Market Talk

Ferdinand Pecora

The response to the financial crisis out of Washington has been such a disappointment, from blanket bailouts to funneling AIG’s counterparties 100 cents on the dollar to the so-called “stress tests,” that it’s hard to get too worked up about today’s Financial Crisis Inquiry Commission hearings (watch the hearing live here.) This Congressional panel is being sold as a modern-day Pecora Commission, the Depression Era inquiry that dug into the market crash and led to the creation of the SEC and the Glass-Steagall Act.

This morning the panel will hear from the heads of four big banks: Lloyd Blankfein, John Mack, Jamie Dimon and Brian Moynihan, the new CEO at BofA. It’s sure to produce the usual dog-and-pony show kind of fireworks Congressional panels are well know for. If there’s one thing Congress still does it, it’s play to the cameras.

The Journal is live-blogging the hearing, which is getting a little test already. Goldman’s Blankfein tried to compare the financial crisis to a hurricane, something the panel’s chairman, Phil Angelides, quickly shot down, saying hurricane’s are acts of God, whereas the financial crisis was created by men and women.

Without a doubt, we’d imagine the high point will be when panel-member Brooksley Born, who famously tried and failed to regulate derivatives in the ’90s as head of the CFTC, gets to ask a few questions.

The Commission is also soliciting questions from the public for the hearings, an unusual request to be sure. One of the panelists, Keith Hennessey, is soliciting questions on his website, and the commission itself has a homepage. The Times already collected the thoughts of a number of educated observers, who offer up their questions for the CEOs.

Here’s a pointed one from James Grant of Grant’s Interest Rate Observer:

“The Federal Reserve’s setting of its benchmark federal funds rate at nearly 1 percent in 2003 to 2004 was a primary cause of the housing and mortgage debacle. Yet, in an attempt to nurse the economy back to health, the Fed has set that rate at nearly zero percent. So what’s the next bubble, and how do you intend to profit by it?”

Good luck getting that one answered!

Looks antique to me, Mary. Call Chesapeake.

It’s been a year of outrageousness, in so many ways. Here’s one that maybe you missed.

Footnoted.org’s Michelle Leder announces the worst footnote in the reams of this year’s SEC filings, as selected in a reader vote.

It’s the disclosure by Chesapeake Energy (CHK) “that it had spent $12.1 million to purchase Chairman and CEO Aubrey McClendon’s antique map collection,” she says.

“This particular disclosure got a lot of exposure this year after we wrote about it and even prompted Chesapeake to issue a amended proxy a few days later to provide additional details on the maps andother goodies McClendon received,” Leder adds.

The original disclosure is certainly written with some inspiration, noting the maps  ”have been displayed throughout the Company’s headquarters for a number of years, complementing the interior design features of our campus buildings and contributing to our workplace culture.”

Congrats on the recognition, CHK.

The truth will set you free.

There’s a reason the Obama administration keeps former Fed Chairman Paul Volcker chained to a radiator in a White House cooler – the guy speaks just a little too much truth.

Since being named to head up the President’s special economic recovery team, whether by design or by accident, he’s been barely heard from. It’s almost enough to make you wonder if his position was all just some PR stunt to draw some attention away from an inexperienced President.

But today, at a forum sponsored by the Wall Street Journal, he let it rip, and if we had a few more people roaming around Washington like him, there’d be a chance this whole fiasco could turn out alright.

Here’s the story, as relayed through MarketBeat:

Former Federal Reserve Chief Paul Volcker isn’t afraid to speak his mind. At The Wall Street Journal’s Future of Finance Initiative he tossed a few broadsides at a group of financial executives and policy makers.

The group had gathered to come up with suggested reforms that would help prevent a future financial calamity. Mr. Volcker’s verdict: “Your response I can only say, is inadequate. You have not come anywhere close.”

Mr. Volcker, who also chairs President Obama’s Economic Recovery Advisory Board, had a few other choice comments. Among them:

“I wish somebody would give me some shred of evidence linking financial innovation with a benefit to the economy.”

Mr. Volcker’s favorite financial innovation of the past 25 years? The ATM. “It really helps people, it’s useful.”

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No, no, no, it's worth what we say it's worth now.

The next time you hear somebody drone on about how healthy the banks are and how the worst is over, just remember the lede of this Reuters story:

Half of the losses suffered by banks could still be hidden in their balance sheets, more so in Europe than in the United States, the International Monetary Fund’s chief, Dominique Strauss-Kahn, was quoted as saying on Tuesday.

I’ve long thought that the most underappreciated bank bailout was the move by the Financial Accounting Standards Board, or FASB, to alter mark-to-market accounting rules back in March, the effect of which was to weaken the standard. This took the pressure off the banks to recognize losses on the assets on their balance sheets, and has miraculously coincided with an historic stock-mark rally, led largely by bank stocks.

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Guess they didn't see that one coming, did they?

One of our biggest criticisms of the Obama administration’s proposed financial regulations is that it doesn’t solve the problems of companies that become, in the parlance of our times, too big to fail. You know, Citigroup, Bank of America, GM. Companies that, left to the discipline of the marketplace, likely would have disappeared by now, but were saved because some official somewhere decided they were needed for the good of the nation.

Apparently, we aren’t the only people who think that. As the New York Times’ Gretchen Morgenson wrote over the weekend, there was little in the proposed plan that addressed the issue, and in fact, it suggested the safety net might actually get wider.

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Where are all the activist investors? Where’s the commotion surrounding the government taking large stakes in large corporations without taxpayers having any say in how the companies are run?

Former labor secretary Robert Reich notes shareholders and boards of directors are usually the ones responsible for keeping corporate executives in line. And when it comes to top politicians, voters are trusted to elect the best officials. But now that the public has committed billions to companies in the private sector, no one knows what’s going to happen next.

“We’re in a quandary,” Reich says.

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