Stage Three

The final stage reflected an iterative process (Miles and Huberman 1994) between the video testimony, interview transcripts, our ‘field notes’, official reports, and the literature to confirm the 2nd Order Codes [Themes]. At this point, data deemed interesting and warranting further analysis from the previous stages was integrated to develop a more mature framework. An example might be the interview conducted between FCIC investigators and Sabeth Siddique a former assistant director of Banking Supervision and Regulation with the Federal Reserve Board. Although Siddique’s testimony was not captured on video and no interview transcript was available, the availability of the interview in audio format through the FCIC website hosted by the Rock Centre for Corporate Governance at Stanford University (Stanford Law School 2011) allowed for this important narrative to be incorporated into the conversation. This unrestricted access provided greater understanding of the “contextual focus” (Suddaby and Greenwood 2005: 44) of Siddique’s line of argument, defense and avoidance techniques that did not come across in the official FCIC report (see FCIC Report 2011: 173). Moreover, it unmasked a narrative that would never have been revealed other than with the benefit of public inquiries as a proxy measure. Although time consuming, these audio transcripts were incorporated to facilitate triangulation using multiple perspectives [narratives] and sources of data (Stake 2005).

Sabeth Siddique – Interview Extract

FCIC commission interviewer #1: “….you mentioned that you were getting pushback at this point, had it gone inter-agency”?

WITNESS SIDDIQUE: “….hmm, the OCC was thinking about issuing this guidance on mortgages, they were talking about”

FCIC commission interviewer #1:“….so where was the pushback coming from?”

WITNESS SIDDIQUE: “….so once we did this survey [the survey went to 6 or 7 institutions trying to identify key underwriting trends – they (banks) self-reported], we had to first really ‘understand what was going on’…..there was rapid increase in ‘risk layering’ that was essentially, second home loans, investment loans, no doc

loans….high CLTV’s (cumulative LTV’s) so our survey suggested this was rapidly increasing and growing…they were ‘Countrywide, Citi, Wells, WaMu, Wachovia and Indy Mac….”

FCIC commission interviewer #2: "…why was there pushback from the presentation to the FED…you know, here's what we found and we need to go back to basics"

WITNESS SIDDIQUE: "….because it was ‘stifling innovation potentially’ and it was denying the American Dream to many….

FCIC commission interviewer #1:[follow up question #1: Who said that? Who said that?]

WITNESS SIDDIQUE: “….I can’t remember….

FCIC commission interviewer #1:[follow up question #2: ok, this was 2005]

WITNESS SIDDIQUE: “….yes….

FCIC commission interviewer #1:[follow up question #3: was that to the board (of the FED)?]

WITNESS SIDDIQUE: “....ah yes, when we issued the draft [guidelines] of items we then got pushback from the 'industry' and from 'congress'...*at this point in the audio interview, Siddique became uncomfortable when asked how many of the [FED] presidents were at the presentation and what their response was to his presentation - his answers to direct questions by the FCIC staff at this time became evasive with redirect…..in the negotiations between the agencies, the OTS did give us a lot of ‘pushback’ from what I can remember on a number of guidance’s on both the non-traditional, subprime and the CRE guidance….

FCIC commission interviewer #1: “…..so was it someone specifically at the OTS?”

WITNESS SIDDIQUE: “….well, I think people themselves are rational people, we all have to follow orders….and so they were just following ‘marching orders’”

FCIC commission interviewer #1: “…..I’m mean, was there a particular office that you dealt with, how did you know?”

WITNESS SIDDIQUE: “…the policy area of the OTS”

FCIC commission interviewer #1: “…so how did you hear back about the ‘the concerns that congress’ or others had about your guidance?”

WITNESS SIDDIQUE: “…..it was specific comments we heard back”

FCIC commission interviewer #1: “….what exactly was the nature of the comments?”

WITNESS SIDDIQUE: “…..it was really stifling innovation….the ‘philosophy was market discipline’ should ‘take care of these sorts of anomalies’ or bad practices and we don’t want ‘too much prescription in the regulation’ because it stifles innovation and ‘innovation is good for the overall financial markets and overall

economy’ that was the philosophy and there were many people that prescribed it and a mortgage being a 10 trillion dollar market you know that could have a major impact on the growth of certain markets”

WITNESS SIDDIQUE: “….in 2004 & 2005 my team went to NY to talk with the ratings agencies about their ratings…”

FCIC commission interviewer #1:“…which ratings agencies?”

WITNESS SIDDIQUE: “…..S&P and Moody’s that’s all….and we asked them about these ‘disturbing trends’ and the ‘senior folks’ from there thought it was a ‘blip it wasn’t a secular change’……it was temporary and the ratings agencies strongly felt…..”

FCIC commission interviewer #3:“….were you asking senior managers, quants, who were you asking?”

WITNESS SIDDIQUE: “….a combination….”

Although there were multiple themes that emerged from analysis of the data, Table 3.2 [see below] represents an example of the data’s emergent structure for one of the Themes that emerged [HRD Intervention Failures]. This table illustrates the analytic abstraction as it progressed from Raw Data > 1st Order Categories > 2nd Order Codes > Theme [HRD intervention failures] that ultimately emerged from the analysis.

Table 3.3: Example of Data Structure Representation

Raw Data 1st Order Category 2nd Order Code [Theme]

Senior management would periodically distribute emails detailing their departments’ market share. These emails were limited to managing directors only. Even if the market share dropped by a few percentage points, managers would be expected to justify ‘‘missing’’ the deals, which were not rated. Colleagues have described enormous pressure when their market shares dipped.

 Maintain market share at all costs

 Applying pressure on management to achieve organizational goals

 Pressure to meet or exceed Targets  Performance Targets  Management & Leadership pressures  Organizational Performance Driven Culture

 Anticipating & maintaining responses to changed conditions

 Developing current and future leaders

 Shaping organizational culture

 Failure of ‘high road’ HRM strategy [includes HRD strategies] While, to my knowledge, senior management never

explicitly forced the lowering of credit standards, it was one easy way for a managing director to regain market share. I do not believe that this was done in a deliberate manner. Instead, during the bubble years, it was quite easy to rationalize changes in methodology since the nominal performance of the collateral was often quite exceptional. Easier still was avoiding asking whether the collateral standards had declined or whether some of the parties had ulterior motives in closing the transaction.

 Implicit coercion of employee behavior

 Manipulation of processes & practices to maintain competitive advantage

 Short-term supernormal profits impacting on cognitive processes

 Social Silences maintained

 Coercion

 Organizational Strategy

 Cognitive Impairment

 Power Distance

 Failure of Leadership Development [LD]

 Misalignment of organizational goals/learning & development [L&D] interventions

 Shaping organizational culture

I would also say I was not involved in 2007, as this information went through with the folks who rated subprime directly. But there was almost a feeling when dealing with them that there was a ‘‘see no evil, hear no evil’’ sort of attitude, and partly I think it is because people who had done these deals, rated these deals, did not want to believe what was going on, partly profit motivated, partly because they were part of this market, and it just should not be happening.

Senator LEVIN. Part of that culture.

Mr. KOLCHINSKY. Part of that culture. Closed eyes.

 Cognitive awareness of questionable practices

 Cognitive Dissonance and rationalization of improper behavior  Collective Cognitive Capture of market participants  Irresponsible Behavior  Emotional Impairment  Institutional Identity

 Shaping organizational culture

 Failure of HR Strategic Partner role

 Failure to facilitate the functional building of commitment among organizational members

 Employee Advocacy failures [sustainability failures]