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.