Updated for write-through, information on Cayne appearance.
NEW YORK (
) -- The executives from
being dragged before Congress this week are just the latest to deny the role they played in causing the financial crisis.
The brass from embattled
got their chance last week, and a few
officials took their medicine early in April.
The Bear Stearns' bunch was front and center on Wednesday, while Thursday will see Treasury Secretary Tim Geithner, his predecessor Henry Paulson, and current and former officials from the
Securities and Exchange Commission
in the spotlight. Executives from money management giants
will also be on hand tomorrow.
is live-blogging portions of the festivities, which are being held by the Financial Crisis Inquiry Commission (FCIC), the panel set up by Congress to try to explain to the American people why the economy nearly blew up in 2008.
The main event on Wednesday was former Bear Stearns CEO and Chairman Jimmy Cayne, a 76 year-old bridge playing former scrap iron salesman. Cayne holds the distinction of being one of the executives most embarrassed by the events of the crisis. As if being pushed out of the top job and watching the firm he led for 15 years get sold for $10 per share to
wasn't bad enough, Cayne was also the subject of an article in
The Wall Street Journal
that described him as an occasional marijuana smoker who was off playing bridge while two Bear Stearns hedge funds collapsed.
In his appearance, Cayne put the blame for Bear Stearns' collapse on "market forces," saying a loss of confidence in the company became a "self-fulfilling prophecy."
What GE, Bear Stearns, State Street and PIMCO have in common, aside from executives who can be expected to deny their responsibility for the crisis, is that they all play parts in what is known as the "shadow banking system," which is the supposed subject of this latest round of hearings. In other words, these institutions are not banks, but they provide much of the credit that keeps the economy running.
Though invisible to most of the public, it was the breakdown of the shadow banking system that characterized this current crisis, a point made effectively by
scholar Gary Gorton, when he appeared before the FCIC in February.
Scholars like Gorton do not get enough attention as we try to understand what caused the crisis and how to prevent a repeat. Gorton does not live in the proverbial ivory tower of academia.
In fact, as a well-paid consultant to
since the late 1990s, he is far from an innocent bystander in the crisis. Nonetheless, many of his ideas continue to command respect among top economists and policymakers. For better or worse, he is one of the people that will play an important role in shaping reform.
Gorton might get more attention if the Jimmy Caynes of the world would admit they screwed up. (It wouldn't hurt if Gorton made a similar admission, though not many people would notice.) Then we could get on to the real work of figuring out what to do next. It is very likely, however, that the major actors leading up to the crisis will continue to try to steer the blame away from themselves. Cayne is particular has proven especially bad at accepting responsibility for Bear's failure.
We should hold Cayne's feet to the fire, and you can expect the Commission will do so Wednesday. But hopefully we are also trying to figure out what to do to lessen the damage to be done by the next Jimmy Cayne.
One troubling sign that we are not doing so is that the FCIC will present its findings to the public at the end of the year, which is probably about six months after financial reform legislation will have been signed by the President.
Written by Dan Freed in New York