Crisis probe provides theater but little light

The hearings of the Financial Crisis Inquiry Commission are off to a poor start, generating a whole lot of heat but not much light. If its chairman, Philip Angelides, and the other members of the commission don't begin asking more insightful questions, the whole exercise will have been a waste of time and money. In fact, it might be better if the commission stopped holding televised public hearings and instead conducted the hearings quietly so that the commissioners could concentrate on gathering information rather than scoring political points or trying to appear smart. That way, there would be less temptation for Mr. Angelides, the former California treasurer and current gubernatorial candidate of that state, and the other politicians on the panel to play to their political sponsors and the public. The role of the commission is to examine the causes of the financial and economic crises in the United States, and to examine the causes of the collapse of each major financial institution that failed or was likely to have failed if not for the receipt of exceptional government assistance. The goal is to develop a comprehensive, presumably unbiased narrative of the crisis, from which lessons can be learned that will guide legislation and regulatory reforms. Unfortunately, Mr. Angelides' questions to the first witnesses, four of the nation's top bankers, seemed more like those of a prosecutor attempting to browbeat confessions of wrongdoing out of them, rather than queries seeking to find what went wrong, how the mistakes were made and how to prevent them. His performance might taint the outcome of the hearings. Indeed, the most insightful questions came from commissioner Heather Murren, perhaps because she is a trained analyst, a former managing director of Merrill Lynch & Co. Inc.'s global securities research and economics unit, and was for six consecutive years named to Institutional Investor's All-American Research Team. Unlike Mr. Angelides, Ms. Murren seemed most interested in the bankers' opinions of what went wrong, and not at all interested in scoring political points or pushing the testimony in a way that supported a predetermined conclusion. Luckily, those invited to testify have submitted written statements to the commission, and anyone interested in putting together the pieces of the puzzle will find those statements invaluable. For example, the written testimony of Julia Gordon, senior policy counsel for the Center for Responsible Lending, presents a wealth of statistics on the emergence of subprime and alt-A mortgages, and the default rates on those mortgages. The statistics are damning in terms of the practices of independent mortgage brokers and the institutions that bought the mortgages and packaged them. But the testimony is also highly critical of the regulators, and it presents common-sense reform proposals. The written testimony of Michael Mayo, managing director and financial services analyst at Calyon Securities (USA) Inc., provides equally impressive insight from a financial-industry perspective and also makes suggestions for reform. In fact, the quality of the written submissions so far suggests that the public hearings are merely theater and therefore redundant. The commission and its staff should simply read, analyze and digest the submissions of the witnesses, and call them in for clarification or additional information when necessary. From the submissions and additional testimony, it will be able to pull together an honest account of the crisis and make sensible suggestions for reforms without the temptation of political posturing.