Andy Kroll

Andy Kroll

Senior Reporter

Andy Kroll is Mother Jones' Dark Money reporter. He is based in the DC bureau. His work has also appeared at the Wall Street Journal, the Guardian, Men's Journal, the American Prospect, and TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndrewKroll.

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A Crash Course on the Financial Meltdown

| Fri Jan. 15, 2010 7:21 AM EST

The 10 members of the Financial Crisis Inquiry Commission, the modern heir to the famous Pecora Commission convened in the wake of Wall Street's 1929 crash, kicked off a marathon set of hearings on Wednesday and Thursday by grilling some of Wall Street's most powerful executives, the regulators supposedly tasked with reining them in, and outside experts who watched the collapse. What they heard amounted to something of a crash course in the roots of the financial meltdown.

The FCIC is charged with issuing a report on the causes of the crisis—something that the Obama administration has been slow to do. That's meant probing people like Goldman Sachs CEO Lloyd Blankfein and JPMorgan Chase CEO Jamie Dimon, who both appeared in the FCIC's first hearing, on what caused the meltdown and what role their banks played in the process. The bankers and officials such as SEC chair Mary Schapiro pointed to a decline in underwriting standards and staggering housing bubble that combined, Dimon said, to help "fuel asset appreciation, excessive speculation, and far higher credit losses."

One outstanding question about the financial meltdown has been how the subprime collapse spread to the broader economy. Back in 2007, Federal Reserve chairman Ben Bernanke didn't expect any spillover from the housing crisis at all. Yet as the four Wall Street execs explained at the hearing, the mortgage securitization process—which took people's actual mortgages and tried to make them behave like fungible assets you could trade just like stocks and bonds—led to vast amounts of Lehman Brothers-like speculation and leverage. The evaluators of these mortgage-backed securities, the credit rating agencies, only fueled the gambling by stamping their highest imprimatur on these shoddy loans. And when people stopped making their mortgage payments and the securities backed by those mortgages went sour, all these overleveraged institutions suffered huge losses that caused some to fail and others to survive only with government help. "In hindsight," Dimon said, "it's apparent that excess speculation and dishonesty on the part of both brokers and consumers further contributed to the problem."

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Obama's Big-Bank Tax

| Thu Jan. 14, 2010 4:04 PM EST

President Obama rolled out his much anticipated big-bank tax today, dubbed the "Financial Crisis Responsibility Fee." The fee will go into effect on June 30, and the White House projects the tax to generate $90 billion over 10 years and $117 billion over 12 years—but either way, the tax won't go away until the TARP bailout money for these big institutions is repaid in full. It'll apply to the largest financial institutions—technically, those with more than $50 billion in consolidated assets—and that includes bank-holding companies (i.e., Goldman Sachs), thrifts, and insurance companies (i.e., AIG). Not subject to the tax are Fannie Mae and Freddie Mac and the US automakers, even they all received more than generous rescue packages from the government.

Not surprisingly, Wall Street is clearly pissed at this oh-so-subtly named fee. In announcing it today, Obama responded to the financial sector's criticism with a direct message to Wall Street executives. "Instead of sending a phalanx of lobbyists to fight this proposal or employing an army of lawyers and accountants to help evade the fee," he said, "I suggest you might want to consider simply meeting your responsibilities." Fat chance of that. The head of the Financial Services Roundtable, one of the biggest coalitions of financial interests that frequently lobbies on financial issues on Capitol Hill, already came out swinging, calling the tax a "strictly political" move.

So what? From a political standpoint, Obama's record so far has been so skewed in favor of Wall Street and the financial industry, while taxpayer-directed efforts like the Making Home Affordable program have floundered and done little to abate the foreclosure crisis (which, mind you, remained at record levels in 2009 and is only getting worse in 2010), that it's about time Obama took a political stand that suggested otherwise.

That said, the tax does smell of an ad hoc solution, and feels like a move intended more to pacify anger toward Wall Street's "fat cats" and their bonuses and bailouts than to recoup bailout money. I also fear that the cost of the tax could be passed along to consumers, who are supposed to be the winners in this deal. Matt Yglesias says if that's the case, then consumers will simply spend less and take their money elsewhere; my only fear with that, however, is that if most of the big supermarket banks are included here, there aren't many options for consumers who want to take their business to another bank, unless they're willing to move to a smaller, probably regional bank. Which perhaps isn't so bad after all.

The tax, to be sure, is no substitute for better capital requirements and more rigorous regulation, and it shouldn't distract anyone from the more important goal of passing tough, smart financial regulation this year.

Quote of the Day: Wall St. Villains

| Wed Jan. 13, 2010 3:54 PM EST

Asked by a member of the Financial Crisis Inquiry Commission about whether there was a singular event—the Gramm-Leach-Bliley Act, say, or looser capital requirements at banks, or the staggering decline in underwriting standards—that led to the financial meltdown, Peter J. Solomon, a veteran investment banker, had this to say:

"It was a perfect storm from inside. It was a confluence. If you listed the number of villains in this tale, you wouldn't have a plot."

Solomon's remark, delivered in the second of the FCIC's three hearings today, came amidst a much livelier debate from three finance experts not tied to the big supermarket banks or investment houses on the causes of the crisis. For more on that and the third hearing, check back here at the MoJo blog a bit later today.

 

FCIC's Dull Opening

| Wed Jan. 13, 2010 2:17 PM EST

Like boxers sizing each other up and tossing the occasional jab, the opening hearing of the Financial Crisis Inquiry Commission got off to fairly predictable start this morning, with four of the biggest executives on Wall Street—Lloyd Blankfein of Goldman Sachs, Jamie Dimon of JPMorgan Chase, John Mack of Morgan Stanley, and Brian Moynihan of Bank of America—outlining their reasoning for why the meltdown happened and fielding questions on anything from lending practices to risk management to compensation from the 10-person commission.

The four Wall Street execs almost unanimously agreed in their prepared testimonies that the root of the financial crisis lay in the housing market, and more specifically, in predatory and reckless practices and products, like not verifying a borrower's income for a loan or peddling mortgages where you can pick how much to pay or interest rates drastically reset after a few years. Those kinds of practices fueled a massive housing bubble, Dimon said, which in turn "helped fuel asset appreciation, excessive speculation and far higher credit losses" that spread throughout the financial markets. As banks and investors kept making larger and larger bets on both housing and other markets, they failed to adequately managing the risks that accompanied those outsized bets should they fail, Blankfein said, and when the housing bubble popped and so many of those risky bets soured, institutions like Lehman Brothers and Bear Stearns collapsed.

Boiled to its essence, that was what the four execs pointed to as the main root cause of the crisis. Aside from that, however, the morning's questioning didn't shed much light on anything. Daniel Indiviglio at The Atlantic bemoans FCIC chairman Phil Angelides' apparent lack of finance know-how in his questioning of Blankfein (which I mostly agree with); and to be honest, none of the FCIC's commissioners—barring perhaps former CBO director Douglas Holtz-Eakin—seemed to ask anything that hadn't been covered before. Former congressman Bill Thomas did request that all four men to answer the questions featured in today's New York Times op-ed page—questions far more probing than what the FCIC asked.

But in all fairness, the commission is just getting warmed up and I'm sure their work will only get better going forward. Especially if do the gritty, investigative work that my colleague Nick Baumann writes about today, like subpoenaing documents and records and even tracking down whistleblowers for testimony. That'll bring out the juicy details that can really shed some light on what happened behind the scenes, the kind of decisions and actions that Lloyd Blankfein or Jamie Dimon are never going to share.

 

Terrorism and the Reason Why

| Mon Jan. 11, 2010 8:11 AM EST

Kudos to Helen Thomas, that 89-year-old front-row mainstay of the Washington press corps. At President Obama's press briefing this past week with counterterrorism official John Brennan and Department of Homeland Security secretary Janet Napolitano, which I'd mostly avoided figuring it to be an hour's worth of canned statements and only revisited Sunday, I completely missed an important—and painfully telling—question Thomas posed to Brennan and Napolitano. A question that in my estimation revealed more about the Obama administration than the rest of the 40-minute briefing.

What Thomas asked, in essence, was this: Why do terrorists like Umar Farouk Abdulmutallab hate and attack us? What causes them to want to do such a thing? Napolitano dodged the question entirely, but Thomas pressed on: 

Thomas: What is the motivation? We never hear what you find out on why.

Brennan: Al Qaeda is an organization that is dedicated to murder and wanton slaughter of innocents. What they have done over the past decade and half, two decades, is to attract individuals like Mr. Abdulmutallab and use them for these types of attacks. He was motivated by a sense of religious sort of drive. Unfortunately, al Qaeda has perverted Islam, and has corrupted the concept of Islam, so that he's able to attract these individuals. But al Qaeda has the agenda of destruction and death.

HT: And you're saying it's because of religion?

JB: I'm saying it's because of an al Qaeda organization that uses the banner of religion in a very perverse and corrupt way.

HT: Why?

JB: I think this is a—this is a long issue, but al Qaeda is just determined to carry out attacks here against the homeland.

HT: But you haven't explained why.

At that point Thomas was cut off, the briefing moved on, and her prodding was left behind.

 

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