Thursday, August 6, 2009

Putting The Meltdown Under The Microscope

By Julie Kosterlitz  

Phil Angelides

Chairman, Financial Crisis Inquiry Commission

On July 15, Senate Majority Leader Harry Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif., announced that they had chosen former two-term California State Treasurer Phil Angelides to lead the congressional Financial Crisis Inquiry Commission. The bipartisan commission, with six members picked by Democratic congressional leaders and four by their Republican counterparts, has an $8 million budget and a mandate to examine and report on the causes of the recent financial meltdown by the end of 2010.

Angelides (D), who lost a 2006 bid to unseat Gov. Arnold Schwarzenegger (R), will serve with a GOP vice chairman, former House Ways and Means Chairman Bill Thomas, also a Californian.

National Journal spoke with Angelides by phone on July 20. Edited excerpts follow.

NJ: What, roughly, is your plan of action?

Angelides: Our first order of work is to hire the executive director -- which, per the statute, is to be selected by me, as well as by Bill Thomas, the vice chair -- and to begin to put staff in place and develop a work plan with commission's input.

I view our role as the Financial Crisis Inquiry Commission [as being] to pursue the facts and the truth about what brought down our financial system. The statute is very clear about the things we have to look at: at fraud and abuse in the marketplace, and specifically in the mortgage markets; at the actions of regulators; at lending and securitization practices; at the actions of the credit rating agencies. In addition, the statute is very clear that we are to look at the specific institutions that failed or would have failed but for government intervention.

NJ: Is that where your subpoena power comes into play?

Angelides: We do have subpoena power -- and we will use it if necessary.

This is, without a doubt, the most significant meltdown of our financial system since the crash of 1929. Millions of Americans have lost their homes, their life savings and their hard-earned pensions. In the wake of the 1929 market crash, the Dow Jones industrials did not regain their 1929 peak until 1954, because a whole generation of Americans so distrusted the public markets that they would not put their money at risk in them. We cannot afford the same kind of loss of public confidence. And the way you restore confidence is, you do not sweep things under the rug. You've got to expose the truth, so hopefully those kind of behaviors will not repeat themselves in the near future.

NJ: Republicans and Democrats have different views on the root causes of the crisis. How do you bridge these gaps?

Angelides: We've had a good start. Vice Chairman Bill Thomas and I have spoken repeatedly since our appointments. Every commissioner comes to duties with differing perspectives and experiences. What I hope and believe will bind the commission is seeking facts. Facts are what they are, and from the facts people can draw their own conclusions.

NJ: Have you ever worked with Bill Thomas before?

Angelides: I have on a limited basis. I had a couple occasions to call him [as state treasurer when Thomas was in Congress] about tax-exempt bond authority for the state. I found him responsive and knowledgeable. As it happens, 30-plus years ago, my wife, Julie, worked in the California assembly as executive secretary to the assembly rules committee, when he was one of the Republican members. She tells me -- we're both Democrats -- that he was one of most knowledgeable, hardest-working and brightest members.

NJ: He also has a reputation for being very prickly.

Angelides: My dealings have been positive, and I enter into this believing, as I believe he does, that we will find ways to make this successful.

NJ: After all the ink spilled on analyzing this crisis, what do you think your commission's value add will be?

Angelides: I would hope that when we complete our work and the report is done, a new generation of regulators will look to it as a guide book, that people look to our work like they look to the work of the Pecora Commission in the 1930s, and that by exposing certain practices, we create an ethic such where practices that are harmful to the broader society are not repeated or condoned.

NJ: As treasurer of California, you had a seat on the board of the California Public Employees Retirement System, or Calpers. Were you at all concerned about its foray into exotic investment vehicles based on subprime mortgages?

Angelides: I was a very activist treasurer, and I saw lots of practices in the markets that I found troublesome. I was very concerned about the practices of the investment banks, and I was very vocal about executive compensation. I think you'll find that Calpers was overall a prudent investor in the marketplace. Pensions and endowments across the country and foundations also relied on due diligence of credit rating agencies and regulators, and Calpers, like many other investors, was ill served by many of the practices that brought down our financial system.