Financial crisis investigators to take critical look at Wall Street

Leaders of a congressional commission investigating the causes of the recent financial crisis are threatening to publicly identify any company or government agency that stalls in voluntarily producing requested documents.

Phil Angelides, the chairman of the Financial Crisis Inquiry Commission, told McClatchy Newspapers in an interview that the panel would investigate the role that Wall Street firms played in causing the crisis to mushroom.

McClatchy reported earlier this month that Goldman Sachs, the nation’s premier investment bank, sold more than $40 billion in securities backed by risky mortgages in 2006 and 2007 while secretly betting on a housing market downturn that would depress the value of those securities.

After purchasing those bonds from Goldman, pension funds, insurance companies and other institutions are facing bigger losses from the financial meltdown.

Angelides, a Democrat, and Republican Bill Thomas, the vice chairman, vowed that they wouldn’t let the subjects of their inquiry “run out the clock on us.”

The special commission is patterned after the bipartisan 9-11 Commission, which exhaustively investigated the causes of the Sept. 11, 2001, terrorist attacks.

While Congress gave the financial commission subpoena powers, legislators also required the panel to submit its report by December 2010. To issue a subpoena, a supermajority of at least seven commissioners is required on a panel of six Democrats and four Republicans.

Angelides stressed that he is treating Thomas like “a co-chairman” and the two said they are united in their efforts.

The panel has begun investigating, but has issued no subpoenas and is starting with voluntary requests for information, Angeles said.

“Our biggest concern, and we won’t let people do it, is that there will be some people with trillions of dollars at stake that they want to protect,” he said. “They’ll try to run out the clock on us. Both Bill and I have watches with dates on them, and we understand that we have to move.”

“You’d like to think that the threat of the use of the tools we have will get people to comply,” Thomas said.

Both men promised to shame those who don’t cooperate voluntarily.

“We’re going to be aggressive in our pursuit of information,” Angelides said. “We’ll be more than happy to share with people the names of those who are not forthcoming.”

The commission’s reporting deadline next year follows what are expected to be closely contested congressional mid-term elections, and the commission’s probe parallels efforts in Congress to pass the most sweeping revamp of financial regulation since the Great Depression.

There’s public and congressional skepticism about the panel, partly because many of the broad contributing factors in the financial meltdown are well known and have been covered in dozens of congressional hearings.

These contributing factors include weakened mortgage lending standards, faulty performance of the credit-rating agencies, overextended investment banks, insufficient and at times nonexistent federal regulation, as well as secret, insurance-like bets that encouraged risk taking.

In addition, the Federal Reserve Board’s efforts to keep lending rates unusually low for an extended period of time led to an era of cheap borrowing for financial firms and consumers. That fed interest in high-yield mortgage-backed securities and fueled Wall Street’s role in buying $2 trillion in risky mortgages.

“Everyone’s got their theories about what went wrong,” Angelides said. “It’s our job, as best as we can as an official government inquiry, to try to bring clarity to the American people. And while there are many theories out there, and while I would say the elites in the country think they know what went wrong, there is not a broad understanding for most Americans about what the heck happened.”

The commission faces numerous hurdles, not the least of which is a compressed time frame that weakens some of the benefit of having the power to subpoena documents or witnesses.

Thomas, a former California congressman and a former chairman of the powerful tax-writing House Ways and Means Committee, acknowledged a race against time because “to do a first-rate job, it takes more than 18 months, and now it is 12 months” until the panel must submit its report.

To probe a crisis that cost Americans more than $11 trillion in wealth, the commission must work within an $8 million budget to cover staff, offices and investigative expenses while taking on Wall Street giants such as Goldman Sachs.

“It’s a small, thin budget. Goldman will probably spend more on attorneys alone,” joked Angelides, a former California state treasurer and rainmaker in California Democratic politics.

The commission won an important tool ? the ability to have personnel from the Securities and Exchange Commission and bank regulatory agencies available to the panel through next December.

“It certainly helps, because it gives us expertise without having to spend dollars, Thomas said.

No government agency or Wall Street titan is off limits, the pair insisted.

“It would be hard not to drive to the root without looking at the major government agencies. It would be hard not to drive to the root without looking at major Wall Street firms,” Angelides said. “We will obviously look at the most significant players in this marketplace.”

(c) 2009, McClatchy-Tribune Information Services.