Phil Angelides: The Columbo of Wall Street

One very scary year ago this week, we were tipping headfirst into an economic black hole that threatened to suck down the global economy. How did it happen? Congress has created a 10-member citizens commission to find out. At its head is Phil Angelides, Democrat and millionaire businessman who served as California’s state treasurer for eight years and then lost his bid for governor in 2006. Lately he’s been working with Magic Johnson to create a fund to fix up and “green up” affordable rental housing for working families. Now he’ll be spending a couple of weeks a month in a rented office on Pennsylvania Avenue between the International Monetary Fund and the White House. It’s called the Financial Crisis Inquiry Commission, but in the ways of Washington, these things can end up bearing the names of their chairmen -- the Pecora Commission, the Warren Commission. So by Dec. 15, 2010, we’ll have the full report from what will surely be known as the Angelides Commission.

What’s the commission’s mission?

I hope what we’ll do is write the history of what the heck happened -- how’s that for the technical term? Everyone has theories about what led to the collapse, but the commission is an opportunity to examine what were the steps along the road in the collapse, from the top to the bottom, and when were those seeds sown? The 9/11 Commission report -- obviously the terrorist plot of 9/11 didn’t commence on 9/11. It was years in the making. And the implosion of our financial markets was years in the making. So think of this as “CSI: Wall Street.” We know there’s been a cataclysmic event, and our job now is to trace, to deconstruct the crime, so to speak.

Your group has some muscle, including subpoena powers.

The best way to do this is with voluntary cooperation. All the federal agencies involved -- the regulators, Fannie Mae, Freddie Mac -- my hope is that we will get cooperation because it’s the right thing for the country. I would also hope that I’m not naive here, that the financial world, the CEOs of all those big banks that were salvaged by millions of dollars of money from the taxpayers, would do what’s right for the national interest.

This is an inquiry and an investigation in the best sense of the word. It’s not a star chamber proceeding. It’s not just about trying to find 20 perps and line them up, because that would, in a sense, minimize the story. It’s not a theatrical exercise just to go get some people; it’s not a whitewash, nor is it purely a theoretical academic story.

We have the authority to make criminal referrals -- that’s not the primary purpose of our inquiry. But in the course of our work, we may well come across instances of criminality. I suspect we will also come across practices that were wholly legal and condoned and applauded that are deeply troubling.

Is it possible some people still don’t want the system to change?

There are people for whom these years of excess were profitable. There’s a lot of people, I think, who would like to brush by this and say, “Well, stuff happens.” Or [who] aren’t particularly anxious for self-examination lest it interfere with what we’ve been doing all along. This inquiry is willing to overturn any rock. There’s a lot of people nervous out there right now. They want to know: Is this just some show to hang responsibility on a few people? My answer is no. But if people have broken the law and are culpable, that will get laid out. Some people are worried about whether they’re going to get embarrassed. I think people want to know if it’s going to be a partisan witch hunt. Unfortunately, what happened here [wasn’t] confined to any one party.

How did you get the job?

The time after the [2006 California] governor’s race was frustrating, no question about it. I’m someone who’s interested in public service. I have energy, I have ideas, and when you’re out, you’re out. When you lose, there is no medals ceremony where you get the silver medal. I found it frustrating. My wife would say to me, “Something is going to come along that will fit your skills, where you can make a difference.” The speaker [Nancy Pelosi] called and asked, would I have an interest, and I told her that I would. One of my good friends said, “This is probably the most important thing you will have been asked to do for your country.” I’ve spent half my life equally in the public sector and in the private sector in finance. I’m very conscious of the responsibility I have. The speaker’s one request was, “Do a good job for the country.” So all of us [commissioners] feel a special responsibility. And the stakes are not small.

You’re a finance guy -- did you have an inkling that any of this was coming?

If you look back at 2002, 2003, there was evidence that the financial markets were already ridden with corruption. My God, we had Enron, we had WorldCom, a whole spate of scandals; none of that was ever cured. I remember Angelo Mozilo [the Countrywide chief executive now charged with civil fraud] telling me one day that he thought I was just too tough on CEOs. After Enron and WorldCom, we were like that person who had the heart attack but went right back to the old bad habits. The scandals of 2002, 2003 were the early warning bells that the system had spiraled out of control.

Are you hearing from the public?

I’ve been struck by the people who have come up to me and said, essentially, “Do a good job; this is really important.” The other thing is the people with extraordinary careers who want to work for the commission. It’s been stunning. I remember going home with a stack of resumes from hundreds of people who have said, “I’m willing to give up all I’m doing to be part of this.”

Can we watch it on television?

One of my hopes is that people have a chance to view our work, on the Web or on TV. I hope this will be accessible; and that doesn’t mean dumbed-down, that means understandable. We’ve got to tell it in a way people will be interested [in].

Have you read the 1934 Pecora Commission report, the one that laid out the causes of the Depression and prompted the major reforms?

It’s on my nightstand. The stack’s getting bigger: the Pecora Commission report, John Kenneth Galbraith’s “A Short History of Financial Euphoria,” Robert Shiller’s book, “Animal Spirits,” Mark Zandi’s book, “Financial Shock.” What the Pecora Commission did was lay bare the secrets of Wall Street for Americans to see. I still think the workings of Wall Street are a mystery to a lot of people. Sometimes these things were made to be mystical beyond the reach of average people for a purpose. I think one of the things we’re going to find out here is that much of what went wrong was not only permitted but exalted.

Are you concerned about perceptions of partisanship?

While we [commissioners] all have our opinions, and each commissioner brings their own history and experiences, the script isn’t already in place. The millions of foreclosures have affected Republicans and Democrats and independents; the 401(k)s of Republicans and Democrats and independents have been wiped out. I think that we are a bipartisan commission with an important nonpartisan national mission.

As state treasurer, you called out Wall Street on its investment and pension practices. Would California’s predicament be different if the 2006 election had turned out differently for you?

I think we’d be in for a tough go in any event, but it didn’t have to be this bad. The fact is, Gov. Schwarzenegger was reckless on the way up. Even in the best of times, [he] was borrowing billions -- and he’s been sadly incompetent on the way down. More than anything, I hurt for what’s happening to students going to college, the poor working mothers. It would have been a tough go, but there’s no reason it needed to be this bad.

Is this crisis a defining, or maybe redefining, moment for capitalism?

Let’s put it this way: If this shock doesn’t do it, I don’t know what would.