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Home > Blogs > Anthony Harrington > The US Senate report on the crash, part 1

The US Senate report on the crash, part 1

Financial report | The US Senate report on the crash – part 1 Anthony Harrington

This is the first of four blog posts on the US Senate report on the crash. See also: “Criminalization” of America’s financial system? (part 2), The demise of Washington Mutual (part 3), and Recommendations—Will regulation work this time? (part 4).

The US Senate Permanent Subcommittee on Investigations, part of the Committee on Homeland Security and Governmental Affairs, has finally concluded its mammoth investigation into the crash of 2007-2009.

Titled Wall Street and the Financial Crisis: Anatomy of a Financial Collapse, the report is a cracking read. It takes the unusual approach of working through illustrative case studies, presenting, for example, an in-depth study of the self inflicted demise of Washington Mutual (WaMu) and looking intently at the financial innovations of Goldman Sachs and Deutsche Bank, the two front runners and pioneers in the fabrication of collateralised debt obligations (CDOs), also dubbed the bankers’ home made bomb. Yves Smith, on her excellent blog Naked Capitalism, points out that this approach opens some doors to the Committee, but closes others, which may well turn out to be more important in an overall reflection on the crash:

"The committee took the approach of drilling into certain practices and players they regarded as key to see where that took them. On the one hand, that serves to provide far more concrete proof of the extent and nature of certain practices believed to be widespread that industry players have either denied or argued were based only on anecdotal evidence and were therefore simply isolated examples. It serves to demonstrate that the degree of institutional failure and fraud were widespread and played a direct and significant role in the crisis. On the other hand, it is not and cannot be a comprehensive account, and therefore misses other key elements which this writer along with other industry participants believe were serious and insufficiently examined drivers of the crisis (in particular collusive relationships among major players that were presented as independent)."

While I take the point, it has to be said that what the Investigations Committee has done, it has done exceedingly well. Chaired by Senator Carl Levin, the committee attacked its task with relish and with tireless enthusiasm. The report is the product of a two year, bi-partisan investigation, in which the Committee set out “to construct a public record of the facts in order to deepen the understanding of what happened; identify some of the root causes of the crisis; and provide a factual foundation for the ongoing effort to fortify the country against the recurrence of a similar crisis in the future.”

In the process the committee reviewed “tens of millions of pages of documents including court pleadings, filings with the Securities and Exchange Commission, trustee reports, prospectuses for public and private offerings, corporate board and committee minutes, mortgage transactions and analyses, memoranda, marketing materials, correspondence, and email.”

Reading the account of the committee’s immense trawl through all that paper and electronic documentation made me want to do a small calculation. Say it takes 30 seconds to skim a page. Now take that “tens of millions” and give it a definite shape, say 30 million items to be read. That amounts to 15 million minutes.

Dividing by 60 yields 250,000 hours. Dividing by 10, assuming a ten hour working day for our hard pressed committee members, gives us the total number of days the Committee would have had to spend purely handling paper, namely 25,000 days. Split the task up among the ten member committee and you have 2,500 days per committee member. That is a hard number of days to cram into two years, which, by any normal process of arithmetic, yields just 730 days with no week-ends off. Then there are the 150 face to face interviews the committee conducted and the endless discussions that would be necessary to share information meaningfully among the committee members. All of this had to be crammed into the two years as well.

What this means is that when a committee says it has examined tens of millions of pages, it has actually riffled through vast stacks of paper and read something here and there. Read them all it did not. Manifestly. And even if it had, it would have forgotten rather more than it remembered of so gargantuan a read! Such is the human brain. So even this Herculean report has undoubtedly left plenty of untilled soil for future historians to sift through.

What it also means is that down at the level of the nitty gritty detail, vastly too much happened in the crash for any committee of investigators to do more than conjure up a sketch of what they perceive to be the main lines of what happened, together with some embellishing detail for the sake of veracity.

What the report did find we will take up in part 2

Further reading on regulation and financial reports:



Tags: regulation , Senator Carl Levin , US Senate Report , Wall Street , Yves Smith
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