In the wake of the 1929 stock market crash, the Republican-controlled Senate established an investigation into its causes and the subsequent Great Depression. It received fresh momentum when Franklin Roosevelt was elected in 1932 and Democrats took control of the Senate. Under the leadership of New York assistant DA Ferdinand Pecora, the commission unearthed the many unsound and fraudulent practices that caused the calamity. The report led to such reforms as the Securities and Exchange Commission and the Glass-Steagall Act separating commercial from investment banking — reforms that kept the markets safe for decades.
Our Pecora Commission is the Financial Crisis Inquiry Commission, led by Phil Angelides, who established a reputation as a fearless advocate of taxpayers as California Treasurer. After months of hearings, it released its final report today. You can download it here. The blog Zero Hedge nicely summarizes many of the findings in chart form.
People who have been paying attention won’t be surprised at the findings. The primary culprits are regulators captured by a deregulated financial sector, the Federal Reserve’s easy credit and lax oversight, and the reckless risk-taking, over-leverage, bad incentives, lack of transparency and outright swindles by the banks and shadow banking system. The crisis was “avoidable.”
But nothing is ever the final word in our hyper-partisan age. So Republicans on the FCIC won’t endorse the final report. Their dissents blame parties other than the bankersters and deregulation, especially Fannie Mae, Freddie Mac and the promotion of widespread house ownership. Fannie and Freddie were surely part of the problem, but were late to the subprime party. And this verges close to the right-wing talking point that minorities buying houses were largely to blame for the greatest financial meltdown since the Depression.
The power of the Pecora Commission was not just its report, which was important in an age with far fewer information sources. Rather it came from the reforms that were inspired by its spotlight on bad business practices. The FCIC report will change few minds. Congress has moved on after mild banking reform. The practices and many of the institutions that helped cause the Great Recession were saved by the Fed and TARP, and they’re right back to business as usual.
They got away with it.
Today’s Econ Haiku:
Dow Jones twelve thousand
Unemployment in millions
Winners and losers