Monday, December 20, 2010


We know that with the helping hand of favorable legislation from Washington that Wall Street gambling and greed are primarily to blame for the 2008 market meltdown. Still, as the Huffington Post's Shahien Nasiripour wrote about last week, all four Republican members on the the Financial Crisis Inquiry Commission voted to exclude the following terms from the commission's report: “Wall Street,” “deregulation,” “shadow banking,” and “interconnection.”

This is like saying we're going to study welfare fraud but we're not going use the words "welfare" or "fraud." It doesn't make sense.

The good news is that the rest of the commission members didn't want to go along with the Republican charade. The bad news is that the Republican commission members - which includes our previous local Congressman, Bill Thomas - decided to write their own Republican report.

Don't believe me? Check it out here.

For those of you who don't have the time to read the Republican Report, or who are unfamiliar with Washington-speak, let me break the report down for you: The market collapse was the government's fault ... but mostly it was Fannie Mae and Freddie Mac's fault.

Even though blaming Fannie Mae and Freddie Mac for the market collapse has been thoroughly discredited (as I pointed out here, here, and here) the Republican Report says nothing about the evidence that debunks their points. Worse, there was no mention of the unspeakable words noted above in the Republican Report - no "shadow banking" system ... no references to "deregulation" (which Bill Thomas voted to approve numerous times when he was a member of Congress) ... and there were definitely no references to Wall Street's stupidity and greed.

Everything was the government's fault. End of story.

As for final words of wisdom the Republican Report provides us with this classic ending: "We caution our nation's leaders to learn the appropriate lessons from history and take seriously the need to reduce our federal deficit."


No mention of favorable legislation, deregulation, agency capture, irresponsible lenders, speculation run rampant, etc. It simply was the government's fault. Paul Krugman discusses the Wall Street Whitewash here

I'm going to post on the simplistic arguments used by the Republican commission members later (which you can also read about in my book) but, for now, let's just say the Republican Report is a cruel joke.

Why the Republican Report is a Joke ...
After the 1929 stock market crash many Americans wanted to know what happened. Just like Americans in 2008 they were understandably angry and wanted answers. So after Franklin D. Roosevelt came to office the Senate banking committee created an investigative commission to look at the causes behind the 1929 market collapse and the Great Depression.

To get answers a former Manhattan Deputy District Attorney with experience in financial crimes, Ferdinand Pecora, was hired as chief counsel.

Born in Sicily, Pecora was a hard nosed, no nonsense, kind of guy who believed in the spirit of the American Dream. He saw corrupt Wall Street "banksters" (a term he coined) as enemies of that dream. While FDR gets credit for saving the system, history will record Pecora as the man who did the grunt work that saved American capitalism. As Mary Bottari put it:

The vigorous Pecora commission interviewed hundreds, including financial magnates, their underlings, brokers and analysts, compiled 12,000 pages of testimony and paved the way for a major financial services overhaul. The 1933 Glass-Steagall Act, the 1934 Securities and Exchange Act and other legislation protected the economy for the next 60 years. When these reforms unraveled in the 1980s and 1990s, the ground was laid for a “boom and bail" economy.
To understand how our "boom and bail' economy" collapsed in 2008 Congress authorized the creation of another commission, The Financial Crisis Inquiry Commission. Unfortunately, today's commission - in spite of the presence of Brooksley Born and Phil Angelides - doesn't seem to have the same cohesion, or sense of urgency that the Pecora Commission had.

As we are seeing today - and as I noted over a year ago - while there are several people on the commission who could perform Pecora-like roles, the commission has been stocked with Wall Street sycophants and partisan ringers. Their goal is not to find answers. Their goal is to stonewall, and keep Wall Street from being regulated, like they were after the Pecora Commission. Former Congressman Bill Thomas, in particular, has a stake in keeping the world from looking at all the deregulation he pushed through and signed off on.

Put another way, Republican commission members are not honest brokers.

Finally, I called the commission and asked if anyone could get back to me to discuss the excluded words, among other topics. I'll be checking my messages tomorrow.

- Mark

UPDATE: One of the joys I get from writing this blog is finding out how many smart people tune in from time to time. I've learned from the authority on Pecora - Michael Perino - that the Wall Street investigation actually started in March 1932 while Herbert Hoover was still President. Perino points out that the invesigation basically went nowhere until Ferdinand Pecora was appointed counsel in January 1933, before FDR assumed office in March. Pecora turned the hearings around that winter just as the banking crisis of 1933 was in full swing. He put on the stand Charles Mitchell, chairman of the National City Bank (today’s Citigroup) and revealed massive wrongdoing at the bank in the run-up to the Great Crash. When FDR took office, Pecora was re-appointed as the committee’s counsel. For more on this check out Perinos book, The Hellhound of Wall Street: How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance (Penguin Press 2010). I encourage you to buy the book.

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