Who Will Investigate the Causes of the Financial Crisis?

Created: June 30, 2009 09:51 | Last updated: July 31, 2020 00:00

Now that it looks like Congress will create a commission to investigate the causes of the financial crisis after all, the big question is who will be chosen for the heavy lifting. Pack an investigative commission with people who aren’t likely to aggressively dig into what went wrong, and you haven’t really done much, beyond creating some positive PR. Already, plenty of people are worried that Congress may go that route.

A little background: After the Great Depression, a Congressional panel called the Pecora Commission investigated Wall Street’s misdeeds and set the stage for financial regulations that lasted for decades. Since the current meltdown, some have been calling for another commission. That seemed unlikely at first, because Congress itself undid many of the regulations the Pecora Commission created — and it appeared unlikely lawmakers would choose to investigate themselves.

But that view has turned out to be overly skeptical. Reuters reported recently that Congress in on the verge of naming members to a bipartisan panel known as the Financial Crisis Inquiry Commission, based on the Pecora model. While that should be welcome news, some of the names emerging as possible panel members are already causing consternation.

From Reuters columnist Matthew Goldstein:

But there are already worrying signs that this commission will lack the political nerve to tackle the tough issues, let alone ask the right questions. Reuters reported last week that some of the people being considered for the commission include many former Congressmen, governors and familiar talking heads from Washington think tanks. Let’s hope that will not be the case because the financial system can’t truly be fixed until there’s a candid assessment of who let things get so out of control.

Sure, put some wise political statesmen on the commission. But also allow room for some longtime Wall Street critics, derivatives traders and hedge fund managers — the kind of people who know the system from the inside out.

Robert Kuttner notes the names being floated include Brooksley Born, who early on called for the regulation of financial products such as derivatives, and Alex Pollock, of the American Enterprise Institute, who has been a champion of clear and simple disclosures for consumers. But there aren’t many names beyond those to be encouraged by, Kuttner writes.

On the Republican side, with one exception, the leaked names could be an alumni society of the people whose policies helped cause the collapse. The absolute howler in the list is former senator Jake Garn of Utah, a tireless proponent of financial deregulation. Among other travesties, Garn sponsored the Garn-St. Germain Act of 1982, the law that allowed savings and loan associations to become speculators’ playgrounds, and led directly to the S&L collapse.

Another proposed Republican is Bill Thomas, former chair of the House Ways and Means, a legislator who never met a financial special interest he didn’t like; and former Republican Senator and presidential candidate Fred Thompson.

The possibility of a weak lineup already has created a stir in the blogosphere. At Firedoglake, Christy Hardin Smith is calling for a “dream list” of nominees for the commission, describing the current list of possibilities as  “underwhelming.”

Time to get the word out to folks on the Hill:  .  And we expect you to do this carefully, thoughtfully and intelligently, putting the interests of all Americans and not just your biggest donors front and center.

A fight over a Congressional panel may seem like something only political junkies would find worth watching. But it’s much bigger than that. The Pecora Commission’s actions resonated for years, and its findings illuminated for Americans the Wall Street behavior that led to the last huge financial meltdown. Until Congress undertakes with equal seriousness an investigation into this crisis, there’s no assurance the same mistakes that created the meldtown won’t happen again.

That’s why it matters who gets on the panel. Packing it with Wall Street’s friends won’t go over well. And as the concern growing in the blogosphere shows, it also won’t go unnoticed.

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