After the Crash, a Crashing Bore

Like all Americans, I continue to seek to understand exactly what moods, facts, assumptions, dynamics, agendas and structures underlay and made possible the crash and the great recession.

We do this so that we will be able to bring our gained wisdom into the future and keep another crash from happening, should we ever have another bubble to precede it. We also do it so that we know who to hate.

That's why this week's Financial Industry Inquiry Commission hearings were so exciting, such a public service. The testimony of Charles Prince, former CEO of Citigroup, a too-big-to-fail bank that received $45 billion in bailouts and $300 billion in taxpayer guarantees, was riveting. You've seen it on the news, but if you were watching it live on C-Span, the stark power of his brutal candor was breathtaking. This, as you know, is what he said:

"Let's be real. This is what happened the past 10 years. You, for political reasons, both Republicans and Democrats, finagled the mortgage system so that people who make, like, zero dollars a year were given mortgages for $600,000 houses. You got to run around and crow about how under your watch everyone became a homeowner. You shook down the taxpayer and hoped for the best.

"Democrats did it because they thought it would make everyone Democrats: 'Look what I give you!' Republicans did it because they thought it would make everyone Republicans: 'I'm a homeowner, I've got a stake, don't raise my property taxes, get off my lawn!' And Wall Street? We went to town, baby. We bundled the mortgages and sold them to fools, or we held them, called them assets, and made believe everyone would pay their mortgage. As if we cared. We invented financial instruments so complicated no one, even the people who sold them, understood what they were.

"You're finaglers and we're finaglers. I play for dollars, you play for votes. In our own ways we're all thieves. We would be called desperadoes if we weren't so boring, so utterly banal in our soft-jawed, full-jowled selfishness. If there were any justice, we'd be forced to duel, with the peasants of America holding our cloaks. Only we'd both make sure we missed, wouldn't we?"

OK, Charles Prince didn't say that. Just wanted to get your blood going. Mr. Prince would never say something so dramatic and intemperate. I made it up. It wasn't on the news because it didn't happen.

It would be kind of a breath of fresh air though, wouldn't it?

In fact, the hearings weren't dramatic but a tepid affair, gentle and genteel. The commission members—economists, lawyers, former officeholders—actually made me miss congressmen, who can at least be relied on to emote and act out the indignation of the citizenry as they understand the citizenry. As an investigative style this isn't pretty and usually isn't even sincere, but it can jar witnesses into revealing, either deliberately or by accident, who they really are and what they really think.

At this week's hearings, the questioners often spoke the impenetrable financial language of the witnesses. The leveraged capital arbitrage of the lowest CDOs were subject to the supersenior subprime exposure, as opposed to the triple-A seniors, right? The witnesses—former Fed Chairman Alan Greenspan on Wednesday, Mr. Prince and former Treasury secretary and Citigroup chairman Robert Rubin on Thursday—were, in their testimony, obviously anxious not to be the evening's soundbite. Nobody wants to be the face of a bailout. This is where famous and important people being grilled hide now: in boringness, in an opacity of language so thick that following them is actually impossible. The testimony reminded me of an observation in Michael Lewis's "The Big Short," his study of what happened on Wall Street and why:

"Language served a different purpose inside the bond market than it did in the outside world. Bond market terminology was designed less to convey meaning than to bewilder outsiders. . . . The floors of subprime mortgage bonds were not called floors—or anything else that might lead the bond buyer to form any sort of concrete image in his mind—but tranches. The bottom tranche—the risky ground floor—was not called the ground floor but the mezzanine . . . which made it sound less like a dangerous investment and more like a highly prized seat in a domed stadium." In short, "The subprime mortgage market had a special talent for obscuring what needed to be clarified."

Which is what the hearings were like.

By Thursday afternoon I couldn't figure out why they'd been held. They couldn't have been aimed at informing the citizenry. Even the tone was strange, marked by a kind of weird delicacy, a daintiness of approach, a courtesy so elaborate I thought at some points commission members were spoofing each other. "Thank you so much for appearing," "I'm so grateful for that insight." Guys, there's a war on.

I want to pick out some memorable moments, but I can't really quote them because they resist quotation.

So I'll translate.

On Wednesday, Mr. Greenspan said it's easy to look back and see your mistakes, but what is to be gained by endless self-examination? It's tempting to be self-critical, but self-criticism can become self-indulgence. Systems are complex; human decision-making is shaped by the endless fact of human fallibility. I didn't do anything wrong, and neither did Ayn Rand by the way, but next time you might try more regulation.

On Thursday Chairman Phil Angelides to Messrs. Prince and Rubin: I like you, do you like me? But we don't like undersecuritized trilevel tranches, do we?

At one point commissioner Bill Thomas, a Republican former congressman from California, almost got an intelligent question out. It started as: How did you guys get to the top and run the show and not know what was going on below you? But Mr. Thomas got stuck in the muck of synthetic product securitized assets and then lost his thread, to the extent he had a thread. He began to ask Mr. Prince about his famous dancing quote: "As long as the music is playing, you've got to get up and dance," Mr. Prince had said in 2007. But Mr. Thomas asked his question so meekly—it was an "alleged quote" and maybe it was misunderstood by the press, which is always misunderstanding things. Then Mr. Thomas suddenly wasn't asking that, but asking if it would be nice if in the future bankers "have a structure," a stronger federal regulatory structure, though we probably shouldn't have one if we don't need it, but maybe we do, to sort of stop people like you, not that people like you should be stopped in any way.

Mr. Prince seized on this to say the dancing quote was taken out of context: He'd been talking about liquidity. Ah. Well, that takes the sting out of that one.

From a commission member: The American people have experienced a 30% fall in housing values. Do you know why?

Mr. Prince: Yes, we haven't had such a decline "since the Great Depression." The reason is before the crash there was "a bubble." There was too much "easy money." Then the bubble popped.

Thank you, Sherlock.

The takeaway, as they say, of the whole event, was more or less this:

Citigroup testifiers: We didn't do anything particularly wrong, and what happened is all so sad, isn't it? Sad, subprimed and tranched.

Commission: Yes, all so sad and tragic. Somebody's head should roll. I like your tie.

Can't we do better than this?