Pecora commission

Bailout or otherwise, we need a in-depth investigation to understand the roots of the current Wall Street crisis. While our economy has become much more complex and globalized, it would be a good start for John McCain, among others, to just dust off their old copies of the Pecora Commission's report from the 1930s, and learn about the history of Wall Street speculation, stock price manipulation, commercial and investment banking, and fraud, and why we have securities laws and regulations in the first place. Or rather, the history we have so quickly forgotten.

Here's the preface from Ferdinand Pecora's memoir, Wall Street Under Oath, which should be required reading for all Americans (and presidential candidates):

"Under the surface of the governmental regulation of the securities market, the same forces that produced the riotous speculative excesses of the 'wild bull market' of 1929 still give evidences of their existence and influence. Though repressed for the present, it cannot be doubted that, given a suitable opportunity, they would spring back into pernicious activity.

Frequently we are told that this regulation has been throttling the country's prosperity. Bitterly hostile was Wall Street to the enactment of the regulatory legislation. It now looks forward to the day when it shall, as it hopes, reassume the reins of its former power.

That its leaders are eminently fitted to guide our nation, and that they would make a much better job of it than any other body of men, Wall Street does not for a moment doubt. Indeed, if you now hearken to the Oracles of The Street, you will hear now and then that the money-changers have been much maligned. You will be told that a whole group of high-minded men, innocent of social or economic wrongdoing, were expelled from the temple because of the excesses of a few. You will be assured that they had nothing to do with the misfortunes that overtook the country in 1929-1933; that they were simply scapegoats, sacrificed on the altar of unreasoning public opinion to satisfy the wrath of a howling mob blinding seeking victims.

These disingenuous protestations are, in the crisp legal phrase, 'without merit.' The case against the money-changers does not rest upon hearsay or surmise. It is based upon a mass of evidence, given publicly and under oath before the Banking and Currency Committee of the United States Senate in 1933-1934, by The Street's mightiest and best-informed men. Their testimony is recorded in twelve thousand printed pages. It covers all the ramifications and phases of Wall Street's manifold operations.

The public, however, is sometimes forgetful. As its memory of the unhappy market collapse of 1929 becomes blurred, it may lend at least one ear to the persuasive voices of The Street subtly pleading for a return to the 'good old times.' Forgotten, perhaps, by some are the shattering revelations of the Senate Committee's investigation; forgotten the practices and ethics that The Street followed and defended when its own sway was undisputed in those good old days.

After five short years, we may now need to be reminded what Wall Street was like before Uncle Sam stationed a policeman at its corner, lest, in time to come, some attempt be made to abolish the post.

It is in the hope of rendering this service, especially for the lay reader unfamiliar with the terminology and conduct of The Street, that the author has endeavored, in the following pages, to summarize the essential story of that investigation--an inquiry which cast a vivid light upon the uninhabited mores and methods of Wall Street."

Ferdinand Pecora, New York City, 1939, Wall Street Under Oath 

NEWS CONTENTS

• 190319 : Guest Post: Review of Ferdinand Pecoras "Wall Street Under Oath" ( Guest Post: Review of Ferdinand Pecora's "Wall Street Under Oath", )
• 190319 : Ghost `Swear! ( Ghost `Swear!', )
• 190319 : Ferdinand Pecoras preface to his 1939 book Wall Street Under Oath LaRouchePAC ( Ferdinand Pecora's preface to his 1939 book Wall Street Under Oath LaRouchePAC, )
• 190319 : Pelosi Wall Street Probe Follows Pecora After Crash (Update1) - Bloomberg.com ( April 21 , Bloomberg )

Old News

Guest Post: Review of Ferdinand Pecora's "Wall Street Under Oath"

Submitted by DoctoRx, who comments on the economic and financial scene at EconBlog Review.

In a few months during what was likely the worst financial crisis of the Great Depression- the tumultuous events of early 1933 culminating in closure of all banks in most states and then FDR's sweeping bank "holiday", a man who had previously been a relatively obscure assistant district attorney helped galvanize the public to support real reform of the financial system, met several times directly with Roosevelt to plot strategy, and made the cover of Time. Almost overnight, he became so famous that the ongoing and previously desultory Senate Banking and Currency Committee's investigation of the Crash, of which Ferdinand Pecora had been named the fourth Chief Counsel, has ever since been known as the Pecora Commission (or Pecora Investigation) rather than by the name of the presiding Senator.

Pecora, an immigrant from Sicily and the son of a cobbler became a national sensation because of his brilliant interrogation of a series of Wall Street icons such as Charles Mitchell, head of National City (renamed Citicorp in later life) and J. P. Morgan ("Jack", the son). His interrogation of Mitchell was so devastating that Mitchell was forced from office immediately after Pecora et al finished with him.

Roosevelt felt he needed an energized public to push through financial reforms, and Pecora delivered the goods. The Pecora Investigation is given a great deal of credit for creating the momentum for the signature legislation between 1933 and 1935 that helped save Wall Street from its own excesses. When the investigation wrapped up, FDR named Pecora to become a founding commissioner of the newly-formed Securities and Exchange Commission, which he soon left to serve as a Supreme Court Judge for the State of New York.

Alarmed by increasing aggressiveness of the financial community in pushing back against these laws, Pecora published "Wall Street Under Oath" in 1939 to aid the New Dealers' push back against the push-back. This book, now out of print, is an astonishing "read" in light of the financial events of the past decade.

According to the charts on www.dshort.com, the current broad stock averages are down exactly as much in real terms from 2000-2009 as from 1929-38. If one adjusts for different levels of dividend payouts and competing Treasury interest rates as a discount factor, as well as tax rates, it appears that the current 9-year bear market is worse this decade than it was then. Thus this review of a book written a decade after the beginning of the Great Crash is timely.

Because "Wall Street Under Oath" is out of print and because the issues involved in the financial crisis 2007-9 and the 1990's bubble and subsequent crashes are well-known, this review shall quote liberally from Pecora's book and editorialize little.

The Preface, which is the only part of the book available on the Web, lays out Pecora's purpose in writing the book:

Under the surface of the governmental regulation of the securities market, the same forces that produced the riotous speculative excesses of the "wild bull market" of 1929 still give evidences of their existence and influence. Though repressed for the present, it cannot be doubted that, given a suitable opportunity, they would spring back into pernicious activity.

Frequently we are told that this regulation has been throttling the country's prosperity. Bitterly hostile was Wall Street to the enactment of the regulatory legislation. It now looks forward to the day when it shall, as it hopes, reassume the reins of its former power.

That its leaders are eminently fitted to guide our nation, and that they would make a much better job of it than any other body of men, Wall Street does not for a moment doubt. Indeed, if you now hearken to the oracles of The Street, you will hear now and then that the money-changers have been much maligned. You will be told that a whole group of high-minded men, innocent of social or economic wrongdoing, were expelled from the temple because of the excesses of a few. You will be assured that they had nothing to do with the misfortunes that overtook the country in 1929-33; that they were simply scapegoats, sacrificed on the altar of unreasoning public opinion to satisfy the wrath of a howling mob blindly seeking victims.

These disingenuous protestations are, in the crisp legal phrase, "without merit." The case against the money-changers does not rest upon hearsay or surmise. It is based upon a mass of evidence, given publicly and under oath before the Banking and Currency Committee of the United States Senate in 1933-1934, by The Street's mightiest and best-informed men. . .

After five short years, we may now need to be reminded what Wall Street was like before Uncle Sam stationed a policeman at its corner, lest, in time to come, some attempt be made to abolish that post.

Pecora then walks the reader through the high points of the investigation, much of which involves then-legal abuses. Among them was the tie-in of commercial banking with the securities business, an "innovation" pioneered by the predecessor of Citibank. He shows that the Justice Department under William Howard Taft found this practice illegal, but no one enforced it, and by the time Pecora looked for that opinion, the original document had vanished (!), leaving only a carbon copy.

Echoes abound. The House of Morgan is shown floating untouchably above the fray, whereas "Citicorp" (National City Bank/National City Corp. at the time) is the low-end villain. How much did the Commission detest National City? Here is Time magazine in "Damnation of Mitchell" from March 1933:

'Mitchell more than any 50 men is responsible for this stock crash.' – U. S. Senator Carter Glass, November 1929.

Last week, Charles Edwin Mitchell was brought to trial. He could not see his judges-they were that inchoate multitude, the U. S. people. Verdict (uttered in a vast mumble of expletives as evening headlines followed morning): that Charles Edwin Mitchell, as chairman of the largest bank in the U. S., had been a thoroughly wicked banker.

The trial was not the kind which is explained in any handbook of civics. It took place in the headlines and in Room 304 in the U. S. Senate office building where sits the Senate Committee on Banking & Currency. Defendant Mitchell had been charged with no crime. . . There was no attorney for the defense. There was, however, a prosecution. It consisted of 1) six to a dozen Senators and 2) a man quite as remarkable as any of the Senators, Ferdinand Pecora.

One of the Senators . . . was Virginia's patrician Carter Glass, but, bored by Senatorial exhibitionism, he never attended." . . .

Ferdinand Pecora, most brilliant lawyer of Italian extraction in the U. S., finished public schools at 12. At 18, after loping through his brother's law books, he was managing clerk of a law firm. Even on the most complex cases (which he, tireless, likes best) he never needs notes, never forgets a word of testimony once it is on the record. One of his most famed convictions was that of former New York State Superintendent of Banks Frank H. Warfer for his part in the failure of Manhattan's City Trust Co. in 1929. At 47, his black eyes flash, his black hair bristles.

Last week . . . Mr. Pecora put on the show. Banker Mitchell proceeded to say enough to damn himself to the satisfaction of the Committee, Mr. Pecora and a large part of the U. S. people . . .

Ed. The hearings adjourned for the weekend; bankers went wild in the opposite direction of the public mood. The Time article continues:

. . . bankers high & low throughout the land, while not condoning the acts of 1929, loudly proclaimed that last week the greater villains were U. S. Senators who would risk the credit of the U. S. by putting scandal into the headlines when Confidence had already received body-blows at St. Louis, New Orleans, Michigan and in many another state (Ed.: the banking crisis).

But the Senate Committee had succeeded in getting its man. On Monday morning at 9 a. m. Charles Edwin Mitchell, 66, resigned . . . hours later the directors of National City Co. accepted the resignation of President Hugh Baker. Mr. Mitchell and Mr. Baker returned to Washington for further grilling.

The book is long on irony and avoids dwelling on the pathos of the era. The one personal victim described in any detail is used to lead to the larger point:

Mr. Edgar D. Brown was a resident of Pottsville,Pa. In 1927, he had $100,000 and was looking forward to a trip to California for his health. In 1933, he had nothing, and was clerking for the poor board of Pottsville. Here is his story, typical of those of a great many others, as graphically told to the Senate Committee.

What happened to Mr. Brown was that he went to National City Company, the securities affiliate of National City Bank, and trusting that the Company would have the same probity as the bank affiliate whose good name it used, was put first into speculative bonds on margin and then, having complained to the broker that these bonds were losing value, he explained to the Committee that the broker responded:

Mr. Brown: "Well, that is your fault for insisting upon bonds. Why don't you let me sell you some stock?". . .
Mr. Pecora: Did he buy stocks for your account?
Mr. Brown: Might I answer that facetiously? Did he buy stocks! (Great and prolonged laughter.)

Subsequently, Mr. Brown was put into stock after stock, and:

About October 4, 1929 he went into the National City bank branch in Los Angeles and 'asked them to sell out everything.

Mr. Brown: I was placed in the category of the man who seeks to put his own mother out of his house. I was surrounded at once by all of the salesmen in the place, and made to know that that was a very, very foolish thing to do.
Mr. Pecora: That is, to sell your stocks?
Mr. Brown: Especially to sell the National City Bank Stocks. . . I then received an unsolicited wire from their agent in the East (Brown reading) "National City Bank now 525. Sit tight.". . .

A few weeks later came the crash. Mr. Brown was naturally sold out, most of his capital irretrievably gone. His efforts to borrow money from the bank in which he had placed such confidence were met with the suave reply that a loan was impossible 'unless the borrower has assured earning power and could pay off the loan within six months.' But Mr. Brown then had no such earning power, he was 'forty years of age-tubercular-almost totally deaf-my wife and family are depending on me solely and alone and because of my abiding faith in the advice of your company I am today a pauper.'

In one of his very few personal outbursts rather than lawyerly phraseology, Pecora editorializes: "Just another little man wiped out, a victim of high-pressure salesmanship!

The reader can feel the outrage of Pecora, initially a Teddy Roosevelt Progressive and later of course an ardent New Dealer.

Pecora the author does not allow his doggedness and work ethic to show, with perhaps an inadvertent exception. He describes the workings of a "pool" manipulating the stock of a small alcohol producer poised to benefit from the expected repeal of Prohibition. Of course, as soon as it became clear that Prohibition would be repealed, in mid-1933, the pool dumped the stock, which quickly halved in price. The New York Stock Exchange allegedly was unable to find evidence of the stock manipulation. Despite his crushing workload in Washington, Pecora personally went to New York and recounts:

Finally, the writer (Ed.: Pecora) received a letter from Mr. Richard E. Whitney, as the Exchange's President, informing him that the investigation had brought no evidence of wrongdoing to light, and that 'there were no material deliberate improprieties in connection with transactions in these securities.'

This information left the writer incredulous. He (Ed.: again, Pecora himself) . . . investigated for the Committee with his own limited facilities. It required only a few days to come upon written proofs of the pool operations described above, among the records of the brokerage firm of W. E. Hutton and Company, in which Mr. Ben Smith (Ed.: manager of the pool) then had his office. The writer, incidentally, had been assured that W. E. Hutton and Company's office had previously been visited and was still being examined by the Exchange's investigators in its own sweeping search for the truth. The writer is still uncertain why those investigators had not succeeded in finding it."

How droll a wit the man had! (And we wonder today what legal or illegal collusion would be revealed from a review of non-public documents.)

The final two chapters are the most important from a modern perspective. Chapter 13, "After the Investigation," begins:

The investigation was not completed until June, 1934. But long before that date the defects it had laid bare in our financial structure had already led to the institution of a sweeping program of reforms. The old regime of unlimited license may be said to have definitely come to an end. (Ed.: But it came back.) The testimony had brought to light a shocking corruption in our banking system, a widespread repudiation of old fashioned standards of honesty and fair dealing in the creation and sale of securities, and a merciless exploitation of the vicious possibilities of intricate corporate chicanery. (Ed.: Which also came back.) The public had been deeply aroused by the spectacle of cynical disregard of fiduciary duty on the part of many of its most respected leaders; of directors, who conveniently subordinated their official obligations to an avid pursuit of personal gain; of great banks, which combined the functions of a bank with those of a stock jobber; of supposedly impartial public markets for the sale of securities, actually operated as private clubs for the individual benefit of their members." (Ed.: The Establishment has been successful in inhibiting real outrage.)

He then goes on to explain the major Acts of reform:

The Banking Act of 1933, which separated commercial banking from "security flotation and market plunging";
The Securities Act of 1933-"the so-called 'Truth in Securities' bill";
The Securities Exchange Act of 1934; and
The Public Utility Holding Company Act of 1935.

The amount of opposition, even after the Acts were passed, was immense. The book quotes Silas Strawn, former President of the American Bar Association and the U. S. Chamber of Commerce, who opined: "I believe there is an abundant market for securities, if the Securities Act did not prevent their issue and distribution".

As if the Depression itself were not inhibiting IPOs!

The final chapter establishes Pecora as a 20th Century Nostradamus. Titled "A Word about the Future", it first provides some humble quotes from 1933 from Charles Mitchell and Otto Kahn (Kuhn, Loeb), which quotes are most interesting for the lack of similar apologies from today's generation of dancing financiers. He then continues:

The more business recovered, however, and the stronger it felt, the more openly and bitterly did Wall Street oppose any sound program of reform. In place of the humble disclaimers of omniscience of March, 1933, the titans of finance developed once again an arrogant self-confidence and a dogmatic assurance that any attempt to restrain their own activities must inevitably mean the ruin of the country.

Even so mild a measure as the creation of the Federal Deposit Insurance Corporation became a target of vehement resentment. . . .

The 'Truth in Securities' bill was condemned as a measure which would 'hinder legitimate business without accomplishing any essential purpose.' To the Merchants' Association of New York 'it was almost self-evident' that practically no individual dealer or banking house would assume the personal liability provided for in the Act.

The above and other pointed comments were but lead-ins to Pecora's main villain:

. . . The real center of warfare, so to speak, remained the New York Stock Exchange. . .
"In one field after another, the necessity for some measure of public control, where private ownership failed to meet its social responsibilities, has been recognized. Public utilities-railroads-"business affected with a public interest"-banks-industry generally, all came to regard public supervision as normal and beneficial.

But there was one important outpost that resisted the tide of progress-the New York Stock Exchange, the last citadel of 'rugged individualism.' Since its foundation in 1791, it exercised complete control over its own practices and jealously guarded its self bestowed privileges. Despite the fact that it was intimately intertwined at a thousand point with vital interests of the public, it knew no law but its own will. . .

The disclosures of the shocking practices and base uses to which the Exchange was customarily put, stripped it of its mystery and sanctity, and dissipated the awe with which it had been regarded. Fighting at every step, it finally went the way of all flesh. Like the humblest of us all, even the might Stock Exchange must now recognize the existence and authority of the United States Government. . .

The book ends with a warning:

. . . It is certainly well that Wall Street now professes repentance. But it would be most unwise, nevertheless, to underestimate the strength of hostile elements. When open mass resistance fails, there is still the opportunity for traps, stratagems, intrigues, undermining-all the resources of guerilla warfare. These laws (Ed.: the aforementioned Acts) 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 not unlike that land, of which it has been said that no country is easier to overrun, or harder to subdue.

And with that, Judge Pecora concludes the summary of his case. Each reader can judge how well our modern era has done in heeding his warning.

Congress is nowadays from time to time heard to mumble about a new Pecora Commission. Let us not forget the massive pump and dump stock shenanigans of the late 1990s which led only to one-off trials and the limited Sarbanes-Oxley law. Let us recall that no Congress since the passage of Sarbox has passed important legislation to limit or prevent the housing and credit bubbles or, the power of Big Finance. We note that the President's two main finance and economic advisers are Robert Rubin protégés.

It therefore would appear that the chance that this Administration and Congress will truly take on Big Finance in any way, shape or form as did Ferdinand Pecora in alliance with Franklin Delano Roosevelt will remain vanishingly low unless, perhaps, a yet greater calamity engulfs our financial system and it would then be expedient for politicians to turn on their current allies in Big Finance.

Ghost `Swear!'

The Ghost on today's Depression stage is Ferdinand Pecora, 1938 author of Wall Street Under Oath, which described how, in 1933, he exposed to the entire nation, who on Wall Street had run the country into the Great Depression, and how. Pecora skewered the "banksters" in front of the Senate Banking Committee for a full year. Everyone aware of this history, and what it meant for the huge public support of President Franklin Roosevelt's New Deal, knows that new "Pecora hearings" are overdue from Congress now.

The first evocation came from economist and statesman Lyndon LaRouche, founding editor of this magazine, with his early December 2008 call for a "new Pecora Commission." By early February, historian Ron Chernow (The House of Morgan) and others had followed with calls of their own. On Feb. 4, Sen. Richard Shelby of Alabama, senior Republican on the Senate Banking Committee, shook up a hearing of that Committee, with a long and detailed proposal for the "new Pecora hearings" it must hold.

Two months and 5 million layoffs later, with public anger waxing hot against both Wall Street and Capitol Hill, additional members of Congress are demanding a "Pecora Commission"-with subpoena power to make the financial CEOs, the regulators, and key government officials "swear to tell the truth."

Sen. Byron Dorgan (D-N.D.), holding up Pecora's picture on the Senate floor on April 8, made an attempt with Sen. John McCain (R-Ariz.) to form a Senate Select Committee to investigate the causes of the financial collapse. Sen. Bernie Sanders (I-Vt.) called for new Pecora hearings, while moving with Sen. James Webb (D-Va.) on April 7, to try to force the Federal Reserve to reveal the names and performance of banks to which it is lending trillions. "Pecora hearings" were also proposed on April 6 by Rep. John B. Larson (D-Conn.), chairman of the House Democratic Caucus.

Out in the country, the demands for powerful hearings to investigate the "banksters" have become a drumbeat. Notable was St. Louis University Prof. William K. Black, formerly chief Federal regulator investigating the S&L bank scandals of the 1980s. Black teamed up with television journalist and former White House official Bill Moyers, in a full outline of "new Pecora hearings" on April 9; Black named specific Federal laws being broken by officials refusing to put the likes of AIG and Citibank into receivership.

Even the chairman of the congressionally created Oversight Panel for the so-called TARP $700 billion bank bailout scheme, Harvard Law Prof. Elizabeth Warren, called for Pecora-style hearings while delivering its report April 9.

But the Nancy Pelosi-Barney Frank Democratic leadership in Congress-with Senate Banking Committee chairman Christopher Dodd playing the self-destroying Hamlet in this case-has still refused to investigate. Congress, which investigates the fall of any sparrow with at least two or three hearings, has still not managed to organize an investigation of what, and who, brought on the worst financial blowout in this nation's history!

The cause of this failure, in the face of the obvious need of a "Pecora investigation" outlined by LaRouche five months ago-even in the face of multiplying demands from both Houses of Congress-could only be that some Congressional leaders, such as Wall Street's Senator Dodd, would quickly expect to join the targets of the investigation.

"Which brings us to Larry Summers," as Bill Moyers wrote. President Obama's chief economic advisor was key in the 1999-2000 wing-ding deregulations which ran us into this economic ditch.

So, whereas in 1933, Ferdinand Pecora's hearings roused up the nation for real recovery actions, today, it is the very lack of them which is riling up populist rage. Congress had better junk Senator Dodd's Hamlet-like inactivity, hire a "new Pecora," and "Swear!"

Ferdinand Pecora's preface to his 1939 book Wall Street Under Oath LaRouchePAC

- Author's Preface -

Under the surface of the governmental regulation of the securities market, the same forces that produced the riotous speculative excesses of the "wild bull market" of 1929 still give evidences of their existence and influence. Though repressed for the present, it cannot be doubted that, given a suitable opportunity, they would spring back to pernicious activity.

Frequently we are told that this regulation is throttling the country's prosperity. Bitterly hostile was Wall Street to the enactment of the regulatory legislation. It now looks forward to the day when it shall, as it hopes, resume the reins of its former power.

That its leaders are eminently fitted to guide our nation, and that they would make a much better job of it than any other body of men, Wall Street does not for a moment doubt. Indeed, if you now hearken to the oracles of The Street, you will hear now and then that the money-changers have been much maligned. You will be told that a group of high-minded men, innocent of social or economic wrongdoing, were expelled from the temple because of the excesses of a few. You will be assured they had nothing to do with the misfortunes which overtook the country in 1929-1933; that they were simply scapegoats sacrificed on the altar of unreasoning public opinion to satisfy the wrath of a howling mob blindly seeking victims.

These disingenuous protestations are, in the crisp of a legal phrase, "without merit." The case against money-changers does not rest on hearsay or surmise. It is based upon a mass of evidence, given publicly and under oath before the Banking and Currency Committee of the United States Senate between 1933-1934, by The Street's mightiest and best-informed men. Their testimony is recorded in twelve thousand printed pages. It covers all the ramifications and phases of Wall Street's manifold operations.

The public, however, is sometimes forgetful. As its memory of the unhappy market collapse of 1929 becomes blurred, it may lend at least one ear to the voices of The Street subtly pleading for a return " to the good old times." Forgotten, perhaps, by some are the shattering revelations of the Senate Committee's investigations, forgotten the practices and ethics that The Street followed and defended when its own sway was undisputed in the good old days. After five short years, we may now need to be reminded whatWall Street was like before Uncle Sam stationed a policeman at its corner, lest, in time to come, some attempts be made to abolish that post.

It is in the hope of rendering this service, especially for the lay reader unfamiliar with the terminology and conduct of The Street, that the author has endeavored, in the following pages, to summarize the essential story of that investigation--an inquiry which cast a vivid light upon the unhabitated mores and methods of Wall Street.

Ferdinand Pecora

New York City

February, 1939

Pelosi Wall Street Probe Follows Pecora After Crash (Update1) - Bloomberg.com

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.

To contact the reporters on this story: Mark Pittman in New York at [email protected]; Laura Litvan in Washington at [email protected].

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Pecora Commission - Wikipedia, the free encyclopedia

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Ferdinand Pecora's preface to his 1939 book "Wall Street Under Oath"

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Pecora, Ferdinand. Wall Street Under Oath. New York: Simon and Schuster, 1936.

An insider's look at the "Pecora Investigation" of stock market operations during the 1920s, as written by the Counsel to the United States Committee on Banking and Currency. Pecora's comprehensive investigation, which subpoenaed some of the most prominent financiers of the age and asked them to explain how they made their fortunes, led to the enactment of the Securities Exchange Act of 1934.

First edition, hardbound with dust jacket.

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