Pecora: American Hero
Obscene executive bonuses, Ponzi schemes, excessive
serving lies, false rumor
mongering, knowingly bad recommendations, front-running,
flagrant stock manipulation,
pools and bear raids without having to borrow stock,
Swiss bank accounts, cozy
relations between regulators and the regulated,
income tax avoidance,
credit rating company lies, ubiquitous insider trading,
millions from Wall Street to
bribe and buy Congress...
of control greed and Gilded-Age extremes of wealth and poverty.
out--of-control greed.... Is
this what America has come finally too?
this is what we know now. How much worse is the full truth
about Wall Street?
Until there is a thorough, outside investigation of
Wall Street, investor
confidence will remain shattered. Rallies will fizzle and
regulatory agencies will be
need another Ferdinand Perora. He was the Senate investigator in
1932 who broke open for
public viewing the widespread corrupt practices that
lay behind the Crash of
1929 and prolonged the Depression, by shattering
investor confidence in
Wall Street. Congress needs to thoroughly investigate
Obama is silent. His rise to power depended on Wall Street
is knee deep in Wall Street bribes (campaign contributions.)
Time June 12, 1933
Pecora, the quintessential outsider, challenged and exposed the
corrupt world of
insiders, swindlers and good-old-boys. His investigations paved the way for
Securities and Exchange Commission and the healthy separation of banks from brokerages
banking until 2000.
Ferdinand Pecora (January
6, 1882 December 7, 1971) Born in Nicosia, Sicily. He earned
a law degree from New
York Law School and eventually worked as an assistant district
in New York City,
during which time he helped shut down more than 100 bucket shops. He was
Republican when he was appointed Chief Counsel to the U.S. Senate's Committee
on Banking and
Currency in the last months of the Herbert Hoover presidency by its outgoing
chairman and then continued under Democratic chairman Duncan Fletcher,
In these hearings, the Senate Committee and Pecora probed the causes of the
Wall Street Crash of 1929. Pecora, personally
interrogated such high-profile Wall Street
characters, as Richard
Whitney, president of the New York Stock Exchange, George Whitney
a partner in J.P.
Morgan & Co. and investment bankers Thomas W.
Lamont, Otto H. Kahn,
Wiggin of Chase National Bank, and Charles
E. Mitchell of National City Bank.
The popular name
for these hearings was the Pecora Commission,
Pecora's investigation unearthed evidence of banking practices that greatly
insiders at the
expense of ordinary investors. JP Morgans preferred list of
friends included Calvin
Coolidge, and Owen J. Roberts, a justice of Supreme Court of the United States.
got stock offerings at steeply discounted rates. Pecora's work revealed that
National City had
bundled and then sold bad loans to Latin American countries to unsuspecting
Chase Bank's Albert Wiggins had shorted his own companies shares during the crash.
interest free loans worth $2.4 million from their own banks.
These revelations motivated Congress to enacted the Securities
Act of 1933
and the Securities Exchange Act of 1934.
In July 1934 FDR appointed Pecora to be a Commissioner on
the new Securities and Exchange Commission
(SEC). Many though Pecora should have been made
Chairman. That honor went to Joseph Kennedy, himself a well-known stock manipulator
In 1939 Pecora wrote about the Senate's investigations he was Chief Counsel for.
was entitled Wall
Street Under Oath: The Story of Our Modern Money Changers.In 1935, Pecora
became a judge of
the New York State Supreme Court.
He ran unsuccessfully for Mayor of New York
City in 1950.
In his 1939 book, Pecora wrote that much remained to be done. The torch
needed to be picked up.
was right. So much of all the regulatory legislation of those days has disappeared
or been diminished.
The New Deal had not yet conquered Wall Street and its investment banks. At
of the new
legislation were the principle of Full Disclosure and the Need for Regulation. These
the "old boys' network". The central source of Wall Street's power
was their control of
about corporate earnings. Now the SEC was demanding a level playing field for
trading participants - individual investors, mutual funds, pension funds, charitable
Perhaps, the high point for the SEC came in 1937, with the help of a major scandal.
"Richard Whitney, an
aristocrat and the former president of the New York Stock Exchange,
to have embezzled millions of dollars from his clients to cover losses from his own
speculations. In a matter of weeks, he was sent to Sing Sing prison. Whitney's disgrace led
Chairman Douglas to say "the Stock Exchange was delivered into my hands."
The Chairman was fooling either himself or the public. For the power and credibility
last, constant vigilance and political support was needed. The public is fickle in
span. Out of the spotlight, politicians could be bribed by campaign contributions
lawyers could found loopholes to expand in the regulations. The SEC eventually
developed a cozy
relationship with Wall Street. This is the pattern for nearly all regulatory
Sooner or later, they seem always to get captured by the very groups that they are
The regulatory pendulum swung the other way under Ronald Reagan's Presidency. In his
address, he declared that "government is not the solution to our problem; government
problem." He saw his job to dismantle the New Deal. To let the "free
market" have its
Deregulation and lower taxes on high income individuals and big corporations initially
did not help the
market in 1981. But the advent of computers, much lower interest rates,
expansion of the
US military and then the fall of Communism sent the stock market soaring
even more than in
the roaring 1920s. All the while, honor, veracity and even-handed dealing
on Wall Street
gave way to short-term plundering and indifference to downside risks.
Wall Street's CCC Program
In this environment, corruption, connivance and crooks thrived. The SEC was no
It failed in its
oversight time after time. Only the most egregious cases of insider trading were
pursued by the
agency, and those were mostly cases that had already been publicly spotlighted.
One scandal after
another showed the SEC's decline:
1. Michael Milken's junk-bond operations;
2. Keating and the savings-and-loan collapses of the 1980s;
3. Collapse of Long Term Capital Management in 1998;
4. Collapse in 2001 of Enron,
5. Housing/real-estate bubble;
7. False packaging and selling of toxic mortgage securities,
8. Credit-default swaps;
9. Bernard Madoff and Stanford Ponzi schemes.
10.Meltdown of the whole financial system in 2008
Many elements were responsible for the backsliding that led to
these scandals, not least the Republican Party. The decline of regulation began in earnest
with Ronald Reagan's inaugural address, in which he famously noted that "government
is not the solution to our problem; government is the problem." Guided by excessive
faith in "the free market," regulators in the SEC, the Fed, the NASD (which
merged in 2007 with the regulatory arm of the New York Stock Exchange to form the
Financial Institution Regulatory Authority), and other agencies had simply stopped doing
their jobs. Even during the Clinton administration, the craze for deregulation had so
worked itself into the national culture that Congress blocked major accounting reforms
pertaining to stock options, and, in 1999, Clinton's financial advisers supported the very
ill-advised repeal of Glass-Steagall. Worse, in 2000 they accepted the catastrophic
exemption of credit-default swaps from any regulatory oversight at all. By the time George
W. Bush became president in 2001, the SEC's strategy of transparency had been thoroughly
undermined. The return of opacity was in full swing. The elements of a perfect storm were
in place, and, by 2007, Bush's policies had brought them all together for the explosion of
While all this deregulation was going on, the financial services
industry had found even more new ways to circumvent transparency. An unregulated shadow
banking system arose, through hedge funds, private-equity funds, off-balance-sheet
operations, offshore tax havens, and the widespread trading by money managers in
completely opaque instruments, especially credit default swaps. Because of the enormous
profit potential in these securities, the movement of vast sums from the regulated
sunshine to the unregulated shadows became inevitable.
Today, banks and other institutions have a very uncertain idea of
what their holdings of the new instruments are actually worth. Therefore, they cannot
accurately calculate their own assets and liabilities, let alone those of others. This is
why they are so reluctant to lend, and why the nation's credit system remains in gridlock
despite the $700 billion bailout. Opacity has thus turned inward upon the very
institutions that created it, which would be an ironic farce if its consequences weren't
Obviously, there is much work to be done. The SEC
still has an acceptable structure, but it needs robust infusions of talent, expertise, and
money. The staffs of both the Fed and its twelve regional banks are far more sophisticated
now than they were during the 1930s, and the fdic is working well under Sheila Bair, one
of the few people who began warning years ago of potential catastrophe. But banking
regulation remains extremely fragmented, with far too many players: the Fed, the fdic, the
Comptroller of the Currency (a part of the Treasury Department), dozens of state banking
commissions, and still other agencies. They are in desperate need of better coordination
and, possibly, consolidation. What's more, the regulatory talent emblematic of the New
Deal is not gone altogether, but it is thinner to the point of anorexia. After years of
ideological hiring, large clusters of ineptitude bedevil the SEC, the Commodity Futures
Trading Commission, the Department of Justice, and many other federal bodies. Nearly every
important agency has long been starved of resources--and even of the elementary belief
that regulation is necessary.
The political opposition to reform will be stiff. The Republican
Party will likely fight every step of the way. So will the financial services industry,
some of whose stalwarts are Democrats. Even now, Wall Street remains in deep denial: The
lavishing of billions in executive bonuses by firms that received federal bailout money is
all we need to know about this industry's feral determination to protect its outrageous