The first hearings of the Financial Crisis Inquiry Commission were today, featuring questions for top Wall Street CEOs Lloyd Blankfein, John Mack, Jamie Dimon, and new Bank of America CEO Brian Moynihan. There will certainly be a lot of meaty information that comes out of these sessions, and the first one was today from Mr. Goldman Sachs himself. In response to a question from Commission member Keith Hennessey, Lloyd Blankfein essentially said that in today’s market, the big financial institutions are too big to fail:
“I think tomorrow in the context of this environment, at some level the government would intervene.” “Because of the fragility of the system,” Blankfein said, the government would be forced to step in.
HuffPost has a video clip of the question and answer here.
Blankfein clarified that he doesn’t believe banks were necessarily too big to fail a few years ago, nor that they necessarily will be a year from now, but they are today. Clearly, the government’s response to Bear Stearns was that the implicit too big to fail believe was pervasive throughout the Federal Reserve, Fed banks, and Treasury. Letting Lehman Brothers fail doesn’t prove there was no TBTF attitude in the government because the Fed and Treasury tried to save them. Ultimately Lehman was let go for political reasons (Paulson not wanting to be labeled Mr. Bailout) and because the British government prevented Barclays from saving the bank. Lehman was stunned that they weren’t saved. It existed before, it exists now (yes, Mr. Blankfein), and it will exist next year if real financial services reform isn’t passed in Congress.