BU Now » Financial Crisis Inquiry Commission

Goldman executives questioned

Dick Taffe — Thu, 01 Jul 2010 21:05:43 +0000

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, williams@bu.edu

Congress eyes credit-rating agencies

Dick Taffe — Wed, 02 Jun 2010 21:00:54 +0000

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.”

Contact Elizabeth Nowicki, 518-867-5355, enowicki@bu.edu; or Mark Williams, 617-358-2789, williams@bu.edu

Crisis panel probes bank “window dressing”

Dick Taffe — Wed, 05 May 2010 18:43:45 +0000

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, ckhurley@bu.edu

Fannie, Freddie execs ‘splainin’

Dick Taffe — Fri, 09 Apr 2010 17:44:13 +0000

Former executives from Fannie Mae and Freddie Mac, the goverment agencies whose mortage-loans holdings helped sink the economy, testified before the Congressional commission looking into the financial meltdown. Mark Williams, who teaches finance at the BU School of Management and is author of ”Uncontrolled Risk” about the fall of Lehman Brothers, says both agencies may have outlived their usefulness.

“Without the capital spigot these agencies created, less funds would have found their way to dangerously risky mortgage products. The government created Fannie Mae in 1938 and Freddie Mac in 1970, and took them over in 2008. It should consider taking them off life support in 2010.”

Contact Mark Williams, 617-358-2789, williams@bu.edu

Financial crisis hearings resume

Dick Taffe — Wed, 07 Apr 2010 20:05:31 +0000

As the bipartisan Congressional commission looking into the financial meltdown resumes hearings, law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and former counsel to the Fed Board of Governors, stops to take a look at where we’ve come and where we might be going.

“While ‘Alice in Wonderland’ tops the box office, a version of the film is playing out in Washington.

“Now in the third year of our national economic crisis starting with the implosion of Bear Stearns in March ‘08, Congress is suddenly rushing to pass timid legislation while a fact-finding commission of Congress’s own creation is searching for the causes of the crisis.

“The Financial Crisis Inquiry Commission has been underfunded, under-staffed, and lethargic in its early moves. Despite its shortcomings, we are coming to the point where it would be better to await the Commission’s December findings than to pass obviously flawed legislation.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu