Video: Head of the FCIC Phil Angelides -- June 17, 2010
Partial transcript is printed below or:
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Have you seen:
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Video: Introduction to the FCIC
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Transcript: PBS
Tavis: Phil Angelides is the former state treasurer here in California who now heads up the 10-member Financial Crisis Inquiry Commission. The findings of his group are due to the president and Congress in December of this year. Phil Angelides, good to have you back home for a few days.
Phil Angelides: It's good to be with you, Tavis.
Tavis: You've been in D.C. a lot this year.
Angelides: I've been in D.C. a lot. A lot of cross-country flights.
Tavis: You and I were talking before we came on the air here and we'll get some of these details in a second, but I was asking your assessment of the media and its coverage of this. Everybody wanted to talk about the meltdown and when the commission was named, between the two of us, honestly, I was like, "Phil's a great guy but he ain't going to get no traction on this. Nobody's going to come forth and tell the truth. The media ain't going to cover this because it ain't sexy and they're hearings."
But to my surprise - my assessment, and I want to hear yours - I've seen a lot of coverage of the hearings.
Angelides: Yeah, well, here's what I think. First of all, you're right - there is a lot of fascination about the meltdown itself, but the real story is how as a country do we get to the point where our financial system almost collapsed and the only supposedly rational choice was to put trillions of dollars of taxpayer money in to support the system.
Here's why I think there's still a lot of interest in this issue. There's 27 million people out of work, can't find full-time work, stopped looking for work. Two million families have lost their homes, another 2 million families are in foreclosure, another 2 million are behind on their mortgages. People have lost much of their life savings, and people want to know what the heck happened.
How did it come to be that the wealthiest economy in the world had this kind of boom and this spectacular bust? They want to know who, why this happened.
Tavis: I want to talk more about details in a second, but to your point now about everyday people wanting to know who, what, why and when and where, reminds me of that old adage that all politics - Tip O'Neill - all politics is local.
You, of course, as I mentioned, were the treasurer of this state, you ran for governor of this state, so you know the state well. California is one of a number of states, but California specifically just recently missed its second constitutional deadline to balance a budget. How is all this fallout on Wall Street impacting states, local people?
Angelides: Okay, so first of all, it's interesting - this is almost like there was an earthquake and the only buildings left standing were the gleaming skyscrapers at the center. There's rubble all over this country, high unemployment, state and local governments devastated, insubstantial debt.
Now, I will say a lot of it's the fallout. Here in California there's also culpability because the state borrowed very heavily, lived beyond its means when times were good, and in some ways the state's story is the same story as what happened to a lot of the financial institutions on Wall Street.
They borrowed heavily, they were reckless in the good times, and so when the bump came they fell particularly hard. But there's no question that the financial crisis has now morphed into an economic crisis that is likely to be with us for years and years and years.
Tavis: I want to give you a blank slate to fill this in, so let me just ask a generic question by design. What are you learning, what have you learned so far, about what happened?
Angelides: All right, so I've learned a lot, and of course we're a little bit - our commission is like a jury. We're supposed to hear all the facts, all the evidence, hear the whole case before we render our judgment. But let me just give you a few things I've been struck about.
First of all, I was someone who was in real estate and investment most of my life, and I was treasurer of the state of California, so I'm not unfamiliar with the financial system. I have been struck by the extent to which our financial system went from one that supplied capital to build businesses and create jobs and build our economy to one that became a huge casino.
It's as if I walked into the community bank and I opened a door and then I saw a casino as big as New York, New York. Take the housing finance area. The old system was a 20 percent down-payment mortgage. The lender would then sell those mortgages to investors.
Obviously what happened was something very different - mortgages being made that were negative amortization, low teaser rates being made to people who never should have had those mortgages. They were then packaged up, sold to investors, repackaged, repackaged.
It became an extraordinary betting parlor. Enormous leverage - companies on Wall Street levered 40 to one, which means almost no equity, so the minute we had a bump, they would come tumbling down, so struck by just the huge risks and gambles being taken without regard to its consequence for the economy.
I think I'm also struck by in the wake of this disaster how few people in power, public and private corporations, have suffered any consequence. CEOs made tens of millions of dollars; they're still there - hundreds of millions of dollars. Public leaders who failed to see all the warning lights still in positions of control. The real consequences of this has not been felt in Wall Street or in Washington, but it's been felt around the country.
I think the final thing I would say is I've been struck by the extent to which everyone points fingers away. Take Alan Greenspan. He pointed to everyone else, but he headed the Federal Reserve, who was the one agency that could have regulated subprime lending, and despite all the flashing red lights, the FBI warning that mortgage fraud was an epidemic in this country, the clear evidence that there was predatory lending going on, the Federal Reserve did nothing. They sat on their hands.
Greenspan then said, "Well, we refer things to Justice." In seven years, two cases to the Department of Justice for unfair lending.
Look, it's easy to look back and say, "Well, you should have caught all these warning signs." But as a society, if we ignore all the warning signs that were out there about abusive lending practices, mortgage fraud, rampant speculation, and we don't soak those in, we're doomed to repeat this crisis again.
Tavis: To your point about Greenspan, and that's a long list - we can talk about Greenspan, Robert Rubin, these guys have been (unintelligible).
Angelides: Right, and by the way, this is without regard to party.
Tavis: Exactly. So the question is a two-part question - your take on the accepting of responsibility by the persons who you know were involved in this. Assess that for me, and assess for me the stonewalling that you've gotten in certain places.
Angelides: Okay. So first of all, the commission's actually done about 800 interviews to date. Before it's over we'll probably do 1,200, 1,300. We'll have a remarkable oral history of this disaster for people to learn from. We've reviewed millions of pages of documents, so there'll be a real body here of what happened. We've found a lot of people have been forthcoming, but a lot of the leaders have not been.
Take Alan Greenspan. He said in the end he was in charge of monetary policy. He could have regulated subprime lending. At the end of the day he said he was 70 percent right and 30 percent wrong.
Well, the captain of the Titanic was 99 percent right and 1 percent wrong. (Laughter) It's the size of the mistake. Take Bob Rubin. He served our country. I think all these people are honorable people in many respects. But at Citigroup he was paid guaranteed $15 million a year - an enormous sum of money. When Citigroup collapses, requires a $45 billion bailout from the U.S. government, $300 billion in guarantees by the taxpayers, Robert Rubin's position was, "Well, I had no operational control."
The reason responsibility is important is not so we can pillory people, but unless people are willing to admit mistakes, take responsibility, I don't think we'll ever get the self-examination we need to have true reform. And here's the thing -
Tavis: But that ain't Washington works, Phil Angelides.
Angelides: Well, and that's not how Wall Street is working right now. Because what happened is in the wake of the crash in 1929 businesses dissolved. There was real consequence. But Wall Street was spared consequence by the infusion of trillions of dollars of taxpayer money, so we're going to have to work particularly hard as a country to do the self-examination or we'll get back to the same old business, and I think that's where Wall Street would like to go. Things were good; they were churning out money quickly.
One last thing - take the credit rating agencies. Their job was to rate securities for investors. Moody's in 2007 rated nearly $900 billion in mortgage securities. Eighty-some percent of those had to be downgraded. They got it completely wrong, but there's been no changes to the credit rating model.
They were a AAA factory, they were churning out AAA ratings that investors relied on, and despite all the warning signs the housing market was crashing, all they wanted to do was keep making their fees, churning out their ratings.
There needs to be a coming to grips with the magnitude of what's happened here.
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