More FCIC panelists & more questions

More FCIC panelists & more questions

The Financial Crisis Inquiry Commission (henceforth, FCIC) staff has released the details and full witness list for our first substantive hearings.

When:

It’s a two day hearing.

  • Wednesday, January 13, 2010: 9:00 a.m. EST
  • Thursday, January 14, 2010: 9:00 a.m. EST

Where:

The Ways & Means Committee Room, 1100 Longworth House Office Building, Washington, DC.

How to watch / listen:

The staff tell us they expect the FCIC website to go live Tuesday of this week, and the hearings to be streamed through the website. That’s their statement, not mine, so please don’t hold me to it. I have nothing to do with the mechanics of the meetings or (potential) broadcast. I don’t know if C-SPAN or any of the business networks will cover it.

The substance

There are five panels over two days. If you read last Wednesday’s post you know about panel 1 on Wednesday. The composition of the other four panels is newly public.

Day 1: Wednesday, January 13

Panel 1: Financial Institution Representatives
  • Mr. Lloyd C. Blankfein, Chairman of the Board and Chief Executive Officer, Goldman Sachs Group, Inc.
  • Mr. James Dimon, Chairman of the Board and Chief Executive Officer, JPMorgan Chase & Company
  • Mr. John J. Mack, Chairman of the Board, Morgan Stanley
  • Mr. Brian T. Moynihan, Chief Executive Officer and President, Bank of America Corporation
Panel 2: Financial Market Participants
  • Mr. Michael Mayo, Managing Director and Financial Services Analyst, Calyon Securities (USA) Inc.
  • Mr. J. Kyle Bass, Managing Partner, Hayman Advisors, L.P.
  • Mr. Peter J. Solomon, Founder and Chairman, Peter J. Solomon Company
Panel 3: Financial Crisis Impacts on the Economy
  • Dr. Mark Zandi, Chief Economist and Co-founder, Moody’s Economy.com
  • Dr. Kenneth T. Rosen, Chair, Fisher Center for Real Estate and Urban Economics, University of California, Berkeley
  • Ms. Julia Gordon, Senior Policy Counsel, Center for Responsible Lending
  • C.R. “Rusty” Cloutier, President and Chief Executive Officer, MidSouth Bank, N.A. and Past Chairman of the Independent Community Bankers Association

Day 2: Thursday, January 14

Panel 1: Current Investigations into the Financial Crisis – Federal Officials
  • Honorable Eric H. Holder, Jr., Attorney General, U.S. Department of Justice
  • Honorable Lanny A. Breuer, Assistant Attorney General, Criminal Division, U.S. Department of Justice
  • Honorable Sheila C. Bair, Chairman, U.S. Federal Deposit Insurance Corporation
  • Honorable Mary L. Schapiro, Chairman, U.S. Securities and Exchange Commission
Panel 2: Current Investigations into the Financial Crisis – State and Local Officials
  • Honorable Lisa Madigan, Attorney General, State of Illinois
  • Honorable John W. Suthers, Attorney General, State of Colorado
  • Ms. Denise Voigt Crawford, Commissioner, Texas Securities Board and President, North American Securities Administrators Association, Inc.
  • Mr. Glenn Theobald, Chief Counsel, Miami-Dade County Police Department, Chairman, Mayor Carlos Alvarez Mortgage Fraud Task Force

Written testimony

I expect each witness will submit written testimony, give oral testimony, and respond to questions. I will do my best to make their written testimony available on this site.

Questions?

While I am providing you with the above information, I did not put these hearings together, nor am I responsible for the mechanics of them. I just show up and participate as one of ten commissioners. So if you have questions or concerns about the structure, participants, or mechanics, please direct them to the Chairman and commission staff. For press inquiries, Tucker Warren is the media contact: twarren@fcic.gov. For everyone else, I’m afraid you’ll have to wait until their website is live.


Expanding my request for assistance

Last Thursday I asked for suggestions about questions to ask the bank executives. The feedback has been incredible, both in the comments and in email sent directly to me. Thanks to all who have contributed. The hard part is going to be picking the best 1-3 questions to ask.

I would therefore like to expand that request to cover the other four panels listed above. What do you recommend I ask any of the above-listed panelists about the causes of the financial crisis?

Please post your question in the comments or email it to me: kbh.fcic@gmailcom. 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:

  • Tell me at which witness the question is directed.
  • Suggest questions that are appropriate for a particular witness.
  • 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: Were supposed to understand and explain the causes of the current financial and economic crisis. That should guide your questions.

Last Thursday I steered questions for the first panel toward the issue of Too Big To Fail with respect to the large financial institutions. While this is one of my major interests, it is not a particular focus of these two-day hearings which are very broadly (too broadly?) framed. This means you should feel free to suggest questions about any element of the financial crisis, as long as you’re focused on the question “what caused X,” where X is some element or effect of the financial crisis.

Hint: The panels that most interest me are the first panels on each day, so I will be examining most closely new questions aimed at the Federal officials who are scheduled to testify Thursday morning.

(photo credit: Global Financial Crisis by sputnik-)

15 responses

  1. "We're supposed to understand and explain the causes of the current financial and economic crisis."

    I don't see how it's possible to do a thorough analysis of the above without exploring the ramifications of monetary policy. Specifically, what is the impact of a quasi-government agency — the Fed — pushing interest rates below their natural equilibrium? The most obvious symptom of the crisis was a wave of mortgage defaults — could this have been the result of excessive money creation?

    None of the panels include representatives from the Fed, so I guess this line of enquiry would best be directed at market participants such as Kyle Bass.

  2. The failure of esoteric mathematical models, such as those used by AIG's Financial Products Group, has been identified as one potential element of the financial crisis. Should there be increased financial statement disclosure concerning the extent of the use of such models, the key assumptions used, the limitations of such models, and the financial statement impact of, say, 1% and10% deviations, from the key assumptions? Should external consultants, such as economists, who develop the models be subject to the same regulatory requirements and standardsas other external third parties, such as independent auditors and independent geologists who opine on oil and gas reserves?

    I would address these questions to the Honorable Mary L. Schapiro.

  3. To the Honorable Sheila C. Bair, FDIC:

    As Chairwoman of the Federal Deposit Insurance Corporation, you were witness to the greatest financial crisis of our time and responsible for insuring the savings of millions of Americans in depository institutions across the nation. In 2008, Washington Mutual was seized and became the largest bank failure in our history. The FDIC monitored WaMu for several months; near the end the FDIC received daily updates on its health, with the Office of Thrift Supervision. On September 25, after the second significant withdrawal rush by depositors and ratings downgrade, the FDIC was appointed as Receiver and sold Washington Mutual Bank and subsidiaries to JPMorgan Chase for $1.9B.

    According to the OTS, WaMu was seized for "insufficient liquidity to meet obligations, " even though its capitalization levels were well above regulator-defined minimums. Jamie Dimon, JPMC, stated that his organization was the only bidder for the bank, and that JPMC could have bought WaMu for a dollar. Shareholders and institutions owning senior unsecured debt were wiped out; according to the New York branch of the Federal Reserve, the latter catalyzed a period of liquidity preference among institutions and consequently manifested into a national "credit crunch", worsening an already precarious financial environment. Indeed, Treasury Secretary Timothy Geithner adamantly expressed (regarding WaMu debt holders) "the policy of the U.S. government is that there will be no more WaMu’s." Lastly, WaMu's parent company has filed a multi-billion dollar lawsuit claiming the FDIC's seizure was essentially a fire sale and should never have happened.

    Ms. Bair, in the interest of protecting the FDIC's insurance fund and millions of American depositors in a least-cost, could Washington Mutual have been handled differently in a scenario that preserved consumer security and kept larger institutions lending? Was the auction process conducted fairly for all parties besides the FDIC and JPMorgan, or could have WaMu been bought out, similar to the Wachovia-Wells Fargo deal? In sum, should WaMu have been seized weeks before the Troubled Asset Relief Program passed during an immensely volatile period for our financial system, where precipitous decisions, however noble, could have been disastrous for America?

  4. Required to establish a causation model for a financial crisis is to ask the bankers the following:

    Please submit a breakdown of your major losses on a timeline since 2004. Working backwards from the peak of the crisis, explain the nature of each loss and the type of asset involved if applicable. If you took the loss to raise capital, explain why you had a capital shortfall. Do not assign or take blame; just explain what happened. When did the spiralling loss problem start? Show me on the timeline. Did any significant political, regulatory, financial, or economic events happen around this time?

  5. For any of the financial institution representatives whose company collects mortgage payments, "How difficult would it be for banks to collect and report information on mortgage payments in a form usable for developing more accurate inflation statistics? I.e. as a replacement for Owners' Equivalent Rent in the CPI."

    As background for why this question is relevant, the issue is that the CPI is meant to measure household costs. Owners' Equivalent Rent (OER) is not a cost but a potential income. It was originally used as a replacement for the Case Shiller index, which puts the full cost of the house sale in the index immediately. OER is more stable and had (until the last decade) tracked the long term trend. However, most people do not pay for their house up front but instead borrow to do so. A better inflation measure would collect the actual mortgage payments (the costs).

    Note that the Fed uses the inflation statistic to measure how well it is doing its job. If the statistic had been higher, then the Fed would have raised interest rates sooner in the boom. Similarly, if inflation had shown lower in 2007 and 2008, they could have cut rates sooner in the bust. In the boom, this could have led to a smaller bubble and during the bust, it could have caused a softer landing without the deflationary months at the end of 2008.

  6. For any of the representatives of financial institutions that issue mortgages (Day 1, Panel 1; probably James Dimon and Brian T. Moynihan and possibly C.R. “Rusty” Cloutier), "During the housing boom, banks approved mortgages for houses that were valued at much higher amounts than they could support. What are you doing to ensure that future valuations take into account more than just the current market price? –Or to put this another way, what are you doing to make it so that in the future, you reject mortgages on over priced houses?"

    For Sheila C. Bair, the same question but with slightly different wording: "During the housing boom, banks approved mortgages for houses that were valued at much higher amounts than they could support. What are you doing to ensure that future valuations take into account more than just the current market price? –Or to put this another way, what are you doing to make it so that in the future, banks reject mortgages on over priced houses?"

    The question might also be put to Julia Gordon and Kenneth T. Rosen, although again with different wording.

    The question might even be put to representatives of companies that bought and sold mortgage securities, as they were buying mortgages with risk evaluations based on faulty house valuations.

  7. I would like to see the question of demand deposit theft posed to Jamie Dimon. Dimon has stolen our demand deposits (over $400,000.00) in an elaborate scheme dating back to his days at Bank One. We are aware now that there are 1300 demand deposit accounts with significant deposits that were usurped. To affect the theft there was a campaign to interfere with individuals mortgage payments (triggering foreclosures), business activities (orders being cancelled), and utilities. We had our electricity shut off while the bill was paid in full. Then the local dcfs receives a call from someone stating concern that we have no electricity and someone should check in on our six children. The call was traced to jp morgan chase new york. We live in illinois. There is now an active FBI investigation. Please contact us for more details.

  8. Pingback: Market Talk » Blog Archive » Pecora Commission Redux

  9. 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

  10. 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.

  11. Shareholder Letter of Authorization
    The undersigned beneficial owner of equity shares of Washington
    Mutual, Inc. authorizes the designated individual shareholders
    (collectively, the "Joining Shareholders"), through their legal counsel,
    to speak on his/her behalf for the purposes of filing a Joinder of
    Designated Individual Shareholders to the Official Committee of Equity
    Security Holders' Motion for Summary Judgment (the "Joinder") in
    reference to the Official Committee of Equity Security Holders' Motion
    for Summary Judgment (the "Motion"), Docket No. 2501, In re:
    Washington Mutual, Inc., et. al., U.S. Bankruptcy Court, District of
    Delaware, Case No. 08-12229 (MFW). The Joinder will support the
    Motion’s request for a prompt shareholders' meeting and related relief.
    The undersigned voluntarily provides the information below and
    authorizes the Joining Shareholders to list his/her name on an
    attachment to the Joinder as a demonstration of shareholder support
    for the Joinder, and to represent to the Bankruptcy Court that the
    undersigned supports the Joinder and the Motion.
    The undersigned understands that the Joining Shareholders will take
    all due precautions to protect the personal information that he/she
    submits, other than names and possibly the number of shares held.
    The undersigned acknowledges that opposing parties may seek to
    compel the disclosure to the Court of his/her share ownership under
    Rule 2019, and that the Joining Shareholders and their legal counsel
    would, in this circumstance, vigorously oppose this disclosure, or seek
    to file such information under seal if compelled to do so, but the
    undersigned authorizes the Joining Shareholders to disclose
    information if they are required to do so.

    http://wamuequityrights.org/images/stories/author

  12. 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.

Follow

Get every new post delivered to your Inbox.

Join 6,289 other followers