It’s too bad that every time Americans — and their media — hear about the Financial Crisis Inquiry Commission, their minds can’t substitute the phrase “Tiger Woods sex scandal.” The commission, which began hearings today, is infinitely more important to the future of our living standards and national security than the host of distractions that crowd each day.
This should be our era’s Pecora Commission, which was convened in 1932 by majority Republicans in the Senate to illuminate the causes of the 1929 market crash and Great Depression. It exposed the host of bad practices and swindling bankers that helped bring on the worst economic crisis of the century. And it led to real reform, among other things the Glass-Steagall Act which separated investment banking from commercial banking.
The new commission is off to a slow start and risks being consigned to the fate of the 9-11 panel. Today, former Fed Chairman Alan Greenspan is defending himself and saying banks are undercapitalized. We’ll see how this goes (it’s being carried on CSPAN-2), but Ferdinand Pecora wouldn’t let Mr. Greenspan get away with that.
We’re also due to hear top bankers, including a Citi executive who warned his bosses in 2006 of the high risks facing the bank. And from the likes of Chuck Prince and Robert Rubin of Citigroup, the former receiving a lavish exit bonus after presiding over the bank’s near collapse, the latter signing off on it — and being the Clinton Treasury Secretary who helped dismantle Glass-Steagall.
Greenspan, his reputation in ashes, has things backwards when he talks about better capitalization because banks must be protected as new, unimagined “innovations” are introduced. In the straight-talking West of my youth, we called such things “swindles,” and they shouldn’t be allowed, especially when banks are backed by taxpayers or are so large they can blackmail the government into bailing them out.
Two years after the beginning of the Great Panic, we need answers. And a defense of the status quo, with a tad more regulation and capital added in, won’t cut it.
Today’s Econ Haiku:
T-man Geithner’s on the case