Yesterday, the Financial Crisis Inquiry Commission (FCIC) held a field hearing in Las Vegas, Nevada, entitled “The Impact of the Financial Crisis – State of Nevada.” Testifying before the FCIC were the following witnesses:
Session 1: Economic Analysis of the Impact of the Financial Crisis on Nevada
- Jeremy A. Aguero, Principal, Applied Analysis
Session 2: The Impact of the Financial Crisis on Businesses of Nevada
- Steven D. Hill, Founder, Silver State Materials Corporation; Immediate Past Chairman, Las Vegas Chamber of Commerce
- William E. Martin, Vice Chairman and Chief Executive Officer, Service 1st Bank of Nevada
- Wally Murray, President and Chief Executive Officer, Greater Nevada Credit Union
- Phillip G. Satre, Chairman, International Gaming Technology; Chairman, NV Energy, Inc.
Session 3: The Impact of the Financial Crisis on Nevada Real Estate
- Daniel G. Bogden, United States Attorney, State of Nevada
- Gail Burks, Chairwoman, Nevada Fair Housing Center
- Brian R. Gordon, Principal, Applied Analysis
- Jay Jeffries, Former Southwest Regional Sales Manager, Fremont Investment & Loan
Session 4: The Impact of the Financial Crisis on Nevada Public and Community Services
- Andrew Clinger, Director of the Department of Administration, Chief of the Budget Division, State of Nevada
- Jeffrey Fontaine, Executive Director, Nevada Association of Counties
- David Fraser, Executive Director, Nevada League of Cities
- Dr. Heath Morrison, Superintendent, Washoe County School District
Session 5: Forum for Public Comment
FCIC Commissioner Byron Georgiou opened the hearing by explaining that the FCIC has previously conducted its examination of the global financial crisis in a series of national hearings that have focused on major causes arising “from human actions and failures to act by major actors in both the private and public sectors.” The process of investigation has now shifted to a series of four local hearings, the first of which was held on Tuesday in Bakersfield, California, designed to examine the “human consequences” from the perspective of ordinary citizens who “bore no responsibility” for creating the crisis.
In Session 1, Mr. Aguero described how Nevada, which continues to be among the hardest hit local economies, had unrealistic growth expectations before the system-wide liquidity shock of 2007. A prior run-up in speculation, driven by both local and outside investors, created devastating results when sharp declines in tourism in the wake of national economic weakness dramatically reduced spending and crippled the job market. Mr. Aguero maintained that persistent optimism based on Nevada’s 30-year history as a leader in construction growth and overall economic expansion made it “extremely difficult” to anticipate the dramatic downturn. Yet, when asked if he and other economists missed signs of the collapse, he admitted that the “unsustainable spending” toward construction in what had become an apparently overbuilt market as early as 2005 “should have warned” observers of coming trouble.
Witnesses in Session 2 also admitted that business leaders and economists should have taken action before the major reversals began. Mr. Martin said, “I feel responsible for not speaking up. We needed more voices to temper the chorus of enthusiasm for the future growth prospects of Las Vegas.” Yet, the witnesses were unified in asserting that such warnings would have been difficult to articulate in the climate preceding the crisis. Nevada investors were flush with investment capital and demanded opportunities, leading to greater risk-taking and lowered lending standards that allowed the spending to continue and “tricked” many into believing that expansion, though likely to slow periodically, would be unending. The problem was exacerbated by the proliferation of derivative investments and related abuses the witnesses felt powerless to stop.
In Session 3, witnesses addressed local efforts to combat fraudulent lending practices as a means of mitigating the effects of the crisis. Witnesses agreed that resources were inadequate to make a meaningful difference in the earlier stages of the downturn. Mr. Bogden testified that mortgage fraud in Nevada spans the entire range of risky (and potentially illegal) activity. including loan origination schemes, property flipping, builder bailout schemes, foreclosure rescue scams and loan modification fraud. The witnesses maintained that all such activity involves complex investigation and prosecution that relies on the coordination of law enforcement on many levels. The pace of criminal activity surged beyond existing enforcement mechanisms at the onset of the crisis, though witnesses said that progress was made and is continuing.
Session 4 focused on the future of the state economy as “hopeful signs” of a national rebound have recently appeared. Witnesses gave sobering estimates, declaring that Nevada is likely to be among the last of the local economies to recover given its dependence on other states, particularly California, to advance tourism and spending in Las Vegas and other destinations. All agreed that Nevada must somehow take charge of its affairs and identify and develop three or four new industries in efforts to drive growth into the future. Yet, the witnesses were concerned about the prospects of such efforts in light of failed attempts to diversify in past decades. Even now, the number of jobs created in other industries falls far short of gaming openings.
Witnesses also identified problems in the education system, with high school graduation rates currently at 50% and one third of those entering college taking remedial English, a condition Commissioner Brooksley Born described as “a handicap” for the state. The hearing ended with suggestions from the public, including opening a nuclear power plant at the Nevada National Security Site.
The FCIC will wrap up its field hearings this month in Miami and Sacramento in advanced of its mandated December 15, 2010 report containing the cumulative results of its investigation.