Pecora Whirling

Reuters is out with an authoritative story on finalists being considered for the Financial Crisis Inquiry Commission, the investigative body created by Congress to launch a full-scale investigation of the financial crisis in the spirit of the famous early 1930s hearings led by Ferdinand Pecora.

Those famous investigative hearings produced the facts and momentum for the major New Deal financial reforms. If the Reuters story is accurate, progressives have a lot of work to do in a few short days while nominees are being finalized, before the moment is lost.

Under the law creating the commission, which was signed by President Obama in late May, it is to have ten members, six Democrats and four Republicans. They are to be appointed by the House and Senate majority and minority leadership, respectively.

Among the names leaked is just one person with the stature, expertise, and resolve to run a tough investigation (if she were chair)--Brooksley Born. As chair of the Commodity Futures Trading Commission in the late 1990s, Born proposed regulating over-the-counter derivatives, of the sort that helped crash the economy. For this attempt to spoil the party, she was excoriated and isolated by an old-boys' mob that included Alan Greenspan, Robert Rubin, Lawrence Summers and Gary Gensler. Incredibly enough, Gensler, an Obama appointee, now holds Born's old job as chair of the CFTC. More than a decade and several meltdowns later, the Obama administration's 88-page white paper is ambiguous on the subject of whether and how to regulate customized derivatives. Born is just the sort of person the commission needs.

On the Republican side, with one exception, the leaked names could be an alumni society of the people whose policies helped cause the collapse. The absolute howler in the list is former senator Jake Garn of Utah, a tireless proponent of financial deregulation. Among other travesties, Garn sponsored the Garn-St. Germain Act of 1982, the law that allowed savings and loan associations to become speculators' playgrounds, and led directly to the S&L collapse.

Another proposed Republican is Bill Thomas, former chair of the House Ways and Means, a legislator who never met a financial special interest he didn't like; and former Republican Senator and presidential candidate Fred Thompson.

The one commendable Republican on the list--and I hope my support doesn't spoil it for him--is Alex Pollock of the American Enterprise Institute. Pollock has been an honest critic of the financial bailout program and the weak measures undertaken by both the Bush and Obama administrations to stem the epidemic of mortgage foreclosures. In his testimony and speeches, Pollock regularly calls for New Deal-style remedies, such as the Reconstruction Finance Corporation or Roosevelt's Home Owners Loan Corporation, which refinanced one mortgage in five, and spared a million families foreclosure.

The only other Democrat on Reuters' leaked list is former Florida senator and governor Bob Graham, a self-identified New Democrat who served on both the Senate Banking and Finance Committees. Missing, except for Born, are people with deep knowledge and informed criticism of the abuses that led to the crisis.

Some good nominees would be former SEC Commissioner Harvey Goldschmid, now a law professor at Columbia; Elizabeth Warren, Chair of the Congressional Oversight Panel; Damon Silvers, the AFL-CIO's top expert on financial markets and Deputy Chair of the oversight panel; economists Joseph Stiglitz of Columbia or Nouriel Roubini of NYU or James Galbraith of the University of Texas or Dean Baker of the Center for Economic and Policy Research; one-time Wall Streeters and now astute financial critics Nomi Prins, Rob Johnson, Ron Bloom or Richard Bookstaber; former financial regulators Bill Black or Ellen Seidman; or law professors and deregulation critics Frank Partnoy of the University of San Diego or James D. Cox of Duke.

Perhaps it was too much to hope that this commission would be a chance to investigate root causes and mobilize public sentiment behind the sweeping reforms that are needed and not yet forthcoming. Obviously, Republican House Leader John Boehner and his Senate counterpart, Mitch McConnell, are not about to put serious critics of deregulation on this panel. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid, however, were astute enough to put Elizabeth Warren and Damon Silvers in charge of the Congressional Oversight Panel (COP) that was created as a condition for giving the Treasury $700 billion in bailout funds last fall. Ever since then, the COP has been the best source of independent thinking and investigation in town.

For the new Pecora Commission, Pelosi and Reid need to do better than finding a predictable list of retired and safe Democratic politicians. This is a rare chance to light a real fire on behalf of deep reform.

Robert Kuttner is co-editor of The American Prospect, and a senior fellow at Demos. His recent book is Obama's Challenge.

Comments

[Jaspatk1701]

We will not get the comprehensive change we need unless we investigate these businesses and banks that refuse to reform and return to the sensible ways of doing business, not to rip off investors but to make sound investing. We need a full investigation a la Pecora Commission that fully found the causes of the Great Depression and dealt with it, and real investigations into these charlatans that have committed all this abuse of our money and investments, leading to the ruin of our pensions, savings, investments and our futures. For more, see my blog, http://www.wrathofmcgrath.com

[LeLoup]

Since Congress hold sway on the nominations, did anyone expected anything else? These clowns have a lot to answer for, and they're not about to let anyone force them to do so.

Yet another example of bipartisanship: we agree to make this exercise as meaningless as possible. After all, only the "little people" would have an interest in having a real commission, but not us, the powerful.

[SavonarolaGirolamo]

I hope they get this right and that the new commission does not become a whitewash.

I also hope that people will remember the Pecora Commission as "PE-cora" not "pe-COR-a."

Despite the American habit to pronounce it "pe-COR-a" the correct pronunciation is "PE-cora."

He was born in Sicily and in Italian "pecora" means sheep. His ancestors were shepherds and that is a common surname in Italy.

Grazie.

[sloLes]

Why all the indignity and surprise? Obama is a creature of the establishment. And Reid & pelosi have been for years. This commission will not do anything radical. And most Americans don't care. They are more interested in who appears on their TV than who is stealing the national wealth.

Your own article says it best. Obama has appointed Gensler. Biz as usual rolls on.

[politicscorner]

The Pecora commission was probably the last commission to actually focus on getting at the truth. Since the 1930s politicians have injected so much politics into these affairs that the results of the inguiries are whitewashes designed to cover their own a$$es - the Warren and 9/11 commissions come to mind.

It would be hightly surprising if this commission is any different, expecially if members are selected by Congress or the administration (Dem or Rep). A truly independent body without ties to the vested interests is really the only way to get at the truth. Hopefully there will be some independent thinkers and doers on this commission, but I doubt it.

[cavegal]

My votes go to Joseph Stiglitz and Nouriel Roubini.

[LeLoup]

Let me add Elliot Spitzer, Yves Smith and Elizabeth Warren.

[JayDDrew]

Hey, I'll throw in two names: Paul Krugman and Robert Kuttner, two men who have been completely outspoken and critical. Both are part of the media and would have no problems notifying us if any of the former or current politicians are being controlled by special interests.
I've got a feeling the four Republican appointees will be total jokes and the other six will be carrying the load.

[GardenerNorCal]

They aren't going to do anything about derivatives. The climate bill is all about setting up a new custom instrument based on selling the right to pollute: Called Cap and Trade. But it's supposed to save our enviironment, like the insurance industry is going to solve the health care crisis, and now I suppose we are going to grant amnesty to undocumented workers. Why isn't Congress working on real reform for the financial industry?.

Please, I am tired of the empty promises.

[cavegal]

I agree and think one of the requirements for everyone on the panel would be they were smart enough not to play the CDO's and CDS's. Plus no naked shorting in their financial histories. We should be looking for people who were smart enough to see the magic paper as a complete scam.

[bobwalters]

Well, the cynics on this thread have just about exhausted my thoughts on this...The Wall Street banksters are intractable and implacable enemies of the rest of the population, who basically don't understand much about the financial system OR the politics of the bought-and-paid-for Congress. Viz, the total disconnect, especially in the high-dollar Senate, on the issue of healthcare financing: single-payer "off the table", "cosmetics" written by the insurance lobbyists, "blue-dog" Dems defecting up front from the plans of either the President or the wishes of the people, etc., etc., ad nauseum. Most people don't get the connection between the Wall Street thieves and the health insurance thieves -- which is an intimate one -- and don't seem to get the overall picture, which is to essentially enslave the vast majority in vassalage service to the tiny rich minority, with the banksters and insurance executives the well-paid intermediaries and the military to become the "counter-insurgency" enforcers. The signs ain't hopeful.

[mac03m]

Fred Thompson!! That is amazing... How clueless can Republicans get for goodness sake!

I think the whole panel will be a waste of time and money. I love how people still look back at the policies of "The New Deal" as working out for our economy. Nothing could be further from the truth. Hoover and FDR's massive government intervention in the economy is what made the depression last so long in the first place. The Author needs to check his history.

[THEPILGRIM]

Facts are fact and I suggest you get a little bit more educated.
FDR and his New Deal did help get over the depression that was caused by letting Banks and Co do whatever they want to do.
Alan Greenspan and Bush’s free market policies the breakdown on regulation and oversight caused the current financial breakdown.
We need to get this “new Pecora” = Financial crises inquiry commission on the way soon and hold people accountable to the fullest extent.

[mac03m]

First of all, the crash of 1929 came about due to the inflationary policies of the fed during the 1920's. In 1924, after a sharp decline in business, the Reserve banks suddenly created some $500 million in new credit, which led to a bank credit expansion of over $4 billion in less than one year. While the immediate effects of this new powerful expansion of the nation's money and credit were seemingly beneficial, initiating a new economic boom and effacing the 1924 decline, the ultimate outcome was most disastrous. The vast money and credit expansion by the Coolidge administration made 1929 inevitable. Inflation and credit expansion always precipitate business maladjustments and malinvestments that must later be liquidated.

The stock market break signaled the beginning of a readjustment long overdue. In the following months, most business earnings made a reasonable showing. Unemployment in 1930 averaged under 4 million, or 7.8 percent of labor force. In modern terminology, the American economy of 1930 had fallen into a mild recession.

I wish I could go into more details...

[mac03m]

Continuing my other post...

In the absence of any new causes for depression, the following year should have brought recovery as in previous depressions. In 1921–1922, the American economy recovered fully in less than a year. What, then, precipitated the abysmal collapse after 1929?

The Hoover administration opposed any readjustment. Under the influence of "the new economics" of government planning, the president urged businessmen not to cut prices and reduce wages, but rather to increase capital outlay, wages, and other spending in order to maintain purchasing power. He embarked upon deficit spending and called upon municipalities to increase their borrowing for more public works. Through the Farm Board, which Hoover had organized in the autumn of 1929, the federal government tried strenuously to uphold the prices of wheat, cotton, and other farm products. The Smoot-Hawley Tariff Act of June 1930, raised American tariffs to unprecedented levels, which practically closed our borders to foreign goods. According to most economic historians, this was the crowning folly of the whole period from 1920 to 1933 and the beginning of the real depression. And I'll bet you thought Hoover was the president that did nothing right? =) Sadly so do most people. As for FDR...

[mac03m]

In his first 100 days, he swung hard at the profit order. Instead of clearing away the prosperity barriers erected by his predecessor, he built new ones of his own. He struck in every known way at the integrity of the US dollar through quantitative increases and qualitative deterioration. He seized the people's gold holdings and subsequently devalued the dollar by 40 percent.

He persuaded Congress to pass the National Industrial Recovery Act (NIRA), which set up the National Recovery Administration (NRA). Its purpose was to get business to regulate itself, ignoring the antitrust laws and developing fair codes of prices, wages, hours, and working conditions. The president's Re-employment Agreement called for a minimum wage of 40¢ an hour ($12 to $15 a week in smaller communities), a 35-hour work week for industrial workers and 40 hours for white-collar workers, and a ban on all youth labor. This was a naive attempt at "increasing purchasing power" by increasing payrolls. But, the immense increase in business costs through shorter hours and higher wage rates worked naturally as an antirevival measure. After passage of the act, unemployment rose to nearly 13 million. The South, especially, suffered severely from the minimum-wage provisions. The act forced 500,000 African Americans out of work.

.

[mac03m]

He attacked the problems in Agriculture by passage of the Farm Relief and Inflation Act, popularly known as the First Agricultural Adjustment Act. The objective was to raise farm income by cutting the acreages planted or destroying the crops in the field, paying the farmers not to plant anything, and organizing marketing agreements to improve distribution.

Then came relief from unexpected quarters. The "nine old men" of the Supreme Court, by unanimous decision, outlawed NRA in 1935 and AAA in 1936. These two decisions removed some fearful handicaps under which the economy was laboring. NRA, in particular, was a nightmare with continuously changing rules and regulations by a host of government bureaus. Above all, voidance of the act immediately reduced labor costs and raised productivity as it permitted labor markets to adjust. The death of AAA reduced the tax burden of agriculture and halted the shocking destruction of crops. Unemployment began to decline. In 1935 it dropped to 9.5 million, or 18.4 percent of the labor force, and in 1936 to only 7.6 million, or 14.5 percent.

I could continue but I think by now you should get the point. I agree "Facts are Facts" and maybe after reading the Facts I have shown you, you will take a more educated approach to the subject.

[hark]

No, you do.

[pup sydney]

The findings will be:
tax cuts are good. Work like chinese. Kill the unions. Health care is for rich people. Derivatives are not bad, guns are not bad it is the humans that are bad- and -finally- let us all pray the lord for our souls are tainted so that we may resist the temptation next time. If it is true that those are the GOP representatives what chance of true assessment of facts do we have? Thompson? The guy can't even calculate the return of his CD!
As always the tactic of the GOP (Bush and Co) to cause so many problems during their tenure for the next democratic president worked: so much is wrong that will take more than 10 presidencies to fix while people do not understand or care because made ignorant by decades of dumbing down.

[JayDDrew]

I've been out-cynic'ed!
The closest any Republican has come to saying the last 28 years were a massive financial screwup was Alan Greenspan - and he doesn't even claim to be a Republican!
The ultimate result of the free market policy will be the destruction of the middle class. Those who have the power and knowledge will always change the rules to benefit them, further concentrating the wealth. The first political book I ever read was Kevin Phillips' "The Politics of Rich and Poor." Or pick up a copy of Thom Hartmann's book "Screwed" to see what happens when the wrong people get to make the rules.

[mikekc]

The "findings" of this commission will no doubt be written by Wall Street lobbyists. I wouldn't be surprised if the commission blames the government, although no one in particular, and lets Wall Street off except for a few unnamed "bad actors". We will get the requisite one day of tongue lashings where some hapless Wall Street execs take their turn in the hearing room dunking chair while they recite pre-arranged answers to pre-negotiated questions "toned down" by lobbyists. The one day of media frenzy will somehow end up being all that ever comes out of this. I wouldn't be surprised if any reform recommendations that come out of this end up being another trojan horse bailout/deregulation set of proposals written by industry that pose as populist reform.

[zjr909]

I must respectfully disagree with Mr Kuttner's assessment that the progressives have almost lost the moment. That increasingly elusive "moment", I'm afraid, was lost a long time ago. I suspect that in a very few years the "progressives" will go the way of conservatives and liberals to become "neo-progressive." And we all know what that means.

[JayDDrew]

I respectfully disagree with you. Being progressive implies change for the better, adapting as things change around you.
But I won't disagree with you that the moment is lost. Perhaps it is, or perhaps we're just expecting too much too soon. You can turn yourself around in a fraction of a second. We're talking about turning around a country that had been heading in the wrong direction for some time.

[Bedingo]

No surprises here. What we have learned in the last few months is that Team Obama is different from Team Bush, but not radically. And so is the Democratic members of the Senate, particularly those who won their seats because of campaigns by Emily's List, MoveOn, and Democracy for America. It shows that liberals and progressives can elect members of congress, but they cannot bribe them enough once they get into office.

With Geithner and Summers in the saddle, and with Sheila Bair pushed aside, it is difficult to see the light at the end of the financial tunnel.

There is an interesting article by Matt Taibbi in the latest issue of Rolling Stone on the role of Goldman Sachs in several meltdowns. It is available on their website.

[cavegal]

I read Matt's article and would not be surprised to hear that Goldman Suchs (intentional sp) lobbyists wrote all of the legislation for the cap & trade provisions in the new Clean energy act. With the exception of Dennis Kucinich and Ron Paul, there seem to be no one in congress that remembers who elected them.

[playera]

Put me on it.

I'm not from the industry.

If it's explained well enough, I'll understand the problems and solutions, and so will the American people. We don't understand any of this financial disaster now.

I'm a jerk and can be obnoxious to the bigwigs who will be on the commission.

If something doesn't make sense I'll say so. I'll call a fraud a fraud.

Give me 10 plaintiff lawyers and we'll know how to sue the bastards if they try to rob us again.

[bobwalters]

You've got MY vote!

[cavegal]

You got my vote too.

[DrFitz]

JAKE GARN--WTF????!!!!! They might as well suggest Phil freaking Gramm!

I definitely hope Brooksley Born gets the Chair. If not her, then Eliot Spitzer. Someone who will be TOUGH in posing questions to witnesses. I'd definitely also like to see Stiglitz on the panel for both academic and global lending institution experience as gravitas.