>>> well, good monday afternoon to you, nice to see you. we begin today with a fraud behind the financial meltdown that continues to be carried out as you and i speak this afternoon. we are talking about it as are leading economists and other members of the media that are starting to address the underlying and very sinister aspect of the way our financial system pays off those in charge and in the process destroying housing and unemployment in this country. even hollywood weighing in last night.
>> three years after a horrific financial crisis caused by massive fraud, not a single financial executive has gone to jail and that’s wrong.
>> so why is washington, the president, eric holder, the department of justice, ignoring the problem? how much longer can they simply turn the page? and now, while wall street escapes scot-free, middle class americans are the true victims which is why we’re seeing standoffs at the state level, places like wisconsin, ohio. but the bottom line is simple. until we see the handcuffs come to wall street, we will not be able to take the necessary steps to end the ongoing schemes, restore fairness to america’s financial system, and more importantly, a square deal for americans. joining us now is the chairman of the financial crisis inquiry commission, operating on a paltry $8 million budget, i might add. his panel was still able to uncover what looks and smells like evidence of financial fraud and, phil, it is a pleasure to have you back with us. thank you.
>> good to be with you, dylan.
>> let’s talk about a couple of things in your report. first, there’s a reference from clayton holdings, audited a stack of mortgages. they call it a dip-stick test, basically you look into the mortgages the banks were selling. you pointed out this in your report, 28% of those mortgages were not conforming to the legal standards required in order to sell these types of mortgages. go on to say that 11% of that was actually sold by banks, deutsche bank, morgan stanley, all the banks. without disclosure to the buyer that those mortgages had been audited as flawed. is that not a prosecutable offense?
>> well, i’m not an attorney. we weren’t set up as prosecutors, but one thing we did in our report is laid out a lot of facts. we did our job. it’s now the job of the prosecutors to do their job. in what you’re referring to, that was a big dipstick. clayton holdings looked at 911,000 mortgages in 2006, the first half of 2007. they found that 28% of the mortgages being bought by firms like citigroup and goldman and deutsche bank and ubs, they were being packaged and sold to investors, didn’t even meet the crummy underwriting standards of the countrywides, the new centuries, the ameriquests that were selling it to them. yet they packaged them and didn’t disclose that to investors. by the way, they were sampling 2% to 5% of the loans. you’re talking about 20 million-plus loans out there. we’ve also pointed out in the report that private mortgage insurance, when they began examining the claims of loans they had insured, they’re finding 25% of those loans breached the representations and warranties, and fannie mae and freddie mac have found $35 billion of loans that they’re demanding banks pay them back for because their reps and warranties broken there. there are pervasive problems, dylan. you pointed out our budget. we had $9.8 billion in the end. the lehman bankruptcy examiner had $38 billion. madoff trustee, $228 million. we opened a lot of doors, laid out a lot of facts, did our job. there shouldn’t be vengeance in this country, but there needs to be a sense of justice that the powerful own wealthy are subject to the same judicial system as the rest of us in this country.
>> do you believe that’s the case today?
>> well, people should have right to have doubts because all over this country, you know, $11 trillion of wealth wiped out. 27 million americans without jobs, can’t find full-time work, stopped looking for work. 4 million people who have lost their homes to foreclosure. there’s been consequence there, but not on wall street. and when you look at a lot of these settlements, think of it for a minute. if someone knocked over a 7-eleven and took $500 then they settled and paid $50 with no admission or wrongdoing, they’re going to knock every the 7- 7-eleven again. there’s no deterrents, no certainty when there is wrongdoing, we’re going to be back where we were.
>> one of the things that struck me reading through and looking at the notes from the report, as you surely know after the enron scandals, sarbanes-oxley was passed. a headline aspect of sarbanes-oxley was the boss, the ceo and cfo, when they sign off on financial reports will be held accountable for the financial reports that they sign off on. your report discloses some very disturbing aspects about the federal government, whether it’s the s.e.c. or the department of justice’s failure to enforce that law in the case of citigroup. i can’t speak for the other banks, but specifically citigroup’s auditor came in and identified, again, weaknesses were noted with model documentation, validation and control group oversight. this is a letter from the auditor. hang on for that quote. that quote is premature. please ignore that quote. i’m sorry. again, before we get to that quote, the auditor established that they did not have compliance and that basically they were not, did not have a valid regulatory or, excuse me, a valid audit in financial control system. this comes in — well, and eight days later on february 22nd, they’re being told their noncompliant. citigroup files its annual report to public shareholders of which so many 401(k)s and pension money and all these people that are getting screwed now are in these companies. in which they said, management, i quote them, management believes as of december 31st, ’07, the company’s internal control over financial control is effective. pandit was the ceo at the time. he certified the report personally, including the part of citigroup’s internal controls. citigroup’s chief financial officer at the time, gary crittenden certified those. that looks like an up and down open and close case of a breach of 302 and 306 in sarbanes-oxley.
>> well, again, as you’ll look through our whole report, you’ll find dramatic failures in corporate governance, failures by management to have the kind of internal controls in place. another great example is aig. where the internal controls and weaknesses were evident and what wasn’t disclosed to shareholders in the investing public was also quite striking. and again, dylan, our job, with our budget, and the time we had, was to lay out the facts. as i said when we released this report, there is still much to investigate. there is still much to fix. and i believe this nation’s examination as well as prosecutors’ examination of what happened should only just be beginning now. and i’m hopeful, look, i hope, again, we don’t want hang man justice in this country, we don’t want vengeance. anger and vengeance isn’t a policy and prescription. firm deterrent in making sure laws are complied with and fair application. ferdinand, five years after his famous investigation in the ’30s, he said after five short years we may now need to be reminded what wall street was like before uncle sam stationed a policeman at its corner, lest in time to come, some attempt be made to abolish that post. you’re right. what’s happening now is they don’t want to change the rules to reform wall street up on wall street. they want to change the subject. they’re going after teachers in this country who make $50,000 a year on average. forget what a young day trader makes just coming out of college on wall street. they want to go after teachers’ pensions. the median pension here in california for a teacher is $2,400 a month. so there’s an attempt now, also, to change the subject, to draw people away from what brought us to the point where our country’s economy is on its knees.
>> and is it not the case that basically every state, whether it’s paying pensions for teachers, cops, firefighters, everybody else, is dependent on its unemployment rate and the value of its housing stock, which are the two things that were destroyed by this crisis. that’s what drives the ability to pay the bills in a state like california, wisconsin, new york or any place else, correct?
>> correct. let me just say something. i was treasury after the state. i actually was the person who opposed arnold schwarzenegger’s borrowing. this state was living beyond its means before the crash. $10 billion a year, spending more than it was taking in. let’s be clear. what’s really caused the crash here in california is that revenues are $42 billion a year less than projected before the economy collapsed. that’s what’s brought us to our knees.
>> bingo. thank you.
>> that’s the big picture.
>> and it’s easy to talk about what we’re spending but to ignore the collapse and revenue of american states driven by housing and unemployment and take it out on the teachers is shameful i think beyond what any of us can comprehend. we thank you for your disclosure of facts. we’re hopeful this is the beginning of inquiries by sarbane-oxleys.
>> can i make one little shameless pitch here? our book, our report is a bestseller. people are hungry. go to our website, fcic.gov. i would recommend not only that all americans read it, but i would hope the prosecutors and law enforcement read our report.
>> and i second that request. i will continue to bring elements up on an ongoing basis as they strike me as black and white, phil. thank you so much. head