While I harbor considerable doubts about whether the idea of having a modern version of the so-called Pecora Hearings, the 1930 Senate Banking Committee sponsored probe of the financial services industry, will be as serious and as thorough as it needs to be. The fact that the Pecora initiative got as far as it did was by accident. Pecora had been brought in what was thought to be late in the game to draft a final report (the two prosecutors had been fired, the third resigned over his lack of subpoena powers). Pecora asked to reopen the hearing for a month, and they ran more than a full year. His finding laid the groundwork for the securities reforms of 1933 and 1934.
The industry fought the effort tooth and nail; it was only Pecora’s tenacity and his adept use of the media that enabled him to prevail. The odds seem stacked against this exercise. Look at the lengths Team Obama has gone to with the stress tests to “restore confidence”. If that is the prime objective, a thorough probe is the polar opposite of what they’d want to happen.
Nevertheless, some serious names are being mooted: Paul Volcker, former SEC chairman Theodore Levitt, and Sandra Day O’Connor, in my order of enthusiasm. Volcker is sufficiently skeptical of modern financial wizardry to be above reproach; the question is whether he (or any of the candidates) will appoint a sufficiently tough-minded prosecutor.
Leviitt was in fact pro-reform at the SEC, but was frequently stymied by Congress, particularly Joe Lieberman. And he did fall into line with Summers and Rubin on the Commodities Futures Modernization Act, which put credit default swaps outside the reach of the CFTC. Levitt comes out of the equity side of the business, and it is an open question as to how attuned he might be to possible abuses in over the counter credit markets, which is where the action was in this cycle.
O’Connor has plenty of stature, but perilous little knowledge of financial markets. She could be a high profile figurehead. But sometimes it’s the complete outsiders who are most willing to dig.
Retired Supreme Court Justice Sandra Day O’Connor, former Federal Reserve Chairman Paul Volcker and former Securities and Exchange Commission chief Arthur Levitt are among those being considered by congressional leaders to head a probe of the financial crisis, according to people familiar….
“Whoever investigates this is going to have to dig way below the surface and get to the bottom of what caused all these problems,” said Charles Geisst, a finance professor at Manhattan College in New York and author of a history of Wall Street. “If you don’t get someone who has a big name and a good reputation, it sends a signal that you are just going through the motions.”
Congress is modeling the commission on one headed by Senate staffer Ferdinand Pecora in the 1930s. Those efforts led to the creation of the Securities and Exchange Commission and laws for policing Wall Street that have lasted for seven decades.
Another, more recent, example would be the Sept. 11 panel that was comprised of former members of Congress and other public figures. The group investigated missteps in intelligence leading up to the 2001 terrorist attacks….
Yves here. The September 11 panel was a joke, convened well after the fact. If that’s the template, we know this is a sham. Back to the article:
O’Connor, 79, an appointee of former President Ronald Reagan, was the first woman to sit on the high court. She was a swing vote on some of the nation’s most divisive social issues, including decisions that upheld abortion rights and race-based college admissions. She also developed a reputation as being business-friendly by voting to cut punitive damages, curb class- action lawsuits and enforce arbitration agreements.
Volcker, 81, already leads a group that is advising President Barack Obama’s administration on the economy. The former Fed chief has been frustrated at times with his lack of input on policy decisions, people familiar with the matter have said.
Levitt, 78, was appointed SEC chairman by former President Bill Clinton and stepped down in 2001. He has called for stiffer regulation of hedge funds and credit-rating companies that were blamed for underestimating the default risk of subprime-mortgage securities.