Don Tishman's Real Estate Development and Investing Solutions

January 19, 2010

WASHINGTON (Reuters) – The tag on U.S. financial regulation reform may as well say “Made on Wall Street” if bank lobbyists manage to gut the Obama administration’s proposed consumer watchdog agency, said Elizabeth Warren on Monday.  The head of a panel monitoring the government’s bank bailout program, Warren is a Harvard Law School professor and a fierce critic of the banking industry. She is also rumored to be front-runner to become the first chief of President Barack Obama’s proposed U.S. Consumer Financial Protection Agency. (CFPA)  The CFPA would be a new government regulator devoted to shielding Americans from financial rip-offs like the abusive subprime mortgages at the core of the 2008 financial crisis, and the prolonged recession and bank bailouts that followed.  But the proposed agency, already pared back last month in the House of Representatives, is in trouble in the Senate.  Under pressure from big banks fighting hard to kill or weaken it, senators are said to be discussing downgrading the CFPA from an independent agency to something less than that.  Such a move would undermine the integrity of the reform project overall and set up the United States for another cycle of financial predation, crisis and bailout, Warren said.The Senate will reconvene on Wednesday with analysts expecting agreement in the banking committee on financial regulation reforms within weeks.  ”The CFPA is the best indicator of whether Congress will reform Wall Street or whether it will continue to give Wall Street whatever it wants,” she told Reuters in an interview.  ”The question of who is in control is not going to be revealed by some nuance of how to deal with leverage ratios or credit default swaps clearing,” she said.  Consumer Financial Protection Agency (CFPA is the proposed new agency that would be equipped with the power to write rules governing basic consumer credit products like home mortgages and credit cards, and would have the authority to regulate big banks and monitor their compliance.

Federal bank regulators, who focus on the safety and soundness of the country’s banking system, are concerned with bank profitability and following regulations.  Consumer protection is not  their assigned task.

Elizabeth Warren,the Harvard Law professor, said  ”We have all worked hard to make the CFPA into a reality, and the next few weeks will determine whether our hard work will make a difference for families or whether families will lose once again. The next few weeks will determine whether families will have to play by rules written by the banks and for the banks — rules that let the industry get away with anything. In my view, we cannot let families lose again.”  But there’s been a growing recognition that the lack of adequate protection for consumers helped cause the financial meltdown of 2008.

President Obama and his advisers have repeatedly called for such an agency, arguing that it’s the best way to protect consumers from the big banks. The House passed a financial reform bill modeled on his proposal in December.

Republicans have vowed to defeat any bill creating such an agency, arguing that its proposed powers are best left to the bank regulators. Federal banking regulators also oppose it, arguing that it’s hard to separate bank regulation from consumer protection. The sub-prime mortgage disaster speaks for itself.

Blocking the CFPA has been atop the banking industry’s legislative agenda since last summer. The industry has spent millions lobbying and campaigning against such an agency, which they argue would lead to increased costs and less credit for consumers. A repeat of the fallacious and ineffective arguments they made in 1934 against regulation.

The power of the bank lobby on Capitol Hill cannot be understated. As Sen. Dick Durbin (D-Ill.) said as a bankruptcy bill he championed went down in flames, “they frankly own the place.” The largest contributors to Federal Elections are the moguls of Wall Street. They have been getting what they have paid for. Is this to continue?

History repeats itself

It’s the spring of 1933, the height of the banking crisis. 38 of the 48 states have closed their banks. Unemployment is 25 percent. Breadlines are long. People are hungry and they’re angry, and along comes Ferdinand Pecora, a son of a shoemake, who takes on the movers and shakers of Wall Street. What did he do that touched such a nerve in the country?

Ferdinand Pecora took the job as chief counsel to the Senate Banking Committee in 1933. He was a savvy immigrant from Sicily,  a former Manhattan assistant district attorney with a memory for facts, figures, dates, and names that proved the undoing of a Wall Street banking world gone berserk with greed and fraud

Under threat of subpoena and under oath, one tycoon after another — including J.P. Morgan, Jr., of the House of Morgan and Charles “Sunshine Charley” Mitchell, chairman of First National City Bank (now Citigroup) — was hauled before the committee and grilled relentlessly by Pecora.

To their shock, the pompous financiers, unaccustomed to having their actions or integrity questioned by anyone, much less some pipsqueak, foreign-born legalist who made $255  a month, were no match for his cross-examination skills.

They found themselves confessing to a litany of financial sins, including discount stock offerings to VIP “preferred” customers, repackaging bad loans and selling them as bonds to the unsuspecting, and non-payment of income tax. ( Sounds like the sub-prime mortgage frauds)

The Pecora hearings resulted in 12,000 pages of transcripts and important New Deal legislation that, for the first time, regulated the high-handed, free-wheeling banking industry and protected the public from its excesses — including the Securities Act of 1933, the Securities Exchange Act of 1934 (which established the Securities and Exchange Commission — Pecora was one of its first commissioners) and the Glass-Steagall Banking Act of 1933, which erected a firewall between commercial and investment banking — a wall torn down during the Clinton Administration, leading to much of our trouble today.

After the hearings Ferdinand Pecora wrote “Wall Street Under Oath: The Story of our Modern Money Changers” ;  The author pointed out that the fears Wall Street  raised about  predicted disastrous results from the 1934 laws were groundless, he emphasized that Wall Street would be constantly contributing to political campaigns. He gave the reasons for maintaining future vigilance. Pecora proved prophetic when he predicted that Wall Street would use guerilla warfare  until they had repealed this regulation or in the least effectively watered the legislation down to where they were again the only one MAKING THEIR RULES.

Ironically it was a Democratic president named William Jefferson Clinton that gleefully put his pen to the deregulating legislation of the era.

NOW

This Congress has finally acknowledged the outcry against Wall Street, and is supporting some 21st century version of the “Pecora hearings.”

“Pecora hearings?” That’s right, as in Ferdinand Pecora,  with a memory for facts and figures that proved the undoing of a Wall Street banking world gone berserk with greed and fraud.

Ferdinand Pecora, your time has come again. Your floodgates were removed- and surprise- another flood- the economy goes down again

Today, the same Wall Street mavens have destroyed our economy as they did in 1929. There is no outcry today as there was then. then we were a nation of 100,000,00- today over 300,000,000- today many more folks were hurt! How did Pecora galvanize public support? ? He took complex, corporate maneuverings, complex transactions on Wall Street and turned them into simple morality plays. In the 1930′s, infamous criminals were  called racketeers, like Al Capone,- these Wall Street bankers were called banksters

Who can do this today? Although billions were last by this recent Wall Street acts of fraud and deceit, Congress is not receiving the public support that the 1934 Congress received.

Wall Street’s outrages conduct must be made public. Exposure of the depths of their illegal and immoral acts will so scandalize the Wall Street gang so they  CAN NOT continue to stop the crying demand for financial regulation being made into law.

All of us have to make this clear to our representatives- they must stand up to Wall Street in favor of Main Street.

Elizabeth Warren  is my nomination for the next Pecora