“Phil Angelides, chairman of the Financial Crisis Inquiry Commission (and former California Treasurer [yay!]), saw a used-car salesman at work after listening to the pugnacious, arm-waving Lloyd Blankfein of Goldman Sachs (GS.N) describe his firm’s pre-meltdown practices.
“‘I’m just going to be blunt with you,’ he told Blankfein. ‘It sounds to me a little bit like selling a car with faulty brakes, then buying an insurance policy on the buyer of those cars. It doesn’t seem to me that’s a practice that inspires confidence in the market.’
“The bankers adopted a ‘mistakes-were-made’ posture while defending their pre-crisis methods as a product of the times and promising to do better since, as they admitted, the Federal Reserve has been watching them far more closely than the Securities and Exchange Commission.
“Blankfein, pressed on whether his company would own up to ‘excessive risk’ practices, raised the notion of a rare season of dangerous hurricanes.
“Angelides shot him down.
“‘Having sat on the board of the California Earthquake Authority, acts of God (are) exempt. These were acts of men and women. These were controllable,’ he said.”
Metaphors flying at Wall Street bankers hearing, by Steve Holland, Reuters, January 13, 2010
Phil Angelides: my hero.
And “…selling a car with faulty brakes, then buying an insurance policy on the buyer of those cars” really sums up the old moral hazard issue right there, don’t it?