope the Senate ask's them real hardball questions and not alot of fluff.
1. Why did they Seize Wamu shortly after TPG invested 7 billions dollars in Wamu?
2. Why did they Seize on a Thursday, instead of the normal Friday?
3. Was Wamu Solvent at the time of the seizure. If it was not, how come Wamu & JPM both claim that Wamu was solvent? How did the FDIC determine that Wamu was NOT solvent? Based on what?
4.I beleive in Sept. 2008 there was a do not short list. Why was Wamu excluded from the list?
5. Why didnt the FDIC wait a few more weeks and give Wamu a chance with Bank Bailout / Tarp Funds?
6.Where does the FDIC get off on claiming Wamu's 4.4 billion in deposits?
7. Does the FDIC feel that 1.88 billion was fair market value. If they Do, please have them explain this, since JPM(Chase) offered about 8 dollars a share for Wamu a few months earlier.
8. There was a rumor that Citibank
made a Bid for Wamu to the FDIC, What was there bid amount?(Please check with Citibanks CEO to confirm).
The fall of Wamu was a great injustice to America and Wamu's shareholder. Any assistance that you render would be greatly appreciated.
Sincerly
A Wamu shareholder and longtime supporter of your's
Updated 3/19/10:
We are ready for shareholder action! If you would like to be added to the joinder, you can read the details and download the Letter of Authorization document from the Take Action! page. Thank you for your support of this effort.
3/17/10: In the works is an effort by a group of shareholders to file a "joinder" to the Equity Committee's legal action in bankruptcy court to compel WMI to hold a shareholders' meeting at the earliest possible date.
WamuEquityRights.org is a grassroots effort to inform shareholders of Washington Mutual, Inc. (WMI) about their rights as the owners of WMI and the actions they can take to exercise those rights and protect their equity ownership interest in WMI. The web site was created by volunteers who are themselves WMI shareholders, with the additional support of hundreds of individuals who have been researching and sharing information about WMI's Chapter 11 bankruptcy case as it has developed in Delaware Bankruptcy Court over the past 18 months.
This web site contains information, derived mostly from public documents related to WMI's bankruptcy proceedings, intended to help educate WMI shareholders about their rights. In addition, the web site will be used to inform shareholders of actions they can take to protect their interests as shareholders, and will be updated with new information as it becomes available.
We, the shareholders and owners of WMI, are very fortunate that a similar effort which began in mid-2009 recently resulted in the appointment of an Official Equity Committee in WMI's bankruptcy proceedings. The Equity Committee's sole mission is to represent the interests of equity – we the shareholders – in WMI's bankruptcy proceedings. This representation is turning out to be of critical importance because, as you can read on this web site, WMI, under the leadership and guidance of its Board of Directors, does not appear to be truly representing the interests of its shareholders.
WMI announced in bankruptcy court on March 12, 2010, that it had reached a proposed settlement agreement with its two main adversaries, JPMorgan Chase (JPM) and the Federal Deposit Insurance Corporation (FDIC). The details of this proposed settlement agreement make it clear that WMI is not trying to maximize the value of its estate for the benefit of shareholders. Instead, the agreement appears to be an almost complete abandonment of WMI's shareholders. One group of WMI shareholders has called the proposed settlement agreement an "unprecedented surrender".
What can shareholders do about a situation where the Board of Directors has chosen a course which abandons its fiduciary duty to those shareholders? In filing a motion to compel WMI to hold a shareholders' meeting for the purposes of electing a new Board of Directors, the Equity Committee has provided an answer. If the Equity Committee is successful in forcing WMI to hold a shareholders' meeting, then we, the shareholders and owners of WMI, can vote to replace the current Board of Directors with a slate that actually understands its fiduciary duty to the shareholders.
Please note that this web site is not associated with the WMI Official Equity Committee and that information presented here is solely in the opinion of the site's creators. This web site is not intended to be construed as providing investment advice nor should it be used in that way.
http://wamuequityrights.org/images/stories/author...
Friday, April 9, 2010
Killinger, Rotella will tell Congress that bank was on the mend when seized
What WaMu execs will say
PUGET SOUND BUSINESS JOURNAL (SEATTLE) – BY Kirsten Grind STAFF WRITER
In his first public statement since the seizure of Washington Mutual, former chief executive Kerry Killinger plans to tell a congressional subcommittee that the bank could have survived and that regulators seized it precipitously, according to people familiar with his testimony.
Killinger’s testimony, and that of former WaMu President Steve Rotella, obtained in advance through interviews by the Puget Sound Business Journal, will paint a picture of a bank that was close to stabilizing its finances amid the financial turmoil of 2008.
Killinger plans to use charts and graphs at the April 13 hearing in Washington, D.C., to show the Seattle-based bank’s improving financial condition at the time, and to argue against the “bargain purchase” of WaMu by JPMorgan Chase & Co. The New York bank paid $1.9 billion for WaMu’s $307 billion in assets.
The testimony is part of an inquiry into events leading up to WaMu’s seizure and sale in September 2008 in what has become known as the largest bank failure in U.S. history.
The official purpose of the hearing by the Senate Permanent Subcommittee on Investigations is to question executives about their decision to expand into risky mortage lending, particularly in the last 10 years of the bank’s life.
But the hearing may also address the other big question that looms over WaMu’s downfall: Did regulators move in too soon?
According to people familiar with the prepared testimony, Killinger and Rotella will treat the question differently. Killinger is expected to say regulators should not have seized the bank.
It’s unclear if Rotella will echo that view at the hearing, but it currently isn’t part of his prepared remarks, according to people familiar with the testimony who spoke on condition of anonymity because of the sensitive nature of the ongoing investigation.
The hearing, which will include other high-ranking WaMu officials, also will highlight the competing narratives that have developed to explain the bank’s downfall. One line says WaMu had become hopelessly mired in subprime debt, posing a risk to depositors, and that federal regulators acted to prevent a messy and expensive failure. The other line says that despite deep exposure to subprime losses, the bank had largely stabilized its finances and qualified as “well capitalized” when regulators seized it.
Last year, a Business Journal investigation found that Washington Mutual was solvent when regulators seized it, that regulators undercut the bank’s own efforts to raise capital and that the eventual buyer, JPMorgan Chase, had a plan in the works to buy the bank from the government months before regulators took over.
The testimony, followed by questions from U.S. senators, represents the first time any of the executives will talk publicly about their actions at the bank.
The hearing is particularly significant because Killinger and Rotella have remained out of the public eye since WaMu’s closure.
The hearing is part of the continuing attention WaMu’s collapse commands more than a year and a half after it was seized by the federal Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corp. (FDIC).
In addition to the hearing, a nearly 600-page settlement in the complicated Chapter 11 bankruptcy of WaMu’s holding company was recently proposed. The move has sparked a new wave of legal wrangling over the billions of dollars of assets remaining after WaMu shut down.
What’s more, a long-anticipated report on WaMu by the Inspector General offices of the FDIC and the OTS is expected to be released soon, according to the Treasury Department.
“WaMu is a political nightmare,” said Stephen Klein, an attorney at Seattle-based law firm Graham & Dunn.
“The question in this case is, ‘Did the FDIC seize the bank prematurely?’ It’ll be interesting to see politically how that’s handled.”
Killinger’s testimony is expected to be the most dramatic. He is expected to say that government officials turned their back on the century-old Seattle institution in the months before they seized it because WaMu was not part of an elite “club” of Wall Street bankers.
The former chief executive, who was ousted three weeks before WaMu was closed, plans to point to the Treasury Department’s refusal to place the bank on a list of financial institutions that were off-limits to short sellers during the summer before its closure, a move that would have helped support WaMu’s plummeting stock price at the time, according to people familiar with the testimony.
Killinger also was expected to discuss the changes in federal laws in the weeks following WaMu’s seizure that allowed the government to bail out other large financial institutions, these people said.
is it fair !?? http://www.youtube.com/watch?v=DT-NuYQQ6G0
i got 1 . what do you plan on doing with the money that you stole from your own clients and the rest of the world. And the answer is hey guys lets go on another business trip