Tom Ferguson urges the Financial Crisis Inquiry Commission to question Eric Holder on AIG.
Is there anyone out there who still expects anything from the Angelides Commission? After AIG? After TARP? After Treasury's gargantuan tax breaks for banks, Geithner's preposterous asset buying program, the Citigroup $300 billion plus "ring fence," or the FDIC's guarantees of bank debts? Or, for that matter, the proposed new financial "reform" legislation that does little to rein in "too big to fail" banks and their long deadly chains of derivatives and credit default swaps?
Probably not. But since the Commission is finally holding its first hearings this week, let's just for a moment suspend disbelief and imagine how we skeptics might be proved wrong.
One telltale sign will come right at the start: Are the bankers who are testifying required to do so under oath or not? If the answer is no, relax and go see a disaster movie. You can be sure that it will all be just for show.
Assume, though, that the Commission passes that test. Today several of my gifted colleagues are proffering advice on what the bankers should be asked if the Commission wants to be taken seriously. I am as curious as anyone to hear how Goldman Sachs CEO Lloyd Blankfein defends "God's work." But let's also focus on someone else who will be testifying right after them: Attorney General Eric Holder.
Mr. Holder's position is unique. He heads the Department of Justice. As such, he doesn't exercise direct regulatory responsibility over financial markets in the way that the Federal Reserve System, the Federal Deposit Insurance Corporation, or the Securities and Exchange Commission do. But he is the nation's top law enforcement official, so it makes sense to ask him some pointed questions, especially about AIG.
In August 2009, the New York Times reported that in the wake of the market panic triggered by the collapse of Lehman Brothers in September 2008, Treasury Secretary Hank Paulson had asked for an ethics waiver that would allow him to talk to his old colleagues at Goldman Sachs. According to the Times, Mr. Paulson received two waivers on September 17: one from the White House counsel's office and one from the Treasury. But the Times also reported that according to Mr. Paulson's calendar, which it said it had obtained via the Freedom of Information Act, the Secretary didn't wait for the waiver before commencing his now famous series of calls back and forth with Lloyd Blankfein. Paulson telephoned him at least twice before the waiver arrived and many more times thereafter.
Yes, it was a crisis, and Paulson needed no waiver to speak with Blankfein about bland topics such as market conditions. But given the endless controversy about how AIG's rescue aided Goldman Sachs, Holder should be asked if he has reviewed the circumstances of the waiver, and what his views on it are. He should also be asked about any later memoranda or correspondence about the waiver.
More importantly, though, according to the Times, the calendar shows only official calls from Paulson's office. It does not record calls from Paulson's cell phone or from his home phone. Mr. Holder should be asked explicitly if the Department of Justice has obtained a full list of calls made from the other telephones. He should also be asked to make the list public.
As Attorney General, Mr. Holder is the authority on implementation of the Freedom of Information Act. In other circumstances, he has, like President Obama, touted the virtues of transparency and the timely release of information to the public. And, to be sure, the administration's FOIA policies represent an improvement over the icy hostility of the Bush-Cheney administration.
In September 2008, Harper's Magazine formally asked the Justice Department to release the same calendar that the Times said it already had obtained. Treasury claimed in October that it needed more time to consider the request. It has not responded further. The Treasury has also stonewalled Harper's request for an accounting of the other telephone calls. Mr. Holder should be asked how long he thinks Treasury can reasonably delay answering such simple requests and how he conceives of his responsibility in such matters. Needless to say, the Commission itself must demand all those records and make them public, by subpoena if necessary. There is no issue here of national security-and the recent disclosure that the New York Fed told AIG not to disclose the identity of the banks receiving full payment on their credit default swaps with AIG only fuels the worst possible suspicions.
Finally, of course, the Attorney General needs to be asked who in the Justice Department is reviewing the rest of the tangled chain of emails, memos, and phone conversations that stretched between Wall Street, the Fed, Treasury, and the White House during the period of the bailouts, including those engineered by Mr. Geithner after he relocated from the New York Fed to the Treasury. The Attorney General should be asked to make all such material available to the Commission and the Commission should undertake to publish all of it online. If it does, the Commission would really live up to its billing as a "new Pecora Commission." If it backs down, well then, so much for the audacity of hope. We'll know we were had -- again.
Thomas Ferguson is Professor of Political Science at the University of Massachusetts, Boston; a member of the advisory board of the Institute for New Economic Thinking, and a Senior Fellow at the Roosevelt Institute. He is the coauthor, with Robert Johnson, of a two part series on the financial crisis that has just appeared in successive issues of the International Journal of Political Economy.