Adviser: Crisis would have happened even if housing prices had flattened
UPDATED at 2:00 p.m.
The Financial Crisis Inquiry Commission -- the government's panel that was set up to figure out, as much as possible, the cause of the financial crisis -- kicked off its much-anticipated hearing this morning, featuring testimony from the heads of the big banks.
UPDATE: The heads of the four big banks have finished their testimony, and the second panel is now testifying: Michael Mayo, of Caylon Securities; J. Kyle Bass, of Hayman Advisors; and Peter Solomon, of the Peter J. Solomon Co. This is the part of the hearing when the B-level players in this financial crisis get to point their fingers at the A-level players -- the big bankers on the day's first panel -- and say what they should have done.
Bass just said that housing prices didn't even have to go down in 2007 for the crisis to happen. "If housing prices went flat, [the big firms] lost nine to 10 percent on their securitization," Bass said, which would have been enough to bring down all but the biggest firms.
Blankfein: Govt. would still prop up failing big banks today
Noon: Goldman Sachs chief executive Lloyd Blankfein was asked by commission member Keith Hennessey if one of the other big banks represented on the panel -- Bank of America, J.P Morgan Chase and Morgan Stanley -- failed today, would the government intervene, or if banks are still too big to fail.
"I think a firm could fail a lot easier now than in the context" of 2008, Blankfein said.
Hennessy then asked Blankfein: If one of your three counterparts "messed up" and that firm failed tomorrow, do you believe the government would step in and prop it up?
"I think tomorrow, in the context in this environment, at some level, the government would intervene," Blankfein said, adding that equity holders or shareholders would get no relief from the intervention. "There would be something done because of fragility of system today, I believe. A year and a half ago, maybe not, a year and a half from now, maybe not," Blankfein said.
Mack: Morgan Stanley risk manager now makes as much as top trader
10:40 a.m.: Morgan Stanley chief executive John Mack said that his company's risk manager can now make as much money as Morgan Stanley's top trader, which has not been the case in the past. Mack was making the point that he believes Morgan Stanley is now taking risk management much more seriously than it has in the past.
"We did eat our own cooking and we choked on it," Mack said.
J.P. Morgan Chase's Jamie Dimon just said -- no kidding -- "Somehow we just missed that home prices don't go up forever."
Murren to Blankfein: Are you satisfied with your auditing?
10:30 a.m.: Commission member Heather Murren asked Goldman Sachs chief executive Llloyd Blankfein: "In light of what happened, do you think they did a great job?" referring to auditors and regulators.
Blankfein first said that he needed to answer in the context of the times, but ended up saying, "We're satisfied with our auditor, otherwise we wouldn't have him."
Blankfein said the current conditions "feel like a lot of regulation, but appropriately a lot."
Angelides grills Blankfein
9:50 a.m.: Phil Angelides, the chairman of the commission and former California state treasurer, kicked off the questioning what are two most specific and biggest instances of negligent behavior that the firms engaged in.
Goldman Sachs chief executive Lloyd Blankfein said got caught up in and contributed to "elements of froth in the market." In leveraged finance, he said, the transactions Goldman financed took on higher and higher leverage and Goldman contributed to that.
But he said Goldman's behavior was "typical" to the time period and context.
Angelides said what Goldman did "sounds like selling a car with faulty brakes and then selling an insurance policy on the car."
"Anybody who now says 'I wouldn't change a thing' is crazy," Blankfein said.
Commission member Bill Thomas said that any American who has a question they'd like the commission to ask the heads of the big banks should e-mail him at firstname.lastname@example.org. Thomas's offer drew a smile from Blankfein.
Bank heads give opening statements
9:38 a.m.: Goldman Sachs chief executive Lloyd Blankfein just finished his opening statement, saying that many big banks and other financial institutions did not appreciate the level of risk they were undertaking. During the crisis, Blankfein said, Goldman bolstered its position by reducing its balance sheet by one-quarter while its capital has increased by half.
You can read Blankfein's testimony by clicking here.
Jamie Dimon, chief executive of J.P. Morgan Chase & Co., just began his testimony. Dimon is giving a brief history of the crisis. "I want to be clear -- I do not blame the regulators" for the crisis, Dimon said.
You can read Dimon's testimony by clicking here.
Morgan Stanley chief executive John Mack said the crisis was unlike anything he had seen in 40 years. You can read Mack's testimony by clicking here.
Morgan Stanley was in better shape than other banks as the crisis began, but "we did not do everything right," he said.
You can read the testimony of Bank of America chief executive Brian Moynihan by clicking here.
-- Frank Ahrens
Follow me on Twitter at @theticker
January 13, 2010; 2:00 PM ET
Categories: Bailout , Congress , Corporations , Housing , The Ticker | Tags: Bank of America, Brian Moynihan, Financial crisis inquiry commission, Goldman Sachs, J.P. Morgan Chase, John Mack, lloyd blankfein
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