By Martin Berg
In the 1930s, the Senate Banking committee appointed a no-nonsense assistant district attorney named Ferdinand Pecora to lead an investigation into the causes of the stock crash of 1929.
Pecora held hearings that were equal parts public spectacle and tough scrutiny of the financial industry’s abuses. His investigation, closely followed by an angry American public, led to a raft of reforms of the banking system, most notably the Glass- Steagal Act, which kept the federally guaranteed business of making loans and taking deposits separate from other, riskier aspects of banking and investing.
Now Congress has appointed a financial inquiry commission to explore our recent financial meltdown.
The panel will not be headed by a hard-nosed prosecutor but by a real estate developer who became Democratic California treasurer from 1999 to 2007 and then an unsuccessful gubernatorial candidate, Phil Angelides.
The Financial Crisis Inquiry Commission has been compared to the 9/11 commission. That body produced a compelling narrative of the events that led up to the bombing of the World Trade Center. It also caught some pretty damning flak for going easy on the Bush Administration’s missteps that preceded the tragedy.
Can anything good possibly come out of the Angelides Commission inquiry? Won’t the Wall Street lobbyists who have tied reform efforts in knots do the same to an investigative commission?
Here are 5 reasons you should be cynical about the Financial Inquiry Commission along with 2 reasons you could be cautiously optimistic
- POLITICS The panel is the brainchild of the U.S. Congress, with 6 Democrats and 4 Republicans. (Angelides was picked by House Speaker Nancy Pelosi.) Will he be able to fearlessly investigate the role Democratic politicians played in deregulating Wall Street and blessing the too big to fail philosophy? Will Angelides allow possible future ambitions to soften his investigation into campaign contributors or colleagues? Will Republicans who oppose deregulation of the economy hamper the inquiry?
- MONEY The panel’s vice-chair and leading Republican is Bill Thomas, who has taken more than $1.8 million in campaign contributions from financial, insurance and real estate interests, according to the Public Campaign Action Fund.
- TIMING The panel is supposed to complete its report in a year [from now?]. It was formed last July. It has yet to name a staff. Its two hearings so far have been minimal in content, taken up with the commission’s members making introductory remarks. The panel has shown little urgency in its work; the New York Times has already criticized its poky pace. Meanwhile, it’s taking on a broader agenda than the investigation of the causes of the crash: Angelides said his panel would collaborate with Congress in shaping reform legislation now under consideration. Either the panel will have to slow down, or Congress will, or both.
- HISTORY Pecora's hearings were part of a concerted administration strategy, backed by Roosevelt and the Senate banking chairman, Duncan Fletcher, to implement meaningful, robust reform of the financial system after the crash. No such consensus exists today; the administration and congressional leaders appear to be interested in compromising with the financial industry and labeling that reform. Under those conditions, Angelides' mandate is much less clear than Pecora's.
- NAIVETE Angelides said he thought the power of shame might be a powerful tool. Though the panel has subpoena power, it has to get agreement from members on both sides to issue them. Angelides and company are hoping for voluntary cooperation. But Angelides is taking on bankers, whose risk-taking helped blow up the economy, who then scooped up billions in taxpayer money and paid themselves huge bonuses and enlarged their profits while contributing little recovery to the broader economy. Shame is a word that has yet to enter their vocabulary.
1. BROOKSLEY BORN As head of the commodities futures exchange in the Clinton administration, she fought a losing battle for the regulation of derivatives – the little understood financial contraptions that later played a major role in the financial meltdown. Her efforts were detailed in Frontline’s documentary, “The Warning.” Now she’s on the Angelides Commission.
2. PERSONAL HISTORIES Though a former real estate developer might seem an unlikely choice to lead a fact-finding mission on the financial crisis, Angelides developed a reputation as a corporate reformer from his days as California treasurer, working with the state pension fund. The panel’s executive director, Thomas Greene, has won wide praise for his role in the state Attorney General’s Office fighting complex antitrust cases against Microsoft and El Paso Natural Gas and leading the state’s civil case against Enron.
At this point, reasons for pessimism outweighs optimism 5 to 2. Then again, did anybody have much hope that a little-known local prosecutor would be able to tackle Wall Street’s titans in the 1930s and lead to reforms of the financial system?