Where'd Our Money Go?
Before the CEOs of the country’s biggest banks get humiliated testifying before Congress today, Charlie Gasparino has a few questions he’d like answered.
Today is the day that the heads of the big Wall Street firms—including Jamie Dimon of JP Morgan Chase, Vikram Pandit of Citigroup, John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs, and Ken Lewis of Bank of America—have been dreading now for weeks: Their appearance before Barney Frank's House Financial Services Committee. Frank says he wants to hold the Wall Street chieftains accountable after receiving all that bailout money from the federal government and then spending it on big bonuses and possibly toiletry. The Wall Street guys are expecting nothing short of public humiliation—an "inquisition" as one firm’s publicist called it and a public "anal exam" according to another.
Well I'm here to call a truce and pose some questions that might add to the debate about the how Wall Street and its excesses caused this financial debacle—and how it might be fixed.
I'd like to know if Lehman was being straight when it told the investing public that its finances were largely in order. I know you guys know.
QUESTION ONE: WHOSE BRILLIANT IDEA WAS IT TO GET LEVERAGED 40-TO-1?
During the good years, Wall Street firms borrowed $40 for every $1 they had in capital. By borrowing so much money folks were able to earn outsized profits during a boom, but this borrowing led to huge losses—so huge that now many of your banks are teetering on the verge on insolvency. So what I want to know is: who internally approved all the leverage, and what bonehead at the Securities and Exchange Commission or Federal Reserve said it was the right thing to do?
QUESTION TWO: HOW EASY WAS IT TO FOOL THE SEC ANYWAY?Seriously gentleman, it's difficult to ask the foxes how to guard the hen house, but since you're under oath, lets hear how you think so much stuff, not to mention this little Madoff matter, slipped through the cracks over there at the commission. Any ideas on how to fix the place—i.e. should it be abolished?
QUESTION THREE: WHAT MADE YOU THINK THAT $35,000 COMMODES, PRIVATE JETS AND BONUSES GRANTED WHILE THE FINANCIAL SYSTEM FELL INTO DISARRAY WAS NORMAL OPERATING PROCEDURE?
This is an important question because it gets to the heart of the Wall Street mindset and the belief in entitlement. I'm not calling for re-education camps, but maybe Vikram Pandit can spend a few moments with Dr. Phil or some other shrink and we can start making progress in answering this question. Maybe we can even make some CEO’s inner-child cry?
QUESTION FOUR: GIVE ME THE DIRT ABOUT LEHMAN BROTHERS!!
Lehman's demise may be the most important story during the entire financial debacle because it says so much about the Wall Street culture. When the firm was failing, top executives assured the world that it had the wherewithal to survive. The big Wall Street firms—including all you gentlemen present at the hearing—had a chance to save Lehman but didn't. I'd like to know if Lehman was being straight when it told the investing public that its finances were largely in order. I know you guys know.
QUESTION FIVE: WHY COULDN'T YOU JUST FLY DOWN ON YOUR CORPORATE JETS?
The speculation is that you Wall Street gentlemen are benefiting from the experience of the auto dudes and are flying to the hearings commercial, rather than taking your corporate jets. (Ken Lewis has at least six jets even as he attempts to get rid of the Merrill Lynch "global express" and helicopter he inherited after buying the brokerage firm and inheriting its recent $15 billion loss.) I say that's bullshit. Don't be afraid of using your corporate perks. I hear Lewis has at least 60 people attending to his flight needs so why add to the unemployment rate?
QUESTION SIX: OKAY, SO WHAT EXACTLY DID YOU TELL TREASURY SECRETARY TIM GEITHNER TO MAKE HIM UNVEIL SUCH A WIMPY BANK-RECOVERY PLAN THAT THE MARKET FELL NEARLY 400 POINTS?
About two weeks ago, I reported about on CNBC that heads of the big Wall Street firms warned Geithner not to go ahead with his plan to create a government run “bad bank” and simply purchase the $1 trillion to $4 trillion of toxic assets off the balance sheets of the big banks so they can can begin lending to individuals and businesses again. There were good reasons, allegedly, for Wall Street to give this advice: The toxic assets are so difficult to price that taxpayers may have handed Wall Street a massive subsidy for its wrong-way bet on mortgage bonds. But given all the great minds on Wall Street, you would think someone would have come up with a viable alternative not the weak-tea Geithner offered up yesterday. So come on, what did you gentlemen tell our new Treasury secretary? Or did the same guy who seemed to ignore the nanny tax also ignore any sound advice you may have given him about an alternate plan? If so, Geithner really isn't ready for prime time. I hope guys are.
Charles Gasparino appears as a daily member of CNBC's ensemble. He is also a columnist for Trader Monthly Magazine, and a freelance writer for the New York Post, Forbes and other publications.