Journalism in the Public Interest

In Postcrisis Report, a Weak Light on Complex Transactions

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The report from the Financial Crisis Inquiry Commission has been assailed as a confusing mishmash -- poorly organized, unclear about what's new and weakened by conclusions that are at once obvious and unsatisfying. The problems of the commission were evident from the start: its mandate was too broad, its timetable too short, its budget too small and its commissioners too partisan.

Those criticisms are true, but overdone.

The report is full of fascinating information, rich detail and fine documentary evidence. The commission should be celebrated for putting more than 1,100 documents online for anyone to search.

For me, the report's biggest failing is its timidity in engaging the most important question looming over the crash: What did Wall Street know and when did it know it?

The commission was right to devote a great deal of space in the report to collateralized debt obligations, the bundles of mortgage-backed securities that were at the heart of the financial crisis. CDOs brought down the Bear Stearns hedge funds that precipitated the emergency. CDO positions brought Merrill Lynch and Citigroup to the brink.

One of the most pernicious aspects of that business was "cross-buying" — CDOs buying pieces of other CDOs. That rendered them more related to each other and more prone to failure. As Jake Bernstein and I reported for ProPublica, banks were engaged in self-dealing, pushing pieces of CDOs that they were having trouble selling into others and then retaining most of the new CDO.

The report sheds new light on this practice, particularly at Merrill Lynch. But it's also maddeningly elliptical. According to the report, the Securities and Exchange Commission says that "heading into 2007, there was a Streetwide gentleman's agreement: You buy my BBB tranches and I'll buy yours."

Quid pro quos like this could help sell otherwise unsalable pieces, in order to complete deals and generate fees. Such arrangements could also be made to preserve the value of assets that were otherwise collapsing. Such behavior could run afoul of securities manipulation laws.

But the report doesn't elaborate or offer internal bank evidence showing how banks struck these deals.

A letter to the Financial Crisis Inquiry Commission from Brad Karp, a lawyer representing Citigroup, suggests that the commission has more documents on Citigroup's CDO business, including a chart "that details the amount and percentage of Citi-structured CDO securities in Citi-structured CDO transactions."

In other words, the chart shows how much of its own product Citigroup stuffed into new CDOs. The report identifies why the bank might do that: Citigroup "reported these tranches at values for which they could not be sold, raising questions about their accuracy and, therefore, the accuracy of reported earnings."

But the commission hasn't yet made the chart public. And it doesn't provide enough new information to fully understand on how the bank justified its valuations. The S.E.C. accused Citigroup and two executives of failing to disclose its positions, but the subsequent settlement was a mere slap on the wrist.

Citigroup declined to comment, but added that it was "a fundamentally different company today than it was before the crisis."

Then there is the question of credit rating agencies' culpability in the asset-backed securities debacle. One of the central questions of the CDO business: How were the banks able to create tens of billions of CDOs in the spring of 2007, after the market was already falling apart?

One troubling document from March 2007 suggests that Moody's knew the games that were being played. Yuri Yoshizawa, who was then in charge of CDOs, e-mailed Raymond W. McDaniel Jr., the chief executive of Moody's, to say that banks like Merrill, Citi and UBS are "still furiously doing transactions to clear out" their balance sheets but that a well-placed banker "doesn't believe that they are selling much of the CDO paper." She wrote that other bankers had told her that the "banks feel that the mark-to-market is less volatile in CDO paper."

In plain English, that suggests that Moody's executives, including the chief executive, knew banks were making new CDOs to create the illusion there were buyers for assets they wanted to avoid taking losses on. Yet Moody's didn't stop rating new CDOs -- and didn't downgrade CDOs for months. But the report doesn't push this line of inquiry.

A Moody's spokesman said, "Throughout this period, Moody's was communicating to the market about what we were observing, including the likelihood of increased defaults in CDOs, though neither we nor other market observers fully anticipated the distress that this market would ultimately experience."

Finally, there's the issue of how complicit bankers were in creating CDOs that were built to fail. The commission considered this topic at length, but didn't add much to the story that hasn't been reported elsewhere.

"No lawyer worth his salt can't fight a subpoena for a year." Josh Rosner, of the independent research firm Graham-Fisher & Company, said to me about the commission's subpoena power at the beginning of the investigation.

Sure enough, the Financial Crisis Inquiry Commission, constrained by this weakness, mostly just requested documents rather than demanding them by using subpoenas. Banks sometimes complied, but didn't have to.

In one important instance, Bank of America "failed to produce documents" requested by the commission, the report says. The documents might have further illuminated what bankers at Merrill Lynch, taken over by Bank of America at the height of the panic, knew about a hedge fund's influence on CDOs that it was betting against, a topic we also wrote about last year. Bank of America played hardball on request, and the commission's staff was unlikely to get enough votes from commissioners to subpoena the bank, according to a person knowledgeable about the matter.

Bank of America said that it produced more than a million pages of documents to the commission and that it had provided these particular documents to other regulators on a confidential basis, but it was unable to reach a confidentiality agreement with the inquiry commission.

There is hope. The commission is expected to continue releasing documents, including transcripts of interviews with bankers. Reporters are likely to find stories for months in the trove of documents, and historians will make use of the report for decades to come.

Citigroup declined to comment, but added that it was “a fundamentally different company today than it was before the crisis.”

Quotes like this really speak to the after effects of the banks misconduct.  What about the questions raised by all of the borrowers who were left “fundamentally different” when they found that their houses were artificially inflated and overvalued, that their cash-out loans against those same assets were based on collateral that wouldn’t cover the total, and the banks came knocking for money.

When I tried to be a different more responsible person and meet those similar scenarios head on I was given no wiggle room, only references to the contracts I signed when I bought my house in 2008 as well as the rules against refinancing that the FHA imposed on my type of loan.

If I could get off with a slap on the wrist I would take it.  Instead I’m left with at least 10 to 15 phone calls a day from the servicer of my mortgage. 

I played the HAMP game and came out a huge loser, nearly losing my property, but having enough foresight to question the fact that all money not paid would still be owed regardless of if I was approved or denied.  Many others didnt’ have that option.

I had to provide troves of paperwork over and over again to HAMP, the servicer, loss mitigation, the non-profit assisting me, home retention, the mediators office, etc.  It was more than a part time job and yet when the government comes looking for answers from them they either give up information out of courtesy or threaten to fight a subpoena for a full year to get out of it.

I would say this is infuriating but from what I’ve seen it’s par for the course.  My life was scoured in hopes of having a bone thrown my way but that was to no avail.  Now the shoe is on the other foot and the banks are lawyering up or working around the spirit of the inquisition. 

The oligarchy that runs the banks and the regulators is in absolute control and there is little any person can do.  My only debt will be my mortgage and one car but I plan to have the car paid off by the beginning of 2012.  Then the banks will have little control over my life. 

However, seeing that the “large” government that we are all funding really has no power to oversee or control the very things that threaten the prosperity and livelyhood of the people they serve, I can only hope that the message gets out and more people educate themselves to what is going on and how they can try to make a difference.

......on second thought, the wisest of the bunch are either in control or investing outside (and against) this country.

Thanks for the information, I look forward to the Propublica perspective on more of what was uncovered.

So if nobody is going to go after the big fish and criminally prosecute, can we count on Propublica and, and Zero to take up the mantle and pour through the documents and find the evidence?

Andrew King wrote: Citigroup declined to comment, but added that it was “a fundamentally different company today than it was before the crisis.”

Sure, until the next financial crisis and market free fall. They happen every 5 to 7 years in my experience. Think about it: oil patch banking failures of early 80s, arbitrage frauds of mid-80s, S&L crisis of late 80s, real estate collapse of 89-90, Asia and Russian crisis of late 90s, dot com bust of 2001, World Com/Enron/Adelphia fraud of 2003, stock market collapse of 2008, on and on and on. And, Wall Street and the banks are right in the middle of it. Will these guys ever learn? Will we?

I suspect that not unlike Egypt it will take interfering with our reality TV and internet connections to get enough people’s attention.

The problem will be that they will all identify different problems and thus be ineffectual at addressing the problems of our oligarchy.

Grumpa Oldfart

Feb. 2, 2011, 7:31 p.m.

@Andrew - compared to the government of the ‘50s, we have little to no government and that which exists is underfunded because people think they can have a government that governs without paying taxes.

Beyond that, I back Erin’s question: Who will follow this up and force SOMEONE to DO SOMETHING ABOUT IT?

To Andrew King:  I’ve been going through the same scenario as you with your property.  I am submitting yet another “profit and loss” document this week, but I know the servicers will still deny me a loan mod., again blaming the mysterious “NPV” data as the reason.
Did you find a way to stay a while in your home?  I am in “pre-foreclosure” mode, but I’m a bit scared, and not sure what my next recourse will be.  I read that filing a wrongful foreclosure lawsuit so as to get before a judge with the servicers may have some power—-did you try that?  I am desperate to stay in my home.  I have 2 small children in local schools with family nearby.  When the economy crashed, our income was cut in half.  All I’m asking for is a little help until the economy improves…it makes me sick that the government can’t figure out a way to help people stay in their homes while they get back on their feet…
It’s going to be very interesting when all those people finally run out of unemployment insurance…

Robert W. "Doc" Hall

Feb. 2, 2011, 8:03 p.m.

Wonder if you could engage a psychologist to go through the evidence from a different angle. I’ve not been involved with the Wall Street mess, but have noted that execs who keep plunging deeper are like compulsive gamblers. They will swear until they die that debtors, courts, regulators, and everyone else should not have interfered. Just given enough time it would have all worked out.

This has seemed likely if a middle aged person was golden until they got in a jam. Having never failed before, or having to admit it, they seem psychologically incapable of doing so.

But I’m not a psychologist or behavioral research either, but this angle might be as interesting and useful as the tangles the banks knotted themselves into.


Feb. 2, 2011, 10:07 p.m.

Karen, get a Rest Report, that is the same as the NVP test of the treasury, and they can not lie to you and tell you that you don’t qualify do to the NVP test because you sending one to the bank showing that you qualify I have found many times that when the bank says that you did not qualify do to the NVP test and we requested their NVP test calculations in writing, they are all wrong the Banksters usually input the calculations wrongly so you can’t qualify but with the Rest Rrport they can’t lie to you and you can also send copy to the treasury, Fannie Mae and Freddie Mac The Rest Report (NVP) is not free, but if anything else has not work as of today, this will,
Let me know if you need more info about it

I just want all the mortgage payments amounting to $40,000 + returned to me, since they forced me out of my home!

In addition, I want a knew, low-interest fixed rate loan I can afford based on my and my husband’s Social Security Income and his meager State retirement.


Article V of the U.S. Constitution gives We The People the absolute right to propose amendments (if we can force Congress to call a convention as mandated by Article V) and straighten out many systemic problems bringing America to her knees!

It only requires 34 states to request an Article V Amendments Convention; over 754 requests are ‘on the books’ and still Congress does not OBEY their oath of office and call a convention.

How about a constitutional amendment that’ll force an investigation of wall street and banks (especially BofA), then if found guilty (IF?), send them all to a REAL prison for a long, long time.  Include their lawyers too.

Grumpa Oldfart

Feb. 3, 2011, 6:08 a.m.

@Mac Gordie
There are only two ways to amend the constitution.
I’d like to see some proof that 754 requests that fall within these two ways have been ignored. Even if you consider the third way mentioned in the article below, there is no process for the third way described anywhere.

Karen - I found a TON of information and support here, Not just a shameless plug but actual solid information and a lot of moral backing as well.  I also used a local non-profit “We Are Family” and they were able to help with the back-and-forth.  I never did get a modification, instead I changed my lifestyle.

-Sold my truck for more than I owed and bought a beater.
-Used tax returns to pay off credit cards completely and don’t use them.
-If I can’t pay cash I can’t have it! (This hurts but also helps prioritize)
-Had a huge yard sale and banked the proceeds. Also had a fire sale on Craigslist of everything I had that I didn’t really need. Spare TV’s, DVD’s, Books, etc. 
-And other trimming of my lifestyle fat.

It may take some time to do it but I think I’m better for it. I don’t need 73” TV’s, Leather couches, Granite counters, or stainless appliances.  Hell, I have a broken window frame that I repaired to stay closed until I have the $575 in cash to pay for it and have it fixed.

Back on topic:  Of all the watchdogs, whistleblowers, and private groups to pour through the documents, the government is still on the hook to prosecute.  Their attorneys are funded by commisions and groups that could well be in the pocket of the too-big-to-fail banksters.  Who really knows.  A call to the markets is needed.  Let them have their deregulation but let them deal with the consequences.  Inform the public that they are off the leash and be forewarned that history proves that bad things will happen so don’t put all of your eggs in one basket.  It isn’t much of a solution but it’s off the cuff and impulsive.

Once this mess starts to clean up I’m going back to school if the Gov has any cash left for financial aid.  Then I’ll hopefully find the information and intellgence to do more than brainstorm.  I’m open to discussion and chances to learn more about why the lives of this prosperous nation are in the toilet.

@Andrew King-I commend you for your honest endeavors to do your part. Problem is we are worse than being in the toilet…we are in the sewer with need to get to treatment plant. It is inconceivable that only $8 million was spent on this commision, compared to the $40 million on the Clinton/Lewinsky blowjob scandal. The powers that be made sure it was limited in it’s scope from the beginning. Imo there will not be any significant legal ramifications. Business as usual (whoopee!!! the stock market is above 12000 for 1st time in 2 1/2 years) meanwhile our home values continue to decline. For what it is woth, contacting our state AG’s might help. At least they are making a fuss (oh yeah, 2012 elections are just around the corner) which is a lot more than the one we elected on promise of CHANGE is doing.
@Karen-Andrew is correct with info regarding, lots of info and very helpful people going through the same things we are. GOD bless all!

Sure the fcic report restated plainly, symptoms of the obvious, unable to name the responsibility for history.  Repeat terroristic attacks on these United States in 2008 same as on Sept. 11, 2001…the Bush lack of leadership avoids yet again, with excuses intentional destruction.  Once again we saw the Saudi relationship, as Citi bottomed in late 2008, and some sheik starts buying Citi in the mega millions at the low price.  The fcic report completely avoids the commodity race to the world record $140+ oil price, as just another example of intentionally unchecked devastation (with happy fund raising not unlike a sweet 2 week old insurance policy on the twin towers)....targeted directly at the market.  Not surprizingly, the US Supreme Court finally settles on Valdez with a limp ‘slap on the wrist’ while Exxon made world record profits, resounding the judicial ‘lack of leadership’ with the executive branch.  Pelosi ought to get an 2008 award for ‘buying oil’ at the high price, further supporting the rocket shot of fear and unchecked, intentionally unmanned governmental leadership.  Global economic war on terror now reigns, with some major IMF outposts sharpshooting like the faceless drone.  QE2 & sustained rockbottom interests rates are plain to see, intentional inflictions Bernanke helicopterz his way into this sick history.

so tsame;)

Grumpa Oldfart…


“There are only two ways to amend the constitution.
I’d like to see some proof that 754 requests that fall within these two ways have been ignored. Even if you consider the third way mentioned in the article below, there is no process for the third way described anywhere.”

Simple Answer:  Go to and you’ll find a compendium of all 754 requests—ALL unlawfully denied by Congress in criminal violation of their oath of office.

The “third way” in your reference has NO LEGAL STANDING and is NOT included in Article V of the U.S. Constitution.


The real problem is not the Democrats or Republicans, it’s the both of them together—in collaboration.  Just follow the money.  Voting simply will not work to make any significant changes we so desperately need.

Only Constitutional Law will make an effective difference—High Law that the legislative, executive or judicial branches can’t abuse.  It’s time for an Article V Amendments Convention.  Call your Congresspersons and ask about it—you’ll get excuses or dead silence.  Try it.


Feb. 4, 2011, 12:24 a.m.

Only by stooping the special interest money to politicians you will get change, the real problem is we are going in the opposite direction thanks to the 5 republicans conservative judges at the supreme court that voted for citizens united decision which puts the corporations as same as people and allowed corporations to make independent expenditures for or against political candidates.
we are doomed

OMG will the crying ever end???  Sure the govt hamp program sucks, sure it wont work, and why not?? Because the govt isnt very good at quick fixes.  Quit complaining that no one is helping you.  Help yourself.  File bankruptcy and put someone directly in charge of your financial mess.  Nobody forced you to take out a crappy loan with crappy terms and a hair-trigger sensitivity to income loss.  But that sin is done, move on to the solution phase.  If anyone should be bitchin’ a blue streak it should be folks that never fell into this trap, that paid thier bills on time and now have to pay for this mess.  I understand my responsibility to this country, I am a veteran and and a taxpayer.  But I am sick to death that I have to subsidize criminally negligent lending practices that amassed huge benefits to few, at a significant cost to the rest of us.  There are probably thousands of folks from the lending industry that could be prosecuted, and many thousands more who were irresponsible in taking on these crappy loans and living well above their means.  But I am not a lender, nor did I succomb to the siren song of debt, so why should I feel sorry for the whiners who want me to continue to subsidize their solutions?? “All I want is a little help until the economy comes back…” that sounds reasonable and even makes sense from the loss mitigation perspective, but it IS NOT what you signed up for. 

If you get the help (and I hope you do, I hate to see kids impacted by the parents mistakes) and that assistance provides the bridge you need, then be thankful, pay your taxes, vote responsibly and obey the Golden Rule, ‘cause you got lucky and now you should Pay-it-Forward.  If you dont get the help, for whatever reason, that is not the same as getting screwed.  If you have your hand out looking for a gift and no gift comes along, simply put your hand away.  What lesson are we teaching our kids when banks, financial firms and rich and poor folks alike want to keep their upside to themselves but want to publicly subsidize their downside?

Good article…but, would add just a snippet…that rating agencies were immune to liabilities of their ratings.
You can thank the army of financial house lobbyists for this part of the scandal and the collaboration of both major political parties.
One more point; No major bank will be allowed to fail because in addition to being part of the corporate/political structure of this country they are also “enablers” for money laundering that support the clandestine intelligence agencies such as the “black budgets” that perpetrate havoc around the world….
This is verifiable by googling for example, “Citibank and the CIA”  Go from there…use your imagination.

Jesse Eisinger

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