Repeat of Crisis More Likely than Not: Phil Angelides

The Financial Crisis Inquiry Commission was created in 2009 to conduct the official inquiry into the causes of the 2008 crisis that brought the U.S. and the global banking system to its knees. Phil Angelides, the former Treasurer of California and a democratic gubernatorial candidate for the state, was charged with leading the Commission and producing a report on its findings. The report, issued to Congress in 2011, was also published as a manuscript and made the New York Times and Washington Post’s best seller’s lists. The report concluded that “widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets” and that "dramatic failures of corporate governance and risk management at many systemically important financial institutions were a key cause of this crisis."

Angelides, now 65-years old, is currently the President of Riverview Capital Investments, focusing on developing clean energy projects and sustainable urban communities. He is still an outspoken critic of what he calls, ‘reckless conduct’, on Wall Street, and the current administration’s attempts to curb regulations like Dodd-Frank Act, that were put in place in the wake of the crisis to protect taxpayers and homeowners from future crises.

Investopedia caught up with Angelides to ask him his take on where we are a decade removed from the crisis.

Investopedia: What was the biggest lesson learned or most significant change that came about from the financial crisis?

Phil Angelides: The 2008 financial meltdown - like the crash of 1929 and the savings and loan crisis - reminded us that robust regulatory oversight is essential to the stability and safety of our financial system. The Financial Crisis Inquiry Commission concluded that the financial crisis was an avoidable disaster brought upon by the failure of regulators to curb Wall Street recklessness. The warning signs of impending financial implosion were clear -- pervasive predatory lending, FBI warnings about widespread mortgage fraud, an unsustainable rise in housing prices, highly leveraged financial institutions taking enormous risks, and an explosion in risky subprime lending and secularization -- yet regulators failed to act to quell the threats to our financial system and economy. The enactment of Dodd-Frank financial reforms strengthened public oversight and market transparency, reversing decades of deregulation pushed by Wall Street and its allies and ushering in a period of financial system stability, economic expansion, and bank profitability.

Investopedia: What lesson or lessons did not we not learn or fail to adhere to since the financial crisis?

Phil Angelides: Normally, we learn from the consequences of our mistakes. However, Wall Street - having been spared any real legal, economic, or political consequences from its reckless conduct - never undertook the critical self-analysis of its actions or the fundamental changes in culture warranted by the debacle which it caused.

Helped to their feet by a multi-trillion-dollar-taxpayer bailout, and strengthened by a quick return to record profits and executive pay, the big banks from Day One have waged a fierce, rearguard action against reform. Wall Street was further emboldened to resist reform by the failure of the Department of Justice to prosecute or hold any senior executives civilly liable for wrongdoing — a failure that not only has undermined efforts to deter future malfeasance but also has rightly bred cynicism and anger about the fairness of our legal and political institutions.

Since 2008, financial firms have spent more than $1.5 billion in federal lobbying and contributed more than $1.6 billion to federal campaigns as they have sought to deprive regulators of the funds needed to do their jobs; block common-sense regulations; and, working hand in hand with their Republican congressional allies, harass and bully public officials charged with protecting our financial system.

That too much on Wall Street remains unchanged from the pre-crisis era makes a repeat of reckless conduct that precipitated the 2008 financial meltdown more likely than not.

Investopedia: Are investors and consumers safer today than they were 10 years ago?

Phil Angelides:  By virtue of the financial reforms enacted in the wake of the crisis and the Obama-era appointments to major financial regulatory agencies, investors and consumers are safer today than in the run-up to the crisis. However, the protections put in place in the wake of the crisis are now under assault by the triumvirate of the Trump Administration, congressional Republicans, and Wall Street, with the clear agenda to return to the deregulatory policies and anemic oversight that led to the 2008 financial meltdown.

They have put people in charge of key agencies — Steve Mnuchin at the Treasury Department, Joesph Otting at the Office of the Comptroller of the Currency, Jay Clayton at the Securities and Exchange Commission, and Christopher Giancarlo at the Commodities Futures Trading Commission — whose common trait is their lifelong service in and loyalty to the financial industry.

These conflict-ridden appointments will pave the way for weakened regulation. They are moving to gut the already feeble system of punishment for financial wrongdoing, with penalties levied by the SEC against publicly traded companies dropping dramatically since Trump took office and with the SEC’s co-director of enforcement indicating that the agency may back away from its recent drive to obtain admissions of wrongdoing as part of settlements. 

And, they are methodically taking down individual pillars of protection — among other things, loosening oversight of 25 of the nation's largest financial firms; gutting the Consumer Financial Protection Bureau; and blocking the fiduciary rule, which requires that financial advisers act in their client’s interests — as the Trump Administration readies more sweeping deregulatory changes.