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Phil Angelides, chairman of Financial Crisis Inquiry Commission, participates in a Senate Banking Committee hearing, May 10, 2011 in Washington, DC. The committee is hearing testimony on the final report of the Financial Crisis Inquiry Commission.
It's been five years since the bankruptcy and collapse of the Lehman Brothers investment bank. The company's collapse set a major financial crisis into motion.
Phil Angelides headed the government's Financial Crisis Inquiry Commission, was the man charged with investigating the cause of that ensuing financial crisis. He joins the show to talk about how we got to where we are today.
On where he was during the Lehman collapse:
"In 2008 I was in Los Angeles having served for eight years as treasurer. I was now back in the private sector and I was like millions of other Americans watching as our financial system unravelled. It was almost unbelievable, but it was the inevitable consequence of decades of deregulation, decades of enormous power applied on policy by the big banks in this country. That day was years in the making."
On the decision by the government not to rescue Lehman Bros:
"The system was rotted by that time. Whether or not there had been a rescue of Lehman, the fact is the financial system was becoming unhinged because of the recklessness in which the banks had engaged for years. Whether or not Lehman was bailed out, our financial system was headed for a crash."
On whether the financial crash was inevitable:
"We found that this was an avoidable crisis. If you looked at what had transpired in the years up to 2008, it was not a matter of risk models gone bad it was not a matter of the perfect storm as some on Wall Street would want us to believe, but the result of very conscious policy decisions.
On the findings of the FCIC report:
"The Federal Reserve had ample evidence of the egregious, abusive, pervasive predatory lending practices that were going on throughout this country in the late 1990s and beyond...We found that the Securities and Exchange Commission knew that the big investment banks like Bear Stearns and Lehman Brothers and Merrill Lynch were highly leveraged and in a highly risky position, but they didn't constrain their activities. Of course we also found that in the course of the lead up to the crisis, there were many breaches of ethics and accountability, wrongdoing by institutions and individuals that tipped the system over. "
On what surprised him during his research:
"Starting in the '90s with less regulation, less supervision, banks began, frankly, to be less bankers and more casino operators. I was stunned when I took over as chairman of this commission, at the extent to which our major financial institutions were engaged not in the practice of lending top grow our economy, but rathe for speculation for their own gain, and it turned out to be extraordinarily dangerous for the country given the concentration of powers in so few financial institutions."
On how deregulation influenced the severity of the crisis:
"Over the decade since the 1980s, the deregulatory ethos reigned supreme in Washington. There was this mindset that what we needed was less regulation, let the banks do their own thing, they're smart guys, they know what to do. That turned out to be a disastrous policy. Why did that happen? Enormous power by the financial institutions who at every turn lobbied Congress, lobbied the regulatory agencies, put pressure through their thousands of lobbyists and hundreds of millions of dollars of campaign contributions to lighten the hand of public protection. I think that was a seminal reason for the ultimate collapse."