After two days of testimony from senior executives, government bureaucrats, and economists, the US government's Financial Crisis Inquiry Commission has brought to light some of the root causes of the crisis. After reviewing the comments made by the executives, specifically Panel 1 featuring Lloyd Blankfein (Goldman Sachs), Jamie Dimon (JP Morgan Chase), John Mack (Morgan Stanley), and Bryan Moynihan (Bank of America), one can clearly see a distinction between they style and demeanor of the firms who survived the crisis relatively unscathed, namely Goldman Sachs and JP Morgan Chase, and those that suffered heavily (and continue to do so), namely Morgan Stanley and Bank of America. Have a look below at the video, in case you missed it:
Here's a few key links for those interested in more background:
- Financial Crisis Inquiry Commission
- WSJ Highlights of the Testimony
- WSJ Day 1 Review
- WSJ Day 2 Review
- Op-Ed from Paul Krugman of the NY Times
- NYTimes Editorial
- FT Commentary
- The Atlantic on Jamie Dimon's Comments
As menti0ned in the press above, there were no big winners here. Goldman Sachs did survive the crisis intact, but did so while supporting a business model that was articulated nicely by ormer California state Treasurer Phil Angelides, chairman of the Financial Crisis Inquiry Commission, saying
"It sounds to me a little bit like selling a car with faulty brakes, and then buying an insurance policy on the buyer of those cars."
Clearly, Blankfein's comments about how the financial crisis was like a hurricane, e.g. a storm no one could see coming, were not taken well by the media either.
For JP Morgan Chase, Jamie Dimon clearly got himself in trouble when he described the main flaw in his bank's approach, namely that they "didn't stress test housing prices going down by 40%." Despite the comments, Jamie is largely viewed as the standout executive who kept his firm afloat during the crisis, with an iron-clad balance sheet that could handle the acquisitions of Bear Stearns and Washington Mutual, two firms who had severe hemorrhaging due to the crisis. It is clear from their financial standing that JP Morgan was the best prepared for this 'long tail event', and has been able to hold on to much of their core, while staying profitable throughout the crisis.
Morgan Stanley's John Mack was articulate, and shared how his company lowered their leverage levels, and increased their loan loss levels, coupled with a last minute investment from Mitsubishi bank, kept them afloat. Given the relative weakness of the bank throughout the crisis, it was not surprising that he avoided being photographed or dealing with too many questions (as described in several articles).
Bryan Moynihan of Bank of America was the lucky one here, having recently been moved into the senior ranks, with most of the country seeking his predecessor Ken Lewis.
Missing from the spectacle was Citigroup, arguably the bank in the worst shape from the crisis. Speculation on future Citigroup inquiries, including Vikram Pandit (current CEO), Chuck Prince (past CEO), Robert Rubin (past Chairman), and Sandy Weill (past CEO and Chairman) are discussed here. If there are hearing with Citigroup, it will be fascinating to hear how the company made the poor decisions it did. Of course, for a sneak peak, check out these two exposes by Rubin and Weill.
Needless to say, a sad day for finance, but hopefully one where