Blankfein to FCIC: Asset Owners Are Professionals Who Wanted Mortgage Exposure

During the first day of testimony before the FCIC, bank bosses were both apologetic and defensive, at one point claiming that institutional investors who dealt with them were professionals and should be responsible for their actions.

(January 14, 2010) – In fiery testimony on day one of the Financial Crisis Inquiry Committee (FCIC), Goldman Sachs’ CEO Lloyd Blankfein stated that institutional investors were responsible for taking the bad sides of mortgage bets as the crisis reached its apogee.

While admitting changes were necessary – “Anyone who says ‘I wouldn’t change a thing’, I think, is crazy,” – Blankfein stated, in the opening morning’s session, that investors who bought mortgage-backed securities (MBS) and other securitized assets from Goldman while other sections of the bank were simultaneously shorting the same instruments were “professional investors who want[ed] this exposure.”

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FCIC Chairman Phil Angelides, who was once the Chairman of the nation’s largest pension fund, the California Public Employees Retirement System (CalPERS), had a retort: “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars.”

The FCIC has a mandate to investigate the financial crisis and make recommendations to Congress on how to avoid such problems in the future. The Commission mirrors that seen following the great Depression — the New Deal’s Pecora Investigation – which indirectly led to the passage of the Glass-Steagall Act and the Securities Exchange Act. The report is expected by December 15, 2010, and hearings will continue throughout the year.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

With Charges of Bribery and Corruption, CalPERS to Increase Transparency

Middlemen got $125 million from private investment funds for arranging deals with CalPERS.

(January 14, 2010) — Middlemen reportedly earned $125 million in fees for helping funds get business with the California Public Employees’ Retirement System, according to documents released this morning, and the fund giant is expected to step up transparency. It aims to disclose details about the intermediaries who represent investment funds, the investments they promoted and the fees they were paid, the Los Angeles Times reported.

 

Worry about lack of transparency in the pension fund community exploded last year, when a pension-fund scandal in New York exposed the role of placement agents in bribery and corruption charges, wrote the LA Times. Also last year, news broke that Alfred J.R. Villalobos, a former CalPERS board member, was paid millions more than disclosed for helping private equity firms obtain CalPERS investment business.

 

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The disclosure reveals how Wall Street firms bribed middlemen to gain access to CalPERS, the largest U.S. public pension with assets under management totaling more than $200 billion.

 

“Gathering information is not enough,” said Anne Stausboll, CalPERS chief executive officer, to the LA Times. “We remain firmly committed to pursuing a full and fair examination that the special review will provide, and to backing legislation that would remove contingent fee arrangements and require placement agents to comply with the same rules as lobbyists.”



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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