Our present Great Recession has caused most everyone to suffer appalling losses. .Millions are unemployed. Congress must act to pass laws that will prevent this economic calamity from hurting everyone again. Why did it happen? How do we protect against a recurrence of this economic hell?
HISTORY
After the stock market failed in 1929, people suffered unbearable losses. The economy collapsed. Banks failed, bank accounts disappeared. In 1932, the Senate created an investigative body that became know as the “Pecora Commission” to investigate the causes of the Wall Street Crash of 1929 and why the economy collapsed. A few months later, Frederick Pecora was hired to write the final report. Discovering that the investigation was not complete, Pecora requested an additional month of hearings. In that month he exposed what Citibank had done to cause the stock market crash. The public demanded more hearings. After Franklin Roosevelt was elected he urged the Senate to continue the probe.
Banks had speculated with depositor’s funds in the stock market for the Bank’s interest only. When the Bank lost, the innocent depositor lost the money in the account. . Many of the securities sold on Wall Street were filled with false and fraudulent information. Even after Pecora made public all this fraud, when he called for regulation for Wall Street firms, he was bitterly attacked. He said: Bitterly hostile was Wall Street to the enactment of the regulatory legislation”.
As to the outright fraud in selling securities, Pecora called for full disclosure. His comments about disclosure were: ” As to disclosure rules, had there been full disclosure of what was being done in furtherance of these schemes, they could not long have survived the fierce light of publicity and criticism/ Legal chicanery and pitch darkness were the banker’s stoutest allies.”
Pecora’s final report, among other things, asked for the creation of the Security Exchange Commission (SEC). The banning of banks from being in the investment banking business, providing deposit insurance for all bank accounts, the creation of savings and loans associations for home loans, and the giving these depositor owned savings and loan associations the advantage of paying a higher interest rate then banks could.
Pecora was prophetic when wrote a book in which he said: “It is certainly well that Wall Street now professes repentance. But it would be most unwise, nevertheless, to underestimate the strength of hostile elements. Where open mass resistance fails, there is still the opportunity for traps, stratagems, intrigues, undermining -all resources of guerrilla warfare. These laws are no panacea: nor are they self-executing. More than ever, we must maintain our vigilance. If we do not, Wall Street may yet prove to be unlike that land, of which it is has been said that no country is easier to overrun , or harder to subdue.” Ferdinand Pecora, ” Wall Street Under Oath: The Story of Our Modern Money Changers”
Just as Pecora said: Wall Street worked to repeal many of the laws passed as a result of his report. First in the 1980′s, banks successfully lobbied Congress to eliminate the interest advantages of that savings and loans associations had been granted in 1934. As a result, economic historians have traced the cause of the recession of the 1990′s to the acts of major banks in putting most savings and loans out of business.
Then the banks again successfully lobbied Congress to repeal the Glass-Stegall Act which had kept the banks out of the investment banking business. Then, Wall Street successfully lobbied the George W. Bush’s administration for softer regulation of Wall Street.
By these major bank’s lobbying efforts, many of Pecora’s hard fought for safeguards had been removed. This brought these major banks almost back to the same scenario as they had 1929 when the economy collapsed. . It should have surprised no one – that what Pecora predicted came true- the major banks by any means possible would overcome the safeguards created in 1934, again causing the economy to collapse .
TODAY
Last Spring, Congress created a new version of the Pecora Commission. On January 12th, 2010, the Financial Crisis Inquiry Commission faced the four of the nation’s top bank executives about what caused the economy to collapse. . The leaders of the four big big Wall Street Banks offered their take by blaming lapses in risk management and government regulation. Omitting, of course, the lax government regulation they complained about was due to their successful lobbying efforts. This reminds me of the child who killed both parents asked the Court for mercy because he an orphan.
None of the four even mentioned that although they caused millions of people to suffer real pain and financial loss, they were rewarded by huge bonuses. The tenor of the hearing changed when Phil Angelides, the Chairman of the Commission, bore in on Lloyd C. Blankfein, Goldman Sach’s chairman. He asked Mr. Blankfein to explain how his firm could have sold bundles of troubled mortgages at the same time it placed bets with Goldman’s own money that these same mortgages would fall in value. . Mr. Blankfein said ” that Goldman’s clients knew what they were buying and that his firm was simply providing a customer service. They are professional investors who want this exposure”.
What happened to disclosure?
Chairman Angelides replied” It sounds to me a little bit like selling a car with faulty brakes and then buying a insurance policy on the buyer of those cars”.
Pecora revealed the fraud in the securities sold in 1929- Angelides found the same thing in 2010.
How can we get our Congress to resist these major bank lobbyist and protect America? It is up to you and I.
As Americans, with no political agenda, must form an alliance of just simply a healthy consciousness and clearly defined set of goals as a country. Our current political environment is so fragmented the common man is confused and doesn’t fully understand the core issues and values he or she is promoting. For example it was Carter’s fault for encouraging home ownership and Clinton’s for further opening doors for low to moderate income home ownership. That in itself is a solid value to uphold as a county. Why then are these great values being demonized, why do great ideals/values in this country become political hot buttons! Deregulation or no regulation in the last decade (as with the S and L crisis) created this problem period! Let’s be clear as a country we’d rather win an argument then collectively agree on an ideal and common goal for our country. This America is far worse then the Irish conflict in the 60′s and 70′s because it permeates our ideology for decades and soon to be a decade! Admit where we are as a fragmented society, agree on certain truths beyond our political affiliation and then we can create and enforce laws to protect the ordinary citizen! The last decade was a fine example of how we can demonize great ideals for a selfish, unaware the entire time what we are actually supporting in reality, focused clear cut political agenda which in no way supports American’s (albeit confused)true beliefs and goals!
Comment by dan — January 18, 2010 @ 10:20 am
Soon to be a century!
Comment by dan — January 18, 2010 @ 10:23 am
Demons of the last decade:
Peace, clean air, all citizens gaining access to education/opportunity, government created by the people for the people for the benefit of the people, fiscal responsibility both in Government and in households, fuel efficiency, world economic participation, and finally love and appreciation for all Americans and beings on earth period. We allowed our once great country to fall victim to political manipulation for the good of a specific few and we as Americans fell to our lowest point in our great history!
Comment by dantishman — January 18, 2010 @ 10:57 am