Congress To Launch Biggest Investigation of Wall Street Practices & Abuses Since 1929

Discussion in 'Wall St. News' started by ByLoSellHi, Apr 21, 2009.


    Pelosi Wall Street Probe Follows Pecora After Crash (Update1)
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    By Mark Pittman and Laura Litvan

    April 21 (Bloomberg) --
    Wall Street may be heading for the deepest investigation of its practices since a congressional panel’s probe of abuses following the 1929 stock market crash.

    House Speaker Nancy Pelosi plans to push for a comprehensive inquiry, saying that three-quarters of Americans want to know what led to the bankruptcy of Lehman Brothers Holdings Inc. and the collapse of Bear Stearns Cos. and Merrill Lynch & Co. She favors one patterned after Senate Banking Committee hearings led by Ferdinand Pecora starting in 1933, according to her spokesman, Nadeam Elshami.

    The Pecora review “was probably the single most important congressional investigation in the history of our country, except perhaps the Watergate hearings,” Donald Ritchie, associate historian for the U.S. Senate, said in an interview.

    Congress is reacting to an economic collapse that has generated $1.3 trillion in financial industry losses, $700 billion in U.S. taxpayer cash infusions and loans, and $37 trillion in destroyed world stock market value since 2007. The Pecora Commission generated public support for creating the Securities and Exchange Commission and laws that governed financial services for seven decades.

    Pelosi, a California Democrat, will speak about hearings this week to lawmakers, including Representative Barney Frank, chairman of the panel that writes banking law, Elshami said.

    “I think it’s useful to have it, but that should not be a reason to hold off on legislating,” Frank, a Massachusetts Democrat, said of Pelosi’s proposal after a speech in Washington yesterday.

    Rewriting Rules

    President Barack Obama, Frank and other congressional leaders have made rewriting the rules governing Wall Street a top priority.

    Several lawmakers have proposed a commission or select committee to investigate the causes of the meltdown. Pelosi’s backing, expressed during an appearance in San Francisco last week, was the first show of support from the congressional leadership.

    “We truly want to find out what happened to this country and level with the American people,” said Representative John Larson of Connecticut, the No. 4 House Democratic leader, who has proposed a nonpartisan independent commission. “We need to provide a narrative.”

    Job Losses

    Wall Street firms have cut more than 180,000 jobs during the worst credit crisis since the Great Depression. The retrenchment helped boost New York City’s unemployment rate to 8.1 percent in February from 6.9 percent in January, a record month-to-month increase, according to the state Labor Department.

    City Comptroller William Thompson predicted in March that 250,000 jobs would be lost in New York before the recession ends.

    People need “to have a clearer understanding of as to how we got here and what the exposure is to the taxpayer to all of this,” Pelosi said April 15, according to a tape of an appearance at the Commonwealth Club of California. She said she told Treasury Timothy Geithner about her plan.

    Senate Majority Leader Harry Reid, a Nevada Democrat, hasn’t indicated a preference for a new inquiry.

    “There are a variety of proposals in the Senate,” said Regan Lachapelle, Reid’s deputy communications director, in an e-mail. “Senator Reid is exploring these different approaches and plans to discuss them with the speaker at the appropriate time.”

    Premature Reforms

    Some lawmakers say passing reforms without a complete study of the credit crisis would be premature. Senator Richard Shelby of Alabama, the senior Republican on the Senate Banking Committee, made that point at a hearing on modernizing financial rules in February. He cited the Pecora hearings as the “best precedent.”

    Senator Christopher Dodd, the Connecticut Democrat and committee chairman, responded: “Certainly we want to examine what happened, but also we need to move forward.”

    Members of Congress may be reluctant to tackle the recommendations of such an inquiry because of financial industry donations to political campaigns, said Wall Street historian Charles Geisst.

    Financial services has been the biggest contributor in every U.S. election cycle in the last 20 years, according to the Center for Responsive Politics, a Washington research group that tracks campaign money. Its individual and political action committee donations in 2007 and 2008 totaled $463.5 million, compared with $163.8 million from the health-care industry and $75.6 million from energy companies.

    Goldman and Citigroup

    Individual and PAC donations from Goldman Sachs Group Inc. which totaled $30.9 million, and Citigroup Inc., at $25.8 million, were higher than those from any other company except AT&T Inc.’s $40.9 million over the last 20 years, the center’s compilation of Federal Election Commission data shows.

    “How can you seriously propose a law when you’ve been taking money from ‘The American Poodles for Wall Street’ or whatever fund for the past 10 years,” said Geisst, a professor of finance and economics at Manhattan College in New York and author of “Wall Street: A History” (Oxford University Press, 488 pages, $24.99).

    Senators John McCain, an Arizona Republican, and Byron Dorgan, a North Dakota Democrat, say they’re concerned congressional turf disputes might hamper the effort.

    “The magnitude of a serious investigation and the conflicts likely to arise from fragmented committee jurisdictions suggest that a bipartisan select committee is necessary,” they wrote March 8 in the Washington Post.

    ‘Different Take’

    Larson said he has sought Dodd’s support for his bill.

    “He has a different take on it,” Larson said. “Given his position, he’d like to have more of his input on this, but he definitely embraces the concept.” Dodd’s office didn’t respond to requests for comment.

    Pelosi, who wasn’t available yesterday, would prefer the hearings be handled by a newly created subcommittee of an existing congressional panel, which is more tailored to the Pecora Commission’s approach, according to spokesman Elshami.

    “I would hope that the individuals who take part in this will have at least a modicum of past experience of the players and the instruments that are involved,” said Representative Scott Garrett, a New Jersey Republican and member of Frank’s Financial Services Committee.

    “That’s so you don’t have a huge learning curve going in, which would be a waste of time,” he said.

    Insider Prices

    In citing the Pecora model, advocates of a full-scale probe are harkening back to an investigation that captivated the nation in the 1930s. It centered on an intense examination of bankers and brokers and how their actions helped contribute to the stock market’s implosion.

    Pecora exposed practices that benefited the wealthy at the expense of ordinary investors, such as giving favored clients insider prices on stock offerings, Ritchie said.

    “Stock exchanges were operated as private clubs up to that point,” he said, adding that the investigation “brought back to Earth once-Olympian bankers.”

    The Pecora hearings were steeped in drama -- and comedy. In one incident, the publicity-shy financier J.P. Morgan sat alone at the witness table during a break and was surprised when a circus promoter, seeking a chance to use the hearings to get publicity for his show, placed a dwarf in Morgan’s lap, Ritchie said. Photos of the son of the banker who staved off the Panic of 1907 in an awkward moment appeared on front pages across the nation and became a symbol of the humbling of the nation’s top financiers.
  2. I know the Harry Reid, Nancy Pelosi, & Barack Obama haters will come out but shouldn't there be some sort of accounting if not just for the fact we can see if the chances of this happening again can be lessened? I know there is nothing that the government can do well but business didn't do so hot to get us where we are now either.
  3. Who knows.

    Maybe they'll actually do something that's effective in reigning in the greasy haired boiler room mooks and their purloined criminal overlords running like wild apes on Wall Street.
  4. Does WS "act or react" to gov't policies.

    For example,

    The community reinvestment act, did WS act or react?
  5. I highly doubt anything they do will stop the blatant corruption, back office deals, and front running that the big money gets away with (Goldman, SAC, Bridgewater, etc).

    Most likely they will institute rules that will ruin trading for the small prop shops and independent traders while getting great press for "making Wall st. pay".
  6. S2007S


    Of course, lets investigate WS after the fact everything has fallen apart, there will never be a straight answer to any of this credit crisis. All I can say is this is alot worse than 1929 and anyone who thinks otherwise is kidding themselves.
  7. One word: Derivatives.
  8. weld1


    its worse because they keep pouring our money down a rat hole....sooner or later it will run out!!!
  9. skylr33


    A charade congressional investigation would be more laughable than anything else. Of course it would come up with nothing in the end. It would all be a political ploy by Democrats, especially with the 2010 congressional/senate elections coming up. What has me laughing my ass off even more is that there are just as many Democrats in congress than Republicans that get big time campaign $$$$$ from those on wall street.
    It 's just another plot by the old skank Pelosi, the pillow biting, fudge packer Frank, and the furor Obama. They want to keep stirring the pot by continuing to blame wall street for the state of this economy, when most of these problems were created by their own party, namely Bill Clinton.

    ***Ah. Now I see the socialist dictator in chief wants to hold hearings on Bush officials that handled suspected terrorist interrogations. Again, it's all a ploy with the 2010 congressional elections coming up. It's more entertainment than anything else. When they hold these congressional hearings, and write about it in the newspapers, it should be placed in the comics section.
  10. Won't happen, this would be bad for the banks.
    #10     Apr 21, 2009