Phil Angelides Q&A on financial crisis inquiry

Call it a halftime report.

Five months after its first public hearing, I sat down recently with the chairman of the Financial Crisis Inquiry Commission, former California Treasurer Phil Angelides, to talk about lessons learned, including the most troubling, from its "comprehensive examination" of a crisis that almost brought the United States to its economic knees.

The 10-member bipartisan commission, which has several Bay Area and California members, is due to present its findings to President Obama, Congress and the rest of us on Dec. 15.

The interview was conducted before last week's public hearing featuring Warren Buffett, who was subpoenaed to appear, along with current and former senior executives with Moody's Investors Services Inc.

Their testimony, along with transcripts and videos of previous hearings, interim reports and a host of other material, is available on the commission's Web site at www.fcic.gov

Here are highlights of the interview.

Q: After 10 days of public hearings, hundreds of private interviews and 4 million pages of documents, what has struck you the most so far?

A: I've been really taken aback by the extent to which leaders of these great financial corporations seemed to see no connection between their risky activities and the crisis those activities precipitated.

How they said they couldn't see it coming, despite red lights going off all over the place. And without any recognition of how badly things went awry.

Neither did I realize how much the financial system had become a huge betting parlor, rather than contributing to the real economy. That has been a real revelation to me.

Q: Do you believe crimes were committed?

A: Probes are just beginning around this. The FBI said in 2004 mortgage fraud was at epidemic levels. We're just beginning to learn, through our work, through a Senate committee, a reinvigorated SEC, and states' attorneys general, where the law has been breached.

Our mandate is not a prosecutorial one, although we can refer matters to the Justice Department.

Q: And have you?

A: I can't comment. I'm just going to say we may do that along the way if we think it appropriate. But, the bigger point is, most of what occurred was legal - and people were lionized for doing it.

Q: Some have pointed to the system's structure, others to the lack of a moral compass, as factors in the meltdown.

A: An absence of personal responsibility, of thinking through the consequences, as opposed to "I've got mine"? Absolutely.

As for structures, sure, there are major flaws - the $800 trillion shadow banking system, for example (commission report at links.sfgate.com/ZJUG), which is as large as the regular one. But structures are created by humans and can be changed.

The bigger question is, why wasn't more attention paid to those flaws?

But the biggest risk coming out of this crisis is that people on Wall Street will be saved from the consequences of their actions.

Q: What about others' responsibility - Washington's, for example?

A: Their actions are in the public record, and easy to find, whether you agree with them or not.

Along with the conventional wisdom, the then-accepted view that unregulated markets were so efficient that they would not only always function well, but would protect the commonweal.

Q: And Americans' responsibility - that "we have met the enemy and it is us"?

A: I don't subscribe to the idea that everyone was responsible, therefore no one was responsible.

But there are genuine issues here. Did we as a society become so consumed with debt and consumerism?

Did we as a nation forsake the long hard road of real wealth creation and value creation and job creation, for the quick deal, for what we could make tomorrow? Those are all legitimate questions.

Q: Apart from the damage inflicted internally, what has it done to America's place in the world?

A: One of our great competitive advantages was a financial system that was the envy of the world. Clearly there's been a shattering of that confidence that we have to rebuild.

The real damage is how as a country we invested such an inordinate amount of resources and talent in financial engineering, as opposed - as one of our commissioners, John Thompson (ex-CEO and chairman of Mountain View's Symantec Corp.) said - to mechanical engineering.

Now we find ourselves trying to rebuild an economy with a deficit of investment in education, in technical skills, in research and development.

And I'm still trying to find the social utility of a CDO-squared (a collateralized debt obligation secured by tranches of other collateralized debt obligations).

Q: Has the commission come up with any conclusions or recommendations yet?

A: Not yet. We still have a lot of work to do - looking more at derivatives, at "institutions too big to fail," excessive risk and speculation. As with financial reform legislation, this is the start, not the end of a long process. Go back to the '30s - it took a decade to reform the system.

We're here to write a piece of history for the American people, explaining, in very graphic terms, why so many were devastated by what happened, and who did what, and when.

We won't tell the whole story, but a good part of it.

Blogging at sfgate.com/columns/bottomline. Facebook page at sfg.ly/doACKM. Tweeting @andrewsross. E-mail bottomline@sfchronicle.com.

This article appeared on page D - 1 of the San Francisco Chronicle