Let The Financial Inquest Begin

Now that congressional leaders have named the members of the Financial Services Inquiry Commission—what is often referred to as the "Pecora Commission" [1]—we are going to see once again who is prepared to lay the groundwork for real financial reform and who is going to stand in the way.

Both Democratic and Republican leaders have named a total of 10 members of the commission, six Democrats and four Republicans, who are charged with identifying the decisions and actions that led to the current financial crisis. The good news is that House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid have named a commission chairman—Phil Angelides—who has a solid record of standing on the side of sound financial regulation and accountability. The unfortunate news is that at least some of the Republican appointees have a track record of standing for precisely the opposite and of spreading falsehoods about the roots of the crisis.

Angelides was the treasurer of the state of California from 1997 to 2007, and in that position also sat on the boards of the largest and second-largest pension funds in the country, CalPERS (for state employees) and CalSTRS (for state teachers). William Greider of The Nation wrote about Angelides' pioneering and progressive-minded role [2] on these pension fund boards back in 2005:

Angelides has become a favorite target of the corporate critics--and a visible point man for pension-fund activism ...  Angelides has pushed both funds to adopt a whirlwind of reforms—dumping tobacco stocks, blacklisting ten "emerging markets" that ignore international labor standards, redeploying capital to neglected sectors like inner-city redevelopment and innovative environmental technologies, and, above all, peppering scores of corporations, banks, brokerages, financial markets and federal regulators with critiques and demands for change.  

In a 2007 interview [3], Angelides offered his assessment of what he accomplished during his term as treasurer:

We transformed the treasurer's office into a force for progress. We showed that the capital, money, in a free enterprise society could be applied to do good things for people--billions of dollars of investment in inner cities, investments in renewable energy, in environmental technology, using our pension funds to stand up for shareholders who had been defrauded in the marketplace, making the case for investment in education and higher education, in the knowledge and skills of our people. We showed that government can make a difference.

Contrast this with one of the Republican appointees, Peter J. Wallison, a fellow at the American Enterprise Institute. One of his latest acts of intellectual dishonesty was an op-ed for The Washington Post [4] attacking the proposed Consumer Financial Protection Agency as "elitist." Wallison doesn't appear to see anything wrong with the widespread practice, for example, of mortgage companies selling subprime loans steeped in obfuscatory language, and doesn't see why companies should be held responsible when consumers are taken in by the subterfuge. Wallison also authored an article for Bloomberg [5] last year that brazenly argued that financial deregulation had nothing to do with causing the financial crisis—an extremist view that even former Federal Reserve Chairman and deregulation apostle Alan Greenspan abandoned.

Another Republican appointee, Keith Hennessey—who was the last White House chief economic adviser under President George W. Bush—was a chief architect of the very troubled Troubled Asset Relief Program (TARP) and presumably has a vested interest in defending the Bush administration policies. Bill Thomas, the former Republican chairman of the House Ways and Means Committee, was a longtime, reliable protector of corporate interests in Congress who helped architect the Republican tax cuts that are now key drivers of the nation's deficit. Douglas Holtz-Eakin, a top operative in Sen. John McCain's presidential campaign, has advocated some populist positions on breaking up "too-big-to-fail" banks.

The Republican appointees, however, set up a dangerous dynamic in which an honest dialogue about the shape of reform is short-circuited by rigid ideology and worship of the status quo. That must not be allowed to happen.

Look to Angelides and the other Democratic nominees to be the bulwalks against that type of obstruction. A few of the have particularly promising track records. Brooksley Born, who was director of the Commodity Futures Trading Commission under President Clinton, warned about the dangers of deregulation [6] in the derivatives trading markets. Byron Georgiou, a Las Vegas-based businessman and attorney, not only has one of the most respected blogs in financial regulation, but has also defended investors against abuses by financial firms.

Here's what Campaign for America's Future co-director Robert Borosage is hoping for:

The commission must act boldly to investigate and expose the abuses of Wall Street that left millions of Americans suffering. This is our best opportunity to identify the people and practices that got the country into this mess. ...

I trust that both the Democratic and the Republican appointees will reflect the mandate provided by the vast majority of Americans who want a no holds barred investigation that exposes the practices, legal and illegal, that are at the base of the financial collapse.

The Commission should hold public hearings across the country, from California to Wall Street, exposing the systematic malfeasance that inflated the housing bubble, and gave bankers multimillion dollar personal incentives to gamble recklessly with other people’s money.

Only by exposing the systematic malpractices that got us to where we are can we gain a foundation for broad reform. The Commission can play a critical role in insuring the public understanding and support for the change that we need.

It is clear, though, that if progressive activists are not shining a bright light on this commission and its work, iit could—despite the best intentions of people like Angelides—become nothing more than another stage for Washington blather, resulting in yet another pile of paper to collect dust on the policy shelves. With the damage that has been done by the policy missteps of people in both parties, we cannot afford, and cannot tolerate, having this commission be anything less than the springboard for bold changes in the financial sector.