Cheers for Pelosi’s Plan to Investigate Wall Street Failures

Yesterday in San Francisco, House Speaker Nancy Pelosi vowed to begin a congressional investigation into what caused the financial crash of 2008. Here’s an excerpt of Pelosi’s remarks courtesy of Time Magazine [4]:

People are very, very unhappy about these bailouts, I mean it is something just so tangible across America… Seventy-five percent of America, at least, want an investigation into what happened on Wall Street... They just want to know. So what I told the [Treasury] secretary this morning was what will happen on Monday, what I want to initiate is the equivalent of what happened in the 30’s. They had something that was called the Pecora Commission. This was the commission that was formed when Franklin Roosevelt took office and they investigated what happened with the markets...

We need to know. Some people can tell you one piece of it. Others can tell you another piece of it. But really it’s very hard – do you understand it? – for the American people and the rest of us as we try to make policy as we go forward to see the ramifications of any of the changes we’re being asked to make. So we’re going to have a commission of sorts, even if it’s a commission just in the House of Representatives in order for us to make the right decisions for us to go forward, we need to have a clearer understanding as to how we got here and what the exposure is to the taxpayer in all of this.

Speaker Pelosi deserves substantial praise for this important and controversial plan. It’s controversial, of course, because executives on Wall Street don’t want to be investigated! They don’t want their (legal and illegal) Ponzi-like schemes and financial game-playing to be exposed. They want to keep Congress—and American taxpayers—in the dark about why we’re spending monumental sums on corporate bailouts and where the money goes.

Our own Robert Borosage has been one of the leading voices for a Pecora-style investigation. He wrote in this space last week [5] and two weeks ago [1]:

In the 1930s, the dramatic hearings by the Senate Banking and Currency Committee became known as the Pecora Commission, after Ferdinand Pecora, the fierce former assistant prosecutor from New York who served as general counsel… The Senate committee unearthed the assorted frauds, the abuses, the Ponzi schemes that led to the 1929 crash. And in doing so it provided both the case for reform and built a public demand in support of it. The hearings came under fierce criticism. Wall Street bankers charged that they were “undermining confidence.” Some senators scorned them as running a “circus,” and in fact, some of the excesses deserved the tag. Yet Pecora was deadly serious.

By the time the hearings ended in May 1934, they had generated 12,000 printed pages of testimony—providing the source that historians have mined ever since to fuel their descriptions of the era. And they paved the way for reform: the Securities Act of 1933, the Glass-Steagall Act of 1933 and the Securities Exchange Act of 1934. In recognition, Roosevelt named Pecora to be a commissioner of the new Securities and Exchange Commission.

Let me recognize that Bill Moyers and Michael Winship [6] have also called for a new Pecora commission, and U.S. Senator Bernie Sanders [7] has as well.

To Speaker Nancy Pelosi: Thank you for your leadership.

To anyone in Congress who doesn’t like uncovering the truth: Get out of the way!

To the Representatives and staffers in Congress who will do the actual work: Please don’t delay. Don’t let Wall Street executives off easy just because they’re major donors to both political parties. When banks and insurance companies refuse to turn over relevant records, use your subpoena power. And report everything to the American people—whether it’s fraud, conflicts of interest, or just plain greed that’s been unchecked by reasonable regulation.

This investigation could turn out to be the most important thing Congress does in 2009, because its findings could help reshape and reform our economic system for decades to come.