• Lisa Simpson
• Feb 4,2010
• In: Finance

Could it be that the Securities were Fashioned Intentionally to Fail?

Phil Angelides the chairperson of the Financial Crisis Inquiry Commission said that political drama and public chastisements are the best ways to attract the attention of the people to important matters and bad activities. 

He swore in representatives of four of the top banks. During questioning he scolded Lloyd Blankenfein of Goldman Sachs for selling mortgage backed securities and simultaneously making bets that the value of these would fall. Having drawn the attention of all Angelides and his colleagues can now come to harsh realities. 
But endless sparring and bristling will not enable the panel to complete the job for which the Congress has set it up – find out the causes of the financial crisis. The bankers who testified just parroted their previous statements with cosmetic changes.

The task before the commission is Herculean – find out the root cause of the crash tracking down bankers, investors, officials in the government and other persons holding power yesterday and then to follow up the trail of the subsequent bailouts. The basic point is not to mouth issues and trigger off debates but to measure views, sort out contradictions and arrive at conclusions based on evidence. 

The commission is scheduled to file its final report by 15th December 2010. But so far not a single subpoena for papers and documents has been issued. Rather the investigators are depending on voluntary collaboration, public records and agreements related to information-sharing that have been agreed upon with federal agencies. For an in-depth investigation, source documents are required that would conclusively show on what lines the people concerned were thinking and acting when the events were on and to see whether these support or contradict the testimony given. 
The explanation of Blankfein can be taken as an example. He said that the Goldman’s clients betted against investors who were sophisticated. They demanded securities that Goldman was selling – which later turned sour. The crisis has discredited the idea of ‘sophisticated investors’ and hence does the explanation given by Blankfein really give a far reaching answer?
Without diving into the internal operations of Goldman and its peers that had been operating in similar manner, it is impossible to find out how much demand was being created by the bankers instead of responding to it. Could it be that the securities were fashioned intentionally to fail?

These answers would shed light on when and how the operations of Wall Street crossed the line marking prudent hedging from insane speculation.