Excerpts: Report on Financial Crisis

New documents on the 2008 financial crisis reveal some unusually frank assessments and admissions by key figures. Here are some excerpts from the documents, released Friday by the National Archives following a five-year embargo.

Warren Buffett didn't see the bubble

Of the nearly 200 interview transcripts released Friday, one of the most striking is the full transcript of a May 26, 2010, interview with Warren Buffett on the causes of the financial crisis. Mr. Buffett said he missed the housing bubble like most other Americans: "If I had seen what was coming, I would have behaved differently," he told the commission. Asked whether monetary policy caused the financial crisis, Mr. Buffett said no. "I think the primary cause was an almost universal belief, among everybody and I don't ascribe particular blame to any part of it--whether it's Congress, media, regulators, homeowners, mortgage bankers, Wall Street, everybody--that house prices would go up."

Paulson blasts Fannie, Freddie

Former Treasury Secretary Henry Paulson called the business model for Fannie Mae and Freddie Mac--private housing-finance companies with government charters--"perverse" and seemingly inconceivable. Their flaws, he said, were "flimsy capital" and a regulator with no power. The companies had a "very bad model with very bad incentives...it's not just that the elephant was too big for the tent--the elephant was ugly!" he said.

Greenspan unbowed

Former Federal Reserve Chairman Alan Greenspan defended the central bank's actions in the lead-up to the financial crisis, saying Fed officials are often no better at predicting the future than the rest of us. "Could we have done better? Yes, if we could forecast better. But we can't," he told the commission's staff, adding that the Fed's Board of Governors had got a bad rap. "Who was not culpable?" he asked. "If you wrote them down, you'd have a blank sheet of paper."

Did Ken Lewis save the world?

That's Mr. Buffett's view. He points out that if the Bank of America CEO hadn't bought Merrill Lynch in the days following the failure of Lehman Brothers, "the system would have stopped." He muses about writing a fictional book titled "If Ken Lewis Hadn't Answered the Phone," telling a story about what would have happened. "It would be a hell of a book. I'm not sure what the ending would be."

Blankfein confronts leverage

Goldman Sachs CEO Lloyd Blankfein acknowledged he didn't understand leverage as a "meaningful metric" to gauge the financial condition of his company, according to a paraphrased June 2010 interview. "Until recently, I wasn't even conscious of what our leverage was, in the sense of, the amount of our gross assets versus our equity," he said. "I always thought of it in terms of risk of the way our balance sheet was run."

Tell us how you really feel

I n a 2010 interview with the commission, John Reed, the former Citigroup chief executive, let loose. Among his opinions: The structure of combining retail and investment banking--basically, Citigroup's entire model--is questionable. Sandy Weill wasn't the right person to be CEO. And neither was Chuck Prince. Neither Mr. Weill nor Mr. Prince was available for comment.

Perceptions become reality

Former Citigroup CEO Vikram Pandit said he watched as the stock price of his bank dropped from $10 to $3 from one Friday to the next. Mr. Pandit said the lesson for him was that capital strength mattered. He thought Citi had enough capital, but in a dysfunctional market it wasn't enough.

Hide the ball

Regulatory conflict may have been worse than understood. One document reveals how regulatory turf battles created the conditions that allowed excessive risk to build in the financial system. Mike Macchiaroli, director of trading and markets at the Securities and Exchange Commission, said Fed staff "hid some documents from the SEC," according to a summary of his interview, because the Fed staff was worried that documents would be viewed by SEC examination staff. Fed General Counsel Scott Alvarez told investigators that part of the problem stemmed from Fed officials' worries that if they divulged information uncovered in a bank exam, it could end up coming back to bite the firm when the SEC examined its financial disclosures.

"We were concerned that our examiners' judgments, how we should rate someone on an exam, would affect how the SEC would look at the proxy statements for the broker company," he said, according to a transcript.

--Ryan Tracy, Donna Borak, Christina Rexrode, Rachel Witkowski and David Harrison

(END) Dow Jones Newswires

March 13, 2016 18:19 ET (22:19 GMT)

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