Carol Perry column: Many sorry, no one takes responsibility for financial crises
For the Nevada Appeal
I turned on CNBC Thursday morning to see Robert Rubin, former financial superstar and Treasury Secretary testify before the Financial Crisis Inquiry Commission about his role in the financial crisis.
Rubin, a top executive at Citigroup when things began melting down, expressed regret about not knowing until late in the game about the subprime mortgage crisis or about the $43 billion in high risk-mortgage securities on Citigroups books. He, like so many other Wall Street exec’s, passed the buck to the Citi trading desk who built up a mountain of risk, but thought they were acting in good faith. He also cited the ratings agencies (Moody’s and S & P) for rating what were 80 percent BBB-minus mortgages in the risky multitrenched securities as AAA and safe from default.
Also to blame were the mortgage brokers and banks lending to anyone who fogged a mirror and of course the borrowers themselves. Rubin, with vast experience in financial markets, admitted not picking up on warning signs about a serious potential crisis. As more is uncovered about this crisis, it appears there were a lot of pretty savvy folks with their heads in the sand when it came to risky mortgages, derivatives held off books, and credit default swaps.
But how could this happen when the now obvious warning signs started showing up in 2007? This is what baffles me the most. I have often said that I have seen greed gone wild many times before on Wall Street, but nothing compared to this. Could greed be the answer when so many failed to see what would happen when you lend people money that they cannot afford to repay? Was it just greed when those risky loans were packaged and sold to someone else (mostly Fannie and Freddie) to avoid personal exposure? Did just greed allow the very firms that packaged these complex financial products to provide the ratings agencies the models on how to rate them, and the ratings agencies did not question those models? Those wanting to hedge their bets bought credit default swaps that transferred the risk of default to the insurance companies and the insurance companies said “sure, no problem.”
Is it just me or does all of this seem like a bit of mass insanity coupled with a large dose of denial? Everyone knew what they were doing was risky, but the risk buck kept being passed and everyone considered their own exposure manageable.
The trickle down effect of all this insanity is that many of these AAA-rated junk derivatives ended up in retirement plans, pensions and municipal investment pools for folks who had never heard of a CDO or CDS and if they did, they would have no way of understanding these complex instruments.
Honestly, the biggest risk takers in this whole insane scheme made a fortune doing it and since these products were mostly unregulated (thanks to Congress), no one is going to jail. The pattern of the risk taker profiting while the average person pays (either by losses in their accounts or taxes as bailouts) continues on and on with little or no changes so far.
I never sold any of these derivatives personally when I was in practice because I did not understand them. If I could not, then I did not think a client could either. That made them too much risk and liability for me. The trouble was that while I did not sell any directly, they were in mutual funds, annuities, retirement accounts and you name it.
When the market finally blew up in September 2008, it did not matter if you had a conservative fund or not. Everything tanked. People not involved in securitization were not aware of the risks being taken. I felt there was a black hole out there sucking up cash, but everything was off books, unreported and unverifiable. None of that makes me feel any better to this day.
Mr. Rubin expressed his apologies Thursday for not knowing about the risks that Citi was taking until it was too late (or so he says). We have heard the same “I’m sorry” from a lot of people who profited, and kept said profits from selling risky unregulated securities, but how sorry can they be? Obviously not sorry enough to return all the money.
• Carol Perry has been a Northern Nevada resident since 1983. You can reach her at firstname.lastname@example.org.