Two days ago, the New York Times published an op-ed by Ron Chernow on the explosive hearings of 1933-34 that demonstrated how corrupt Wall Street had been in the 1920s boom.
(I have not read the book, Wall Street Under Oath, by the head investigator Ferdinand Pecora, but intend to do so.)
Mr. Chernow's op-ed is a necessary read for anyone interested in parallels between the serial frauds of the late-1990s stock bubble and the "aughties" housing and other credit bubbles. One point he makes is however incomplete and leads me to a criticism of our era vs. the 1930s and subsequent eras where the political parties really were different. Hint on my point of view: Where the 1930s gave us the heroic Pecora, the current era gave us . . . Eliot Spitzer.
"Our current stock market slump and housing bust can seem like natural calamities without identifiable culprits, creating free-floating anger in the land. A public deeply disenchanted with our financial leadership is desperately searching for answers. The new Congress has a chance to lead the nation, step by step, through all the machinations that led to the present debacle and to shape wise legislation to prevent a recurrence." (Emphasis added)
All well and good, but think more deeply. Guess what: the "new Congress" is essentially the old Congress! (Which didn't even bother investigating all the no-bid and often "no-doc" Halliburton and other Iraq War contracts, where they obviously would have had a field day).
Except for a few well-pubicized "perp walks" after the stock scams of the second half of the '90s, Congress held no hearings that demonstrated the need for new legislation. All the wrongdoing that was exposed was well-covered by existing legislation. In that sense, the Sarbanes-Oxley legislation was irrelevant to the known misdeeds. Seen in context, it was passed to pacify the public so that continued financial abuses could occur.
More relevant to the current situation, consider that in the spring of 2005, the Comptroller of the Currency stated on CNBC that home lenders were making very risky mortgages. A look at the stock charts of homebuilders showed that they peaked more or less exactly at that time. (I got out of housing stocks at that time.) Mortgage companies started failing in 2006. Nouriel Roubini (and others) became vocal at that time about major economic problems in our future due to the housing bubble. By late fall 2007, even the White House and Congress recognized that the economy was sinking, and with minimal hearings quickly agreed to "stimulate" the economy with tax rebates and other goodies. In the summer of 2008, Congress rapidly cobbled together legislation, reportedly written by BofA, to "protect" underwater mortgagees. By then there was no doubt that something was rotten and had been rotten in the mortgage system in this country. By late summer and fall, even the deaf and blind knew that there had been disastrous management of our biggest financial institutions. Fannie, Freddie, numerous banks, AIG . . .
Yet one evening in October, when the plan to transfer taxpayer wealth to these very institutions was well underway in secret, Secretary of the Treasury Paulson and Fed Chairman Bernanke visited Congressional leaders who literally pronounced themselves "shocked" at how bad things were in the financial system of this country.
Hearings? Congress was too busy planning to get out of town to show voters that they "cared" about them and get re-elected. The two-thirds of Senators who were not up for re-election were also too busy to bother with hearings. This was, suddenly, an emergency. Why? Because the same Administration that the Democrats had pilloried for supposedly false scare tactics re the Iraq War told them that there was only one way to go. Plus Bernanke said so. No matter all the happy talk from the same people all year. Put Hank and Ben on the spot for failing to sniff out the ongoing debacle? Puh-leese . . . perish that thought- there's Federal money to be spent!
The serial bailouts ensued, with no accountability, no coherence, minimal debate, a nd scare tactics. When the Dow dropped 777 points the day the House voted down the bailout, a succession of insiders scared the public with threats of a Great Depression II and a 2000 point further drop in the Dow if this wonderful legislation were not passed. For a day or two, polls allegedly showed that the public was indeed scared, and got the measure's popularity to (allegedly) 50-50 from widely hated.
The Senate, for good measure, attached the $700 B TARP bailout bill to another spending measure; $700 B wasn't good enough!
When the bailout then passed, the market fell almost 3000 points and the economy worsened. No insiders were heard to comment that passing the TARP in fact was followed by the "feared" results of rejecting the bailout.
So here we have it. No hearings, no accountability. Bipartisanship at its worst.
In the 1930s, the opposition party really opposed. So it was in the 1970s, when Nixon was chased out, in the 1980s, when Reagan was under threat of impeachment and in Bush I's term, when George Mitchell stuck it to him repeatedly, and in the 1990s, when the Perot/Gingrinch movement stood for something and achieved results. Now there is no effective opposition. Congress held no hearings about alleged impeachable offenses by Bush or Cheney. They were too busy taking lobbying money by financial companies to bother investigating the web of corruption that brought us the mortgage mess, ranging from fraudulent appraisals and other local misdeeds up to the corruption and stupidity in the financial community that repackaged subprime and alt-A mortages in a manner that made them unmodifiable and often almost untraceable. No one in power cared that the "credit default swap" market was on its face a combination of:
1) unregulated insurance without reserves; and 2) gambling, probably illegal, between two parties neither of whom had any economic interest in the failure or success of a debtor; and no one cared that the face value of this "CDS" phenomenon grew to approximately equal global annual GDP; and no voices in power in DC have been decrying the many billions of Federal dollars that have quietly gone to make us the ultimate guarantor of AIG's guarantees.
Unfortunately, Mr. Chernow's calls for hearings sound wishful. Congress has been controlled by the "opposition" party for two years. They got what they wanted: the White House. It is their turn now to help out their core constituents. (Financial companies are part of that group.) Trillion dollar deficits loom for every Obama budget. (This number will allow for health care "reform".)
If we can create so much money, why can't we create another Ferdinand Pecora to really unmask and publicize the financial corruption of the past ten years? Jurassic Park redux, anyone?
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