Top of the Morning

Top of the morning

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Today ought to be the day we finally get some answers about the meltdown of the financial industry from people who should know.

The CEOs of four big banks are testifying in Congress this morning before the Financial Crisis Inquiry Commission and there are plenty of things to ask about, starting with the huge bonuses on Wall Street, many given by companies who relied on taxpayer money to ride out the storm created by their own executives’ greed and mismanagement.

The New York Times has been presenting questions for the executives for the last couple of days. Today, the op-ed page features questions from financial experts.  They are all worth reading, but here is one of my favorites from Bethany McLean, author and contributing editor to Vanity Fair.

Goldman Sachs and other Wall Street firms argue that the clients to whom they sold mortgage-related securities were sophisticated investors who fully understood the risks. Goldman has said this was also the case when its clients bought the very same mortgage securities that Goldman, on its own behalf, was betting would default. Did these clients indeed understand all the gory details?

Andrew Ross Sorkin suggested a few questions in a Sunday column. Sorkin is the author of Too Big To Fail, a fascinating and depressing insider account of the Wall Street collapse.  One of his questions for Goldman Sachs CEO Lloyd Blankfein is along a similar line as McLean’s. 

Could you explain how Goldman bet against these C.D.O.’s while simultaneously trying to persuade ratings agencies and investors that they were good investments? Were they designed from the outset to be shorted by Goldman and possibly select clients? And were those clients involved in helping design these transactions?

Let’s hope the commission members have done their homework.

2 Comments

  1. IBXer

    January 14, 2010 at 12:22 pm

    We should have let them fail instead of bailing them out and ensuring they are forever “too big to fail”. Now they have no reason to avoid risk in their practices ever again.

  2. Jonah

    January 31, 2010 at 2:05 pm

    Bethany McLean conspired with unscrupulous hedge funds to destroy to publicly traded companies for profit. See her emails obtained through discovery in Fairfax Financial vs. SAC Capital, et el., for yourself:

    Bethany McLean: your benefit of the doubt is hereby revoked
    Rocker Partners and Bethany McLean: the smarmiest guys in the room

    I highly recommend you review the evidence and reevaluate your opinion of Ms. McLean accordingly.

    Best,
    DCN