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The CEOs of the country's major banks came under a grilling yesterday, as the Financial Crisis Inquiry Commission kicked off hearings on the causes of last year's economic meltdown.
While the Commission was specific in its questioning, the CEOs weren't so specific in their answers.
Here's the Commission's Chairman, Phil Angelides, pressing Goldman Sach's chief executive: "Can you tell me very specifically what are the two most significant instances of negligent, improper and bad behavior in which your firm engaged for which you would apologize?"
Goldman Sachs chief executive, Lloyd C. Blankfein: "I think we, in our behavior, got caught up in and participated, and therefore contributed to, elements of fraud in the market."
Elizabeth Warren, who heads the group charged with overseeing the U.S. banking bailout, the Congressional Oversight Panel, was hoping the CEOs would admit to a little more.
"I was hoping to hear these CEOs say, 'yeah, we really messed this up and we manipulated markets, we manipulate consumers, we sold lousy products, we understood that it was not a sustainable market and we're ready to change our ways. But that didn't happen."
Peter Solomon, founder and chairman of the independent investment bank Peter J. Solomon Company, sees a "colossal management failure" in the big banks.
"The firms that became a debacle, Lehman and Bear Stearns, they were incredibly bad," said Solomon. "But even the major banks admitted that they failed in terms of management.
"And one of the reasons they failed is: they just had to much hubris. They believed that their systems were so sophisticated that they could weather any storm. It turned out they couldn't."
Warren doesn't think the banks will admit to how they failed. "I think the banks say 'we are the best and brightest, that's why we deserve these gorgeous salaries. We make the American economic engine run. We know everything.'
"And then on the other side of their mouths, they say 'we knew nothing. We didn't understand what was going to be the consequence of selling millions of mortgages to people who didn't qualify for them, and were not possibly going to be able to repay them. We had no idea that telling people a product was great and selling it out the front door, while we bet against it by short-selling it out the back door, would cause any problems or might destabilize anything.'
"I think the bottom line is, they'll say whatever they want to say."
But she says, the problem doesn't just sit the banks. "The regulators failed profoundly here. The federal regulators who were responsible for ensuring the safety and soundness of those financial institutions ... they fell down on the job."
The regulatory failures, according to Warren, were in the shortage of regulators and the inability of the laws to keep up with the new activities in the industry.
"If we don't get reform, we're heading back into the boom or bust cycle game," she warned. "And every 10 to 15 years, we'll keep playing this game and part of the world will get richer and richer, and the rest of us will continue to get wiped out."
Read transcripts of hearings and testimony from the Financial Crisis Inquiry Commission.
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