Pecora Commission

Financial Crisis Probe Gets Under Way

Isaiah J. Poole — Thu, 17 Sep 2009 21:25:57 -0700

The Financial Crisis Inquiry Commission, the panel created by Congress to investigate the causes of last year's financial market meltdown, held its inaugural meeting September 17 as the nation observed the one-year anniversary of the nadir of the Wall Street economic collapse. Commission Chairman Phil Angelides said that the commission will craft and execute an ambitious schedule to get the facts behind the economic crisis, and would strive for consensus among the members of the committee, which include strong progressives and conservatives. The panel's members set out their expectations for that the panel would accomplish during its 15-month charter.

The Angelides Commission: Tell America What Happened

Robert Borosage — Thu, 17 Sep 2009 10:57:36 -0700

Today the new Financial Crisis Inquiry Commission, modeled after the New Deal-era Pecora Commission, begins its investigation into possible misconduct by the financial sector causing last year's market meltdown. Campaign for America's Future co-director Robert Borosage released the following statement on what the commission needs to do to fulfill its mission. Below that is a set of recommendations proposed by 40 organizations to the Commission in a letter today.

Statement from Robert L. Borosage

We are pleased that the Financial Crisis Commission is coming together, under the leadership of chair Phil Angelides. It has enormous challenge before it.

As Phil suggests in his opening statement, the Commission should aspire to be the modern day version of the Senate Banking Hearings in the 1930s that came to be named after the chief counsel, Ferdinand Pecora.

In the 1930s, Wall Street excesses, fraud, and speculation helped feed a bubble that burst and contributed to the Great Depression. FDR stepped into save the banks, reorganize them, and stave off financial panic.

But once saved from ruin, the banks rallied, seeking to fend of any serious regulation. Pecora changed that. By exposing the bankers’ misdeeds to the public, by revealing the crimes and the abuses, he helped rouse public anger, and create the conditions for the vital reforms – from the Glass Steagall Act to the SEC – that helped preserve us from financial crises for several decades.

Now once more, Wall Streets crimes and excesses, speculations and frauds have helped drive this economy off a cliff. Government has bailed out the banks and saved them from ruin. Now once more, they are organizing to fend off the reforms vital to making certain we don’t repeat the follies of the past.

The Angelides Commission -- if it fearlessly lays out the facts, exposes the excesses, the deformed incentives, the frauds and crimes, that are at the root of the current crisis has the potential of playing a similar role to that of Pecora.

Today CAF joins with 39 other groups, including the AFL-CIO, Change to Win, Americans for Financial Reform, Public Citizen and others, to call upon the Commission to tell Americans the story of what happened. We urge them to hold public hearings, to reveal records, to subpoena documents and miscreants, from Wall Street’s leaders to mortgage brokers. We urge them to make criminal referrals where appropriate.

We will help publicize their work. We’ll engage citizens to augment their capacity. Nothing is more important than getting to the roots of what happened, and telling that story to Americans, generating the public pressure that can overcome the powerful financial lobby to push Congress to pass the financial reforms vital to making certain we do not repeat the follies of the past. not happen again.

♦ ♦ ♦

Letter to Phil Angelides, chairman of the Financial Crisis Inquiry Commission

Dear Chairman Angelides,

At the beginning of your term as chairman of the Financial Crisis Inquiry Commission we write on behalf of tens of millions of Americans concerned about their economic well being and financial security.

While the Congress has given you a specific charge, there is a great deal of discretion granted the Commission in how it conducts its business. We call on the Commission to consider and adopt the following recommendations.

The Commission should make it clear to Congress, the administration and the regulatory bodies that they shouldn’t wait for the Commission 's final report to take action.
The Commission should issue interim reports and memoranda so the public has an opportunity to learn about what caused the financial crisis while the national discussion is taking place.
The Commission should hold public hearings across the country—especially in the areas hardest hit by the crisis.
The Commission should listen to the voices of the victims—regular Americans should be heard, not just financial and economic elites.
The Commission should use all its powers including subpoena and the authority to make criminal referrals.
The Commission should act in a transparent way—use the Internet to publish your findings, including the documentary evidence that supports those findings.
The Commission should name names—the public has a right to know who the people and institutions are that acted in an irresponsible manner—especially if they are still in positions of authority or influence.

Together these recommendations would greatly improve how the Commission would serve the public interest. We look forward to your deliberations and wish you luck in all your work.

Sincerely,

A New Way Forward
ACORN
AFL-CIO
Americans for Fairness in Lending
Americans for Financial Reform
Campaign for America's Future
Center for Responsible Lending
Change to Win
Common Cause
Community Reinvestment Association of North Carolina
Connecticut Citizen Action Group
Consumer Action
Consumer Federation
Demos
Empire Justice Center New York
International Brotherhood of Teamsters
Jobs with Justice
Laborers International Union of North America (LIUNA)
Leadership Conference on Civil Rights
MoveOn.org Political Action
National Association of Consumer Advocates
National Community Reinvestment Coalition
National Consumer Law Center (on behalf of its low income clients)
National Fair Housing Alliance
Neighborhood Economic Development Advocacy Project
New Jersey Citizen Action
New York Public Interest Research Group (NYPIRG)
Progressive States Network
ProgressNow
Public Campaign
Public Citizen
Sargent Shriver Center on Poverty Law
Service Employees International Union
U.S. Public Interest Research Group
Union Plus
United Food & Commercial Workers International Union
US Action
Western States Center

Americans for Financial Reform is a national coalition of nearly 200 state and local organizations ranging from financial experts to community working to restore fairness and stability to the financial system and rebuild our economy.

Pecora II Meets, Grassroots Mobilizes

Isaiah J. Poole — Thu, 17 Sep 2009 09:14:39 -0700

In their first meeting Wednesday, members of the Financial Crisis Inquiry Commission—often characterized as the second coming of the Pecora Commission that investigated the causes of the Great Depression—clarified how they see their mission and what we can expect.

Also, at a news conference that followed closely behind the commission meeting, a coalition of progressive activist organizations laid out their expectations for the commission and announced an initiative to give the commission investigative tips and citizen input.

That effort will include the launch of a website—http://tellthecommission.com/—and a toll-free number, 1-888-234-1763, where citizens can leave investigative tips and comments. The phone line and the website are expected to be up soon.

Commission Chairman Phil Angelides said that citizens should not expect the commission to champion a particular ideological framework for reform. "First of all, it is essential that our investigation proceed on the basis of fact and evidence—and not according to the opinion or political leanings of any member of the Commission or the Congress that empowered us," he said in his opening statement.

Both he and vice chairman Bill Thomas, a conservative Republican and the former longtime chairman of the House Ways and Means Committee, said it was important for the committee to produce findings that will produce a unanimous agreement.

One obvious question will be whether the quest for unanimity will short-circuit the need for a frank assessment of the policies as well as the players responsible for bringing the nation's economy to the brink of collapse. Angelides and Thomas both promise that it won't.

In pulling together the facts needed for that assessment, Angelides announced an ambitious timetable. The commission this week hired an executive director, Thomas Green, a veteran investigator for the California Office of the Attorney General who had worked on high-profile cases involving Microsoft, tobacco companies and El Paso Natural Gas.

The commission will be filling out its staff of investigators over the next several weeks, culling from a flood of resumes Angelides said the commission has already received. In October, the commission will be asking agencies and companies to preserve records that the commission may want to review. Investigators will begin their interviews in November, and a schedule of public hearings in Washington and other locations will start as early as December.

Angelides and Thomas also said that the commission members have been talking to key congressional committees that have begin working on various bills related to financial reform, such as legislation that would create a new financial consumer protection agency. Angelides said that it was important for the committee's work to be relevant to financial reform efforts in Congress, and several commission members stressed that it was important for the Congress to not feel compelled to wait for the commission to issue a finaal report—which would be due at the end of 2010—before acting on legislation needed to prevent a repeat of the financial crisis. Thus the commission may shift its work focus to adjust to what is moving forward in Congress.

At the same time, Angelides stressed that his goal for the commission's work is that "it have lasting value beyond the immediate" crisis and legislative remedies spurred by it.

Much of what Angelides and Thomas said would be good news for the coalition of groups—including the financial report group A New Way Forward, Common Cause, MoveOn.org, Public Citizen, U.S. Action, the Campaign for America's Future and several key labor groups—that signed a petition today setting out what they expect from the commission.

Included in their petition were calls for "interim reports and memoranda so the public has an opportunity to learn about what caused the financial crisis while the national discussion is taking place," hearings in various parts of the country where "the voices of the victims" can be heard, and the use of the commission's power to make criminal referrals and "name names" of people responsible for causing the financial crisis.

"The Angelides Commission -- if it fearlessly lays out the facts, exposes the excesses, the deformed incentives, the frauds and crimes, that are at the root of the current crisis has the potential of playing a similar role to that of Pecora," said Campaign for America's Future co-director Robert Borosage in a statement. "Nothing is more important than getting to the roots of what happened, and telling that story to Americans, generating the public pressure that can overcome the powerful financial lobby to push Congress to pass the financial reforms vital to making certain we do not repeat the follies of the past."

Though Angelides wants to keep the commission from being blown apart by ideological land mines, some of the opening statements bore hints of the challenge ahead.

Brooksley Born, a lawyer and former chair of the Commodity Futures Trading Commission, sketched out the role unregulated derivatives trading played in the massive losses on Wall Street and the wreckage in the credit markets and said she was concerned that as politicians and some economists pronounce the economic crisis as easing, "there's a danger that our sense of urgency may diminish."

"The country can't afford to listen to the siren song of deregulation," she said.

Sitting across from Born was Peter Wallison, a scholar at the American Enterprise Institute and a champion of deregulation and conservative economic policies. A key issue he raised was the extent to which government policies promoting home ownership among people who were not financially equipped to be homeowners was responsible for the crisis.

Wallison asks an important question, but questions like that one have been used by too many conservative ideologues and talk-show hosts to divert attention from the shenanigans of Wall Street billionaires while focusing ire on frequently moderate-income families who were coaxed, often unwittingly and fraudulently, the companies controlled by these billionaires into unsustainable deals.

What will help bolster the commission's work and keep the commission members on task is sustained input and monitoring from the grassroots. The commission needs our knowledge, our stories, and our encouragement when they are asking the right questions and producing useful answers that inform the drive for change.

Let The Financial Inquest Begin

Isaiah J. Poole — Wed, 15 Jul 2009 11:43:01 -0700

Now that congressional leaders have named the members of the Financial Services Inquiry Commission—what is often referred to as the "Pecora Commission"—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 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, 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 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 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 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.

It's More Than Madoff

Terrance Heath — Tue, 07 Jul 2009 09:07:47 -0700

I scoffed when Bernie Madoff,through his lawyers, asked for a twelve year sentence in his fraud case. What some people think they can get away with pales only in comparison to what some people are actually allowed to get away with — especially when the opportunity to hold them accountable and prevent further damage from being done is consistently passed up.

With a name almost Dickensian in its suitability, Madoff is symbolic of so much and so many that bear responsibility for our economic crisis. It's easy and tempting to accept him as a substitute for the rest, not only because of his dishonesty and his willingness to lay waste s many lives for his own personal gain, because he apparently thought he could — and should — essentially get away with it. But, as with Madoff, we have an opportunity to hold the rest of them accountable, too.

Well, he got 150 years.

Bernard Madoff has been given the maximum prison sentence of 150 years for masterminding a massive fraud that robbed investors of $65bn (£40bn).

The sentence, which means Madoff will spend the rest of his life in jail, was greeted with cheers and applause in the packed courtroom.

US District Judge Denny Chin said he wanted to send a message that Madoff's crimes were "extraordinarily evil".

Madoff's lawyer had sought a more lenient sentence of 12 years.

Judge Chin gave Madoff the maximum sentence on all 11 charges, which included securities fraud and money laundering.

"Here the message must be sent that Mr Madoff's crimes were extraordinarily evil and that this kind of manipulation of the system is not just a bloodless crime that takes place on paper, but one instead that takes a staggering toll," Judge Chin said.

So, was justice served?

I think you'd have to ask his victims. At the sentencing, Judge Chin had on hand statements from 113 victims — which served as Exhibit A in Madoff's trial. You can read them yourself.

Madoff Victim Impact Statements

They serve as a reminder that many of Madoff's victims are, Lawrence Velvel wrote on behalf of 300 members of the MadoffSurvivors Google group, "not the billionaires, 'centamillionaires', hedge funds, and banks that celebrity-driven media focus on," but are instead "little people."

They are the people who started with little or nothing, as members of the working class or lower middle class, as immigrants, as children of holocaust survivors. They are people who worked like dogs all of their lives, finally saved up enough money to invest in Madoff, and now find themselves wiped out. Many — perhaps even most — are elderly, in their late 60s, 70s or 80s. Many had no other savings or income except what they had in or received from Madoff. Many are completely devastated, financially and psychologically. They are selling their homes in order to have money to live. (There is, as you may know, one man in his 90s who is reported to have taken a job in a supermarket, passing our fliers, we believe, in order to sustain himself.) They are victims of a terrible crime and a terrible tragedy.

They are people like that 90-year-old man, Ian Thierman.

Handing out fliers hawking avocados and pork ribs at a supermarket in Ben Lomond, California, Thiermann is one of many facing dramatic lifestyle changes after losing their savings in Madoff's suspected $50 billion Ponzi scheme.

Thiermann wasn't even aware he had invested with Madoff until December 15, when a friend who managed his investments called him on the telephone. "He said, 'I've lost everything and you have lost everything.'" For Thiermann, that meant $750,000.

...Thiermann, owner of a pest-control company in Los Angeles before retiring 25 years ago, enjoyed returns of 10 to 12 percent each year on his savings for about 15 years regardless of whether markets rose or fell. He lived on those returns, devoting much time to nonprofit work.

They are people like 89-year-old Paul Allen, who indicted many others along with Madoff in his statement.

[A]t the age of 89, I find myself and my wife (86) devoid of future hope. I find it hard to believe what he did to us and in addition to all the charities affected by this Bastard.

In addition to Madoff's actions, our own government has failed us completely. The failure of the SEC to act when they had all the information necessary to stop Madoff in his tracks. NOW the SIPC and Mr. Picard is performing in a manner trying to deny us our rights they were supposed to protect. I asked SIPC to provide me with information I know they have and was told they were not obligated to do this, that it was the investor who had to furnish the details to justify his claims.

As I said above, I don't foresee any help from the SIPC.

Allen isn't alone. Even after Madoff was sentenced, handcuffed, and whisked out of the courtroom, 20 or so of his victims protested outside the courthouse, waving signs indicating the focus of their anger is shifting from Madoff to the SEC and other agencies that seem to have abandoned it's responsibilities while Madoff's ponzi scheme was going full tilt, and abandoned his victims once the scheme came crashing down.

After hailing Bernard Madoff's 150-year prison sentence, some of his former investment clients turned their attention to the government systems charged with stopping financial scam artists and reimbursing its victims.

Rallying outside a Manhattan federal courthouse Monday, about 20 ex-clients who together lost millions to Madoff said they have been victimized by inadequate oversight before the fraud collapsed in December and questionable decisions and slowness in the ensuing repayment process.

Several carried signs specifically criticizing the Securities and Exchange Commission, the agency that failed to discover Madoff's scheme; the Securities Investor Protection Corp., the government-created insurance system that pays up to $500,000 to each client of failed brokerages; and Irving Picard, the court-appointed trustee seeking Madoff's assets on behalf of ex-investors.

They have good reason. We've known for a while that the SEC was warned about Madoff as early as 2004. Was the commission unable to stop Madoff, or unwilling? Perhaps a little from Column A and a little from Column B.

An investigator at the Securities and Exchange Commission warned superiors as far back as 2004 about irregularities at Bernard L. Madoff's financial management firm, but she was told to focus on an unrelated matter, according to agency documents and sources familiar with the investigation.

Genevievette Walker-Lightfoot, a lawyer in the SEC's Office of Compliance Inspections and Examinations, sent e-mails to a supervisor, saying information provided by Madoff during her review didn't add up and suggesting a set of questions to ask his firm, documents show. Several of these questions directly challenged Madoff activities that much later turned out to be elements of his massive fraud.

But with the agency under pressure to look for wrongdoing in the mutual fund industry, she wasn't able to continue pursuing Madoff, according to documents and two people familiar with the investigation, and her team soon concluded its work on the probe.

Walker-Lightfoot's supervisors on the case were Mark Donohue, then a branch chief in her department, and his boss, Eric Swanson, an assistant director of the department, said two people familiar with the investigation. Swanson later married Madoff's niece, and their relationship is now under review by the agency's inspector general, who is examining the SEC's handling of the Madoff case.

But the SEC, and the culture of Wall Street itself were important parts of how Madoff did it. He not only pioneered pioneered "payment for order flow" (something I'm not sure I understand well enough to describe here), but as Nasdaq chairman in 1990 Madoff heavily influenced the regulatory commission's panel charged with studying the controversial practice, and that ultimately gave its approval to the practice.

The outcome "made" Madoff, elevating him to the status of an ultimate player — one who also wrote the rules of the game he played. And for a while, that meant he couldn't lose, because he was in a position to influence enforcement of the rules too.

In 1992, for example, Madoff's name surfaced in a major SEC investigation involving one of his feeder funds. Avellino & Bienes was accused of running an unregistered securities operation, issuing $441 million of notes that promised returns of 13.5% to 20%. SEC officials feared it was a Ponzi scheme. They raced into court, won an injunction to shut the firm down -- and discovered that all the investors' money was safely in the hands of one Bernard L. Madoff. According to court records, Madoff was able to return all the money to Avellino & Bienes in a matter of eight days. (The two men ultimately paid a combined $350,000 in civil penalties to the SEC.)

Once the money was produced, essentially, the SEC exhaled. It didn't occur to the agency to investigate Madoff. Much of the rest of the case was handed over to a court-appointed trustee whose job was to make sure investors were made whole, and to what was then Price Waterhouse, which tried to reconstruct the mostly nonexistent books of Avellino & Bienes.

...In May 2001 a more probing spotlight was shone on Madoff, and once again he escaped. In that month, two articles -- the first in a trade publication called Mar/Hedge, the second in Barron's -- raised serious questions about Madoff's investment operation. For starters, its very existence was surprising: According to Mar/Hedge, its $6 billion to $7 billion in assets under management made it the largest or second-largest hedge fund in the world at the time. Yet it was unknown. The articles went on to note the improbability of Madoff's smooth and steady 15% annual returns. They wondered why Madoff charged no fees to run his seemingly successful investment operation and instead accepted only minimal trading commissions.

...So what happened when two publications, one of them among the most prominent on the subject of investing in the country, raised questions about Madoff? Nothing. What seemed like clear warnings disappeared into a void of indifference. Even inside Madoff's firm, the reaction was a shrug. "We knew about the Barron's article," recalls the trader. "We went on about our business as if it was another firm that had nothing to do with us."

The Forbes article quoted above, by James Bandler and Nicholas Varchaver, goes into far more detail — including Madoff's family history in finance, and yet another SEC investigation Madoff managed to lie his way out of. That adds up to at least four times the SEC could have stopped him and failed. The agency's new director, in a Senate Banking Subcommittee hearing called the "epic fail" on Madoff a "wake-up call." But the alarm rang for 17 years, while the agency continuously hit the snooze button.

The agency has, in Madoff's wake, ramped up training of staff to spot frauds. And yet it seems like trying to close the barn door as the dust clears from the whole herd stampeding out, because it's more than just Madoff. There are many more than Madoff, and not just the 10 who were indicted alongside him, or Joseph S. Forte — who just pleaded guilty to operating an $80 million ponzi scheme. It's more than the the dozens of ponzi schemes forced into the open by the recession since Madoff's December 2008, or the nearly 500 open fraud cases being investigated by the FBI (up from 300 in 2006).

It's more than Allen Stanford, and his $8 billion fraud. It's people like the regulators who helped him do it.

Years before his banking empire was shut down in a massive fraud case, Allen Stanford swept into Florida with a bold plan: entice Latin Americans to pour millions into his ventures -- in secrecy.

From a bayfront office in Miami in 1998, he planned to sell investments to customers and send their money to Antigua.

But to pull it off, he needed unprecedented help from an unlikely ally: The state of Florida would have to grant him the right to move vast amounts of money offshore -- without reporting a penny to regulators.

He got it.

Over objections by the state's chief banking lawyer -- including concerns that Stanford was laundering money -- regulators granted sweeping powers never given to a private company.

As Robert Scheer pointed out, Bernie Madoff is being conveniently treated as a lone "rotten apple," when in fact he is not only symbolic of the system that let him get away with it, but a prime player, with a seat at the table in making the rules of the game he played.

How convenient for the judge and the media to paint Bernard Madoff as Mr. Evil, a uniquely venal blight on an otherwise responsible financial industry in which money is handled honestly and with transparency.

Madoff, sentenced Monday to 150 years in prison for bilking investors of billions, should be exhibit A in why the dark world of totally unregulated private money managers and hedge funds should be opened to the light of systematic government supervision. Instead, he is being treated as an aberrant menace, with the danger removed once the devil incarnate, as his victims describe him, is locked up and the key thrown away.

For goodness' sake this was not some sort of weird outsider who flipped out, but rather a key developer of the modern system of electronic trading and a founder and chairman of Nasdaq. Madoff often was called upon to help write the rules on financial regulation, and therefore became quite expert at subverting them.

Painting Madoff as "Public Enemy #1," and applauding his sentence as a kind of final justice, masks the reality that Madoff is but one player in what was essentially a ponzi economy, of which the majority of us are victims. Unlike Madoff's victims — who at least had the pleasure of seeing him taken away in handcuffs, and at least have a shot of recovering some fraction of the $65 billion he stole from them — we aren't likely to see much of the $2.5 trillion we've essentially lost (so far), the perpetrators have gotten away with it.

Madoff, it turned out, was no Public Enemy No. 1 to rival John Dillinger, the Great Depression thug at the center of Hollywood’s timely release this holiday weekend, “Public Enemies.” In the context of our own Great Recession, Madoff’s old-fashioned Ponzi scheme was merely a one-off next to the esoteric (and often legal) heists by banks and bankers. They gamed the entire system, then took the money and ran before the bubble burst, sticking the rest of us with that fear, panic and loss.

The estimated $65 billion involved in Madoff’s flimflam is dwarfed by the more than $2.5 trillion paid so far by American taxpayers to bail out those masters of Wall Street’s universe. A.I.G. alone has already left us on the hook for $180 billion. It’s hard for those who didn’t have money with Madoff to get worked up about him when so many of the era’s real culprits have slipped away scot-free. Already some of those same players are up to similarly greedy shenanigans again now that the coast seems to be clear.

Washington had no choice but to ride to their rescue last fall to prevent even greater systemic catastrophe. But that rescue is tainted. As the economist Joseph Stiglitz wrote in this month’s Vanity Fair, “In the developing world, people look at Washington and see a system of government that allowed Wall Street to write self-serving rules which put at risk the entire global economy — and then, when the day of reckoning came, turned to Wall Street to manage the recovery. They see continued re-distributions of wealth to the top of the pyramid, transparently at the expense of ordinary citizens.”

In the stories of Madoff's victims, we can understand — if we listen — how the "Masters of the Universe" knowingly and willingly became "destroyers of worlds," as the individual worlds of their victims, hollowed out by the Madoffs of the world, quietly imploded.

It is just as convenient to see or portray Madoff's victims as either (a) wealthy individuals whose losses don't generate much sympathy in an increasingly painful economic downturn, and (b) everyday people who played the market and "should have known better," and thus don't get much more sympathy than the wealthy victims.

But just as Madoff is representative of Wall Street's "Masters of the Universe," so too are his victims representative of many Americans who are bearing the brunt of this crisis — like the auto mechanic, retired forest worker and retired school secretary who were among the nine victims who spoke at Madoff's sentencing. They are like the majority of Americans who are financially illiterate and unaware of it — unable to estimate how their own credit card interest would compound over time, or how long it will take them to pay it off. They are like the rest of us who don't understand the world of finance or investing, despite the 401(k) turning us all into investors in the market.

And they are people like Ronnie Sue Ambrosino, who thought they did the right thing by "working and saving" and thought they were finally in a position to reap the benefits, only to find out that after a lifetime of "working and saving" they had nothing left. Ambrosino's words to judge Chin could apply to many more — like those who failed to probe Madoff's criminal actions, and those who will soon probe the actions of those responsible for the financial crisis that threatens to turn many more of us into victims of many more Madoff's before it's all over.

I will ask you to look at the big picture of what happened. I wonder if you ever questioned why Mr. Madoff turned himself in when no one was chasing him? Did he think his manipulative ways would, once again, prevail and that he'd get a lesser sentence for the unthinkable crimes he committed? Did he think, as he sat in his penthouse for 3 months while his victims lost their homes, and worse yet, their lives, that he would get away with it? Did Bernard Madoff feel had so much power that he could influence his attorneys, the prosecutors and the American justice system to someday be a free man? I hope not.

Madoff's victims, though many of them may feel that some degree of justice was meted out to him, may never recover even most of their losses, let alone all. Many of them will never be made whole. But they at least got a moment of justice, in that the man who took so much from them — essentially, stole the rest of their lives, and wasn't man enough to even look at them when he delivered his plea — had to hear their stories, and finally face them.

But it takes more than one man to crash an entire economy. It takes many more Bernie Madoffs, who create many more victims in the process, as willingly and knowingly as Madoff did. Some of them we can name. Some, for now, have the security of anonymity.

Whether the rest will have to answer for their own actions — and be held accountable for the consequences visited upon countless others — remains to be seen.

That will depend upon who is ultimately named to the Financial Crisis Inquiry Commission, and whether it's members have the will and the courage to call those responsible to account. It will depend on whether they have the will to use their subpoena power to bring those responsible before the committee, the ability to ask the right questions, and the courage to demand answers.

It's fine that Bernie Madoff will be going to prison for his crimes. But it's more than Madoff. Much more.

New “Pecora Commission” To Be Named This Week? Who Would You Appoint?

Bill Scher — Wed, 01 Jul 2009 12:19:30 -0700

Pecora Commission II: Super-Sleuths or Keystone Cops?

Dean Baker2 — Wed, 01 Jul 2009 07:42:29 -0700

Congress will be appointing a special commission to investigate the causes of the economic crisis and to determine who is to blame. This proposal originated among progressives who wanted to see a replay of the depression era Pecora Commission, which exposed the Wall Street corruption that laid the basis for the 1929 stock market crash and the depression that followed.

At the very least, a similar exposure of the greedheads at Goldman Sachs, Citigroup, and the rest could provide an element of justice to this disaster and possibly lay the basis for criminal prosecutions of the worst offenders. Undoubtedly there are many multi-millionaires at these institutions who would make far more appropriate prisoners than some of the 2 million current guests of our criminal justice system.

Unfortunately, there is a real possibility that the commission appointed by Congress may follow a different precedent. Instead of striving to uncover the truth, it may seek to conceal it.

There is precedent for this of cover-up commission. The Iran-Contra Committee that Congress appointed in 1987 strove to conceal fundamental and deliberate violations of the law. Congress had explicitly prohibited the use of government money to support the Contras who were fighting to overthrow the Nicaraguan government.

There was not much ambiguity about the Boland Amendment, the law that prohibited funding. This was deliberate, because President Reagan had in the past skirted Congressional intent on this issue.

Nonetheless, President Reagan supported a special operation in which the U.S. government made a profit selling weapons to the mullahs in Iran (President Amadinejad’s intellectual predecessors) and then used the profits to fund the Contras. The whole operation was concealed from Congress until it was exposed by an independent Lebanese newspaper in the fall of 1986.

Both sides of this operation prompted outrage. On the one-hand, President Reagan was giving weapons to the hardest line elements in Iran. This was not consistent with our efforts to isolate the regime, which included a near complete trade embargo. On the other side, he was secretly giving U.S. taxpayer dollars to the Contras, in direct violation of the law.

This is the sort of activity for which presidents are supposed to be impeached and people are supposed to do long stints of jail time. But that’s not the way the Iran-Contra Committee saw it. They put on lengthy and boring hearings that quickly buried the public in obscure details that had nothing to do with the simple facts: the President sent taxpayer dollars to the Contras in direct violation of the law.

Not only did the committee confuse the public (or at least the media), it also undermined efforts to bring the Iran-Contra criminals to justice. Going against the wishes of Lawrence Walsh, the special prosecutor appointed to deal with the case, the committee gave most of the key figures immunity for their public testimony. While Walsh had sealed the material used for the prosecution case prior to any public testimony, the courts subsequently ruled that because other witnesses’ court testimony may have been affected by the immunized testimony before Congress, the Iran-Contra defendants were effectively immune from prosecution.

In effect, the committee both concealed the real issues from the public and protected the defendants from criminal prosecution. That’s not a victory for justice.

The basic story of the current crisis is very simple. We had an $8 trillion housing bubble as house prices had hugely diverged from fundamentals in a way that had never happened before. The bubble was fueled by loans that were virtually guaranteed to go bad once house prices stopped rising. The banks that issued the loans didn’t care because they sold them in the secondary market. By the time the loans went bad, they had already cashed out their stake.

The investment banks that securitized the loans didn’t care because they sold their (investment grade) junk all over the world. The executives running the operations pocketed tens of millions before the music stopped and the bubble burst.

So, what questions does the commission have to ask? How about putting all the 7 and 8 figure executives under oath and ask them if they were really too dumb to see an $8 trillion housing bubble. For a follow-up, the commission can ask them what exactly they do to earn those multi-million dollar paychecks. Those questions should make for some very informative testimony.

Unfortunately, it is more likely that the commission will get buried in obscure details of collaterized debt obligations and credit default swaps. That would be a serious distraction from the real story and a waste of the taxpayers’ money.

Help Democratic Leaders Name Members of The New 'Pecora Commission'

OurFuture.org Staff — Tue, 30 Jun 2009 14:16:43 -0700

Pecora Whirling

OurFuture.org Staff — Tue, 30 Jun 2009 14:13:45 -0700

Pecora Commission To Be Named This Week?

Bill Scher — Mon, 29 Jun 2009 14:01:22 -0700

Word is circulating in Washington that members for the Financial Crisis Inquiry Commission will be named this week.

The commission is supposed to resemble the 1930s Pecora commission that dug into the culprits behind the Great Depression and laid the groundwork for major bank reform. But that will only be true if the commission is run by aggressive seekers of truth, independent of the financial industry, willing to use their subpoena power, knowledgeable enough to have warned us of impeding crisis in the first place despite market cheerleading from the political and media establishments.

Will the maximum sentence given to Bernie Madoff, after he ruined the lives of many, put a renewed spotlight on the need for tough reforms?

OurFuture.org's Eric Lotke and Reuters columnist Matthew Goldstein hope so.

As Lotke wrote:

So Madoff got 150 years for breaking into the bank. Fine.

But what about the guard who was asleep out front? What about the clerk who forgot to lock the door? What about the $300 billion that Citigroup walked out with from one vault, and the $200 billion that AIG took from another? Does anybody know where that money went or what we got for it? Don’t they get in trouble too? Did you know that, or do you know why, Goldman Sachs is paying its biggest bonus payouts in its 140 year history?

That’s why we need a Pecora Commission.

And Goldstein remarked:

Indeed, for all the misery Madoff and his Ponzi brethren have caused, none of those scam artists were the cause of the crisis that brought the financial system to the brink. If anything, it was the financial crisis that helped flush out Madoff and his scurrilous ilk, as many investors rushed for the exits at the same time.

So that's why Congress needs to act quickly to get up and running a bipartisan commission to study the underlying causes of the financial crisis.

Speculation from Reuters last week on who might be named was not terribly encouraging, though most of the names floated clearly were coming from conservative circles, as Republican leaders will pick four of the 10 members. Robert Kuttner explained in the Huffington Post:

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 ...

...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 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.

It does not have to be this way.

Dismay and disgust at Wall Street behavior is prevalent among voters across the ideological spectrum. It is not necessarily in either parties political interest to appoint industry shills and knee-jerk opponents of regulation. But they would only pay a political price if people knew about the appointments.

However, the media is great at covering the spectacle at the end of the debacle -- like the Madoff conviction -- it is not as good at informing Americans at the beginning of a process when their input might actually make a difference.

Most Americans do not know that the Financial Crisis Inquiry Commission is on the verge of naming its members. Nor do they know what difference the right people could make, not just in nailing the culprits behind the market meltdown, but ensuring that we enact reforms that actually reform the flaws in our flimsy regulations.

Speaker Nancy Pelosi, Senate Majority Leader Harry Reid, House Minority Leader John Boehner and Senate Minority Leader Mitch McConnell will be naming the commission members soon, most likely this week. Now is the time to let them know the type of person you want to have subpoena power on your behalf.