The Congressionally appointed Financial Crisis Inquiry Commission exploring the 2008 crash questioned executives from Goldman Sachs, the world’s most profitable bank, about how much it makes trading derivatives — those complex financial bets that helped bring down the economy. Goldman Chief Financial Officer David Viniar said they had no way of determining its derivatives data separately from trading in cash securities. But Mark Williams, a former Federal Reserve bank examiner who teaches finance in the School of Management and is author of “Uncontrolled Risk” about the fall of Lehman Brothers, says he doesn’t buy it.
“For Goldman’s CFO to go before the Financial Crisis Inquiry Commission and claim he doesn’t know what Goldman makes in derivatives trading is the equivalent of a major league pitcher not knowing his ERA. Such a claim is shocking given how lucrative and central derivatives trading is to Goldman’s core business model.”
Contact Mark Williams, 617-358-2789, firstname.lastname@example.org
The Congressionally sponsored bipartisan Financial Crisis Inquiry Commission now has cast its eyes on the credit-rating agencies and the impact they may have had on the Great Crash of 2008. Law Professor Elizabeth Nowicki, a veteran attorney from both Wall Street and the Securities and Exchange Commission, says the agencies are both hopelessly plagued by conflicts and in a position to undermine the very stability of the capital markets.
Nowicki: “Today’s hearings, then, will serve only as a political tool to emphasize the need for a dramatic response to the financial crisis.”
Meantime, School of Management master lecturer Mark Williams, a former Federal Reserve Bank examiner and author of “Uncontrolled Risk” about the fall of Lehman Brothers, says that while the rating agencies weren’t the main cause of the credit crisis, but they left the gate open and let the market and its participants behave in a more destructive manner.
Williams: “Meaningful financial reform will require that rating firms devise compensation plans that reward for high rating standards and provide penalties for intentional ratings manipulation.”
The Financial Crisis Inquiry Commission, which is looking into the causes for the 2008 economic crash, today questioned former executives from the investment bank Bear Stearns (sold to J.P. Morgan in a firesale after a run on the bank) and explored the open-secret of how Wall Street banks legally fudged their quarterly books to dress up their financial statements. Law Professor Cornelius Hurley, a former counsel to the Federal Reserve Board of Governors and now director of the Morin Center for Banking and Financial Law, says that to deal with such “window dressing” it is time to consider borrowing a principle from tax law.
“Namely, if a pattern of financial and accounting maneuvers has no ‘economic substance’ other than to misstate the firm’s financial condition, it should be per se securities fraud.”
Contact Cornelius Hurley, 617-353-5427, email@example.com