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Lev Is The Drug

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January 14, 2010

The first day of hearings conducted by the Financial Crisis Inquiry Commission (FCIC) was as entertaining as I expected.  The stars of the show:  Lloyd Blankfein of Goldman Sachs, John Mack of Morgan Stanley, “The Dimon Dog” of JP Morgan Chase and Brian Moynihan from Bank of America presented themselves as likeable guys.  However, in the case of Blankfein, whenever he wasn’t talking he would sit there with that squinting, perplexed look on his face that seemed to mime the question:  “WTF?”  A large segment of the viewing public has already been primed to view these gentlemen as “The Four Horsemen of The Financial Apocalypse”.  Nevertheless, there were four more Horsemen absent from the “stage” on Wednesday:  Messrs. Greenspan, Bernanke, Paulson and Geithner.  Beyond that, Brian Moynihan didn’t really belong there, since he was not such a significant “player” as the other panel members, in events of 2008.  In fact, history may yet view his predecessor, Ken Lewis, as more of a victim in this drama, due to the fact that he was apparently coerced by Hank Paulson and Ben Bernanke into buying Merrill Lynch with instructions to remain silent about Merrill’s shabby financial status.  I would have preferred to see Vikram Pandit of Citigroup in that seat.

As I watched the show, I tried to imagine what actors would be cast to play which characters on the panel in a movie about the financial crisis.  Mike Myers would be the obvious choice to portray Lloyd Blankfein.  Myers could simply don his Dr. Evil regalia and it would be an easy gig.  The Dimon Dog should be played by George Clooney because he came off as a “regular guy”, lacking the highly-polished, slick presentation one might expect from someone in that position.  Brian Moynihan could be portrayed by Robin Williams, in one of his rare, serious roles.  John Mack should be portrayed by Nicholas Cage, if only because Cage needs the money.

Although many reports have described their demeanor as “contrite”, the four members of the first panel gave largely self-serving presentations, characterizing their firms in the most favorable light.  Blankfein emphasized that Goldman Sachs still believes in marking its assets to market.  As expected, his theme of  “if we knew then what we knew now  . . .” got heavier rotation than a Donna Summer record at a party for Richard Simmons.  John Mack, who was more candid and perhaps the most contrite panel member, made a point of mentioning that some assets cannot be “marked to market” because there really is no market for them.  Excuse me   . . .  but isn’t that the definition of the term, “worthless”?

Throughout the session, the panel discussed the myriad causes that contributed to the onset of the financial crisis.  Despite that, nobody seemed interested in implicating the Federal Reserve’s monetary policy as a factor.  “Don’t bite the hand that feeds you” was the order of the day.  All four panelists described the primary cause of the crisis as excessive leverage.  They acted as a chorus, singing “Lev Is The Drug”.  Lloyd Blankfein repeatedly expressed pride in the fact that Goldman Sachs has always been leveraged to “only” a 23-to-1 ratio.  The Dimon Dog’s theme was something like:  “We did everything right  . . . except that we were overleveraged”.  Dimon went on to make the specious claim that overleveraging by consumers was a contributing element in causing the crisis.  Although many commentators whom I respect have made the same point, I just don’t buy it.  Why blame people who were led to believe that their homes would continue to print money for them until they died?  Dimon himself admitted at the hearing that no consideration was ever given to the possibility that home values would slump.  Worse yet, for a producer or purveyor of the so-called “financial weapons of mass-destruction” to implicate overleveraged consumers as sharing a role in precipitating this mess is simply absurd.

The second panel from Wednesday’s hearing was equally, if not more entertaining.  Michael Mayo of Calyon Securities seemed awfully proud of himself.  After all, he did a great job on his opening statement and he knew it.  Later on, he refocused his pride with an homage to his brother, who is currently serving in Iraq.  Nevertheless, the star witness from the second panel was Kyle Bass of Hayman Advisors, who gave the most impressive performance of the day.  Bass made a point of emphasizing (in so many words) that Lloyd Blankfein’s 23-to-1 leverage ratio was nearly 100 percent higher than what prudence should allow.  If you choose to watch the testimony of just one witness from Wednesday’s hearing, make sure it’s Kyle Bass.

I didn’t bother to watch the third panel for much longer than a few minutes.  The first two acts were tough to follow.  Shortly into the opening statement by Mark Zandy of Moody’s, I decided that I had seen enough for the day.  Besides, Thursday’s show would hold the promise of some excitement with the testimony of Sheila Bair of the FDIC.  I wondered whether someone might ask her:  “Any hints as to what banks are going to fail tomorrow?”  On the other hand, I had been expecting the testimony of Attorney General Eric Hold-harmless to help cure me of the insomnia caused by too much Cuban coffee.

The Commissioners themselves have done great work with all of the witnesses.  Phil Angelides has a great style, combining a pleasant affect with incisive questioning and good witness control.  Doug Holtz-Eakin and Brooksley Born have been batting 1000.  Heather Murren is more than a little easy on the eyes, bringing another element of “star quality” to the show.

Who knows?  This commission could really end up making a difference in effectuating financial reform.  They’re certainly headed in that direction.



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