Bill Thomas isn’t out to get anyone. Rather Bakersfield’s tough, smart and powerful former Republican congressman is on a crusade to get the truth.
Thomas is vice-chairman of the 10-member Financial Crisis Inquiry Commission, created by Congress and President Obama to explain how the nation’s financial institutions ended up in today’s mess.
The bipartisan commission is headed by Democrat Phil Angelides, California’s former treasurer. But leadership and administrative duties are shared by both men. As the commission shifts into “high gear” next month, with the first of eight public hearings scheduled and teams of investigators swarming over Wall Street financial records, Thomas and Angelides are presenting a firm, unified front.
Innovative and complex Wall Street financial schemes brought the nation’s and world’s banks to the verge of collapse, and plunged the economy into the deepest recession since the Great Depression. People are losing their homes, businesses and jobs. Billions upon billions of tax dollars have been spent to shore up banks that are “too big to fail.”
The commission’s job is to explain how that happened, and to create a repository of information that can be used by the president, Congress and others to help fix problems and keep them from happening again.
“The fact is that late in 1929, people were throwing themselves out of windows on Wall Street. This year, they’re lining up for bonuses. There has been no serious self-examination on Wall Street of what has occurred and what should be in the future,” Angelides told economists and policy-makers at a conference in Washington, D.C., last month.
Some people on Wall Street now acknowledge that they were not comfortable about the activities they engaged in, Thomas said during a recent interview with The Californian.
“But they said, ‘The music was playing and if I had not played along, I would be out of a job because there were people who were making money on paper. We could not be highfalutin and sit it out,’” Thomas recalled being told. “So in other words, somebody had to hold them responsible. You would like to think to a certain extent there were certain morals and mores that bankers would follow. But obviously the Fed relied on self-regulation to a certain extent. People could not help themselves. ‘Stop me before I loan again.’”
The commission’s job is to examine why Wall Street firms did not stop themselves and why regulators didn’t stop them.
Both Angelides and Thomas agree that the commission’s job is to shed light, not heat on the Wall Street scandal that has left many Americans struggling just to make ends meet. But the commission’s fact-finding mission also has teeth. If corporate giants, or government regulators are uncooperative, commissioners have been given subpoena powers to compel cooperation. If evidence of wrongdoing merits it, cases can be referred to law enforcement.
“We are not out to embarrass people,” said Thomas. “We are out to find the facts. As the facts come out, a number of people will have to be embarrassed because they were in positions of responsibility and didn’t do what people in these positions should do.”
But when the commission reaches its Dec. 15, 2010 deadline, the goal is to leave Americans with a book to explain what happened and a yard stick to measure the efforts of this Congress and future Congresses to fix the problems.
Thomas is commuting to Washington from Bakersfield to get the commission up and running. He also serves as a visiting fellow with the American Enterprise Institute and a senior advisor to Buchanan, Ingersoll and Rooney, a Washington, D.C., law firm.
He sat down with The Californian during a holiday break to discuss the commission’s work and the crisis that led to its creation.
Q – Some people are comparing the Fiscal Crisis Inquiry Commission to the 1930s Pecora Commission, which investigated the causes of the Great Depression. Is that a good comparison?
A – “[Ferdinand] Pecora was a Senate staffer. It was an on-again, off-again Senate inquiry. The guy was pulling stunts. He wanted to embarrass the Wall Street folks. He wanted to make a name for himself and others. There wasn’t a lot of legislation that came out of that commission.”
Thomas contended much of the legislation credited to Pecora’s probe, such as creation of the Federal Deposit Insurance Corp., was already in progress before the Senate hearings. The FCIC’s work will be a wide-ranging search for causes and will be the basis for legislation beyond the commission’s life.
“Part of our job is to explain to people what happened and why,” he said. “Some people still can’t figure it out. They just know that they are in real trouble with their housing. We are going to try to write a book that will be fairly easy reading. It won’t be like the 9/11 Commission book, because they were forced to maintain a degree of secrecy. There were things they could not write about. But it will be along those lines.”
Q – It doesn’t seem important to ask “why.” The president and Congress already are proposing financial reforms. They aren’t waiting for the commission to tell them “why.”
A – “They can’t wait. They have problems to face and the president is talking about changes. If the focus is on explaining what happened, they think they know what happened, as well. We are going to try to provide a comprehensive analysis of what happened. At the time we publish, we can take it as a yardstick and measure what Congress has done.”
Noting Congress moves slowly, Thomas predicted few reforms will be in place before the commission’s reporting deadline.
“You can be very cynical and say that the reporting date in the legislation is Dec. 15, 2010, right after the election, so Congress can say it’s waiting for the commission to give up the specifics if it can’t get anything done.”
Q – Some people -- inside and outside the government -- contend the big problems are behind us. Is that true?
A – “There are a number of folks [on Wall Street] going right back to practicing, to a large extent, what they were practicing prior to the collapse. And they have short memories because they now say they didn’t need to take the TARP money. Well they took it. They still got rescued. The life ring was thrown. They grabbed it. And we pulled them out.
“They want to pay the money back and play the old game. I think it is dumb of them, frankly, to want to go back to making money the old way. They still have those instruments. They modified them slightly, but not enough. They are creating an animosity toward them not unlike the way people have felt about other institutions in the past and that has to be reckoned with.
“And it is getting more complicated now that Congress is getting some of that money returning back. Now they want to spend it, instead of regarding it as the payback of the taxpayers’ money that was used to float the loans in the first place. They just think it is found money and they are going to be using it for all types of purposes.”
Q – What new or ongoing issues should concern us?
A – “What really happened was that all these large banks were carrying these strange instruments of consolidated mortgages. And all of a sudden they weren’t worth that much. Well, how much were they worth? We didn’t know for sure. Moody’s gave them a triple-A rating so they could sell them to other people. But if you look at the rating game, you pay for the rating. So you end up hiring one of the firms that gave you a triple-A.
“It’s a lot like what happened to the accounting firms that recommended how and where you invested your money, and then went over the books and, guess what, they concluded that was a great place to invest your money. Except it blew up. You can’t have people on both sides of a ledger when they are carrying out a function.
“People were buying triple-A ratings. Maybe they weren’t triple-A. Maybe they were junk. Banks had these on their books and they didn’t know if they were worth anything. It wasn’t that they didn’t have enough money. They just didn’t know what they had.”
Thomas equated the Wall Street schemers to “mad scientists,” who were not sure what they were creating. They just knew they were making lots of money.
“One of the ways to deal with rating agencies is to say OK, if this is a triple-A document, you have to put some of your own money in so that you will be at risk. One of the biggest problems is that people with these products had no risk. They could shop the risk. And those who were willing to cover the risk thought there were no risks, so they were willing to make ‘free money.’ Everybody was making free money until reality set in.
“It is partly the job of the Federal Reserve to take the punch bowl away from the party. Clearly there was an unwillingness [at the Fed] to stop this structure because it appeared to be OK and it was very lucrative.”
Q – Should some banks be “too big to fail?”
A – Two presidents, Congress and regulators “knew if these structures collapsed, it would be like dominos. Don’t hit the first one. The others might not stay up. The time frame was such that you had to just pump money in it. It’s what you do in triage with people coming in. First you have to keep them alive. Then you figure out what their problem is. And then you figure out what you have to do to solve the problem. The massive infusion of money was to keep the patient alive. Did some of it go where it shouldn’t have gone? Of course. But it was to keep them alive. They are now back and making money. But we are concerned because we don’t fully understand them and they don’t either.”
Q – How will the commission unsnarl this financial maze?
A – “We are looking at holding eight hearings. We would like to have 20, but we don’t have time for that. We have a very short time frame.”
Thomas said the first hearing will be held in mid-January over two days at the Capitol. The chief executive officers of some of Wall Street’s major financial institutions will be called to testify. Future public hearings will be announced, with the investigation continuing and information compiled for both the final report and the repository, which will be housed in the National Archives in Washington, D.C.
The law creating the commission specified 22 areas of study. Thomas acknowledged the commission’s scope will be wide-ranging and consider both domestic and international implications.
“People were surprised that this went so quickly around the world as a conflagration. Internationally, finances are completely intermingled. Nation states are an anachronism when it comes to today’s international financial structures. So that has to be addressed, as well.”
Q – How much will this inquiry cost?
A – “The 9/11 commission started out with $3 million and ended up spending $16 million. We started at $8 million. You can always do it with what they give you, but it might take a little bit more only because of the timeframe we are in. We have a lot to do in a shorter period of time.”
Thomas said staff from other departments also will be assigned to help with the work.
Q – Why did you agree to take on this huge inquiry?
A – “It is an impossible job in an impossible time frame. But friends of mine, who are leaders in the House, came to me and asked me to do this. They said they could not think of anyone else who could do this.”
Thomas admitted he was reluctant at first. But as the other members were appointed and as Democratic Chairman Angelides voluntarily agreed to share the commission’s powers with Thomas, a Republican, Thomas has gained confidence that the inquiry will be thorough, honest and fair.
“I felt the pursuit of what happened actually had a chance.”
This article written by Dianne Hardisty first appeared in The Bakersfield Californian on Dec. 27, 2009.