(Ferdinand Pecora, circa 1933. Photo courtesy of the National Archives and Wikipedia.)
"Legal chicanery and pitch darkness were the banker's stoutest allies."
--Ferdinand Pecora, commenting on Wall Street's resistance to government oversight after the nation became aware of wide-scale fraud in the early 1930s (link).
Ferdinand Pecora was the chief counsel for the United States Senate Committee on Banking and Currency. In 1933 he led an investigation into the causes of America's financial downfall. His most famous activity during the investigation was the questioning of Wall Street big-wigs. According to the Securities and Exchange Commission Historical Society:
"Pecora was a pugnacious Sicilian-born New Yorker with a sharp mind and a quick tongue. Pecora made the hearings more than an investigation of the causes of the crash; he sought to discredit big business and Wall Street so much that fundamental reform would be possible. As an ethnic American and an outsider to the gentlemen's club that was American finance, he had no qualms about challenging his 'betters'...the high point of the hearings came when he looked at the House of Morgan. Pecora's investigators turned up a 'preferred list' of highly placed Americans allowed by the beneficence of J.P. Morgan and Company to buy low and sell high on insider information. Pecora succeeded in fanning public outrage, making it politically possible for FDR to make good on his promise of financial reform."
(Offices of J.P. Morgan and Co., circa 1900-1906. The company moved out of this building in 1989. In 1933, Ferdinand Pecora exposed an insider trading racket at the Wall Street behemoth. Photo courtesy of the Library of Congress Prints and Photographs Division.)
Pecora also questioned Charles Mitchell, chairman of National City Bank, the second largest bank in the U.S. at the time: "Under examination, Mitchell admitted that National City Bank gave bonuses to traders based on sales figures; the riskier the security, the higher the bonus. During the hearings, Mitchell also disclosed that National City bank sold off bad loans to Latin American countries by securitizing them and selling them to unsuspecting investors" (Corinne Crawford, "The Repeal of the Glass-Steagall Act and the Current Financial Crisis," Journal of Business & Economics Research, January 2011, Vol. 9 No. 1, p. 128).
Here's an interesting aside: National City Bank is now "Citigroup." Citigroup recently "agreed to pay $7 billion to resolve claims it misled investors about shoddy mortgage-backed securities in the run-up to the financial crisis" ("Citigroup to pay $7 billion to settle U.S. mortgage probe," Reuters, July 14, 2014).
Here's an interesting aside: National City Bank is now "Citigroup." Citigroup recently "agreed to pay $7 billion to resolve claims it misled investors about shoddy mortgage-backed securities in the run-up to the financial crisis" ("Citigroup to pay $7 billion to settle U.S. mortgage probe," Reuters, July 14, 2014).
(Charles Mitchell testifying before Congress in 1939 about a sketchy windfall profit he received. Photo courtesy of the Library of Congress Prints and Photographs Division.)
Thanks to Pecora, and other reform-mind figures of the New Deal era, the American financial system was stabilized and protected fairly well from greed and incompetence for many years. For example, before New Deal reforms, during the years 1921 through 1933, there were 14,807 bank failures. After New Deal reforms, during the years 1934 through 1980, there were 565. This is a reduction from about 1,100 bank failures per year to 12 bank failures per year. Additionally, thanks to the creation of FDIC in 1933, Americans no longer lost their savings when banks went under.
Things, of course, have changed a lot since 1981. Ever since Reagan and his Republican colleagues ushered in distrust of government, de-regulation, and gargantuan tax breaks for the wealthy, banking has veered towards its pre-New Deal way of doing things. For example, during the years 1981 through 2014 there were 2,906 bank failures, or about 85 per year - a 600% increase from the 1934 through 1980 period.
Attitudes have changed as well. During the Pecora hearings the public became incensed at the misdeeds of Corporate America. But today?...outside of a few concerned citizens, groups, and politicians? Neh, not so much. As Jeffrey Sachs, director of Columbia University's Earth Institute observes: "Our society increasingly values people and their behavior according to their wealth, not to their integrity. Many of our leading CEOs preside over companies that have committed massive financial crimes -- fraud, price rigging, insider trading, and more -- and have paid tens of billions of dollars in fines; yet these CEOs are still revered because they are rich, and they remain frequent guests at the White House for the same reason."
Why is the public so complacent? Well, there are an awful lot of reality shows to keep up with, e.g., "Keeping Up with the Kardashians." So that takes up a lot of time. Also, the political right tells us that public school teachers and the unemployed are the real culprits behind our economic woes. Never mind that the middle class has shrunk in every state, and never mind that the Forbes 400 keeps adding billions to their private fortunes. No, the real economic catastrophe is that a public school teacher makes $60,000 and has her summers off. And food stamp recipients, my God, sometimes buy potato chips! The horror...the Horror!
"[Law enforcement] discovered pervasive fraudulent practices where traders gave false information about rates at which they borrowed or loaned money with other banks. That established false benchmarks on which other rates were based. That harms average Americans when they agree to mortgages. Law enforcers also found that Deutsche Bank withheld and even destroyed information about the investigation. Yet, surprisingly, despite the severity of these offenses, the government concluded that these crimes should be punished only through a financial penalty...This settlement, which involves no jail time for any traders, seems out of sync with the problems identified. To make matters worse, many of the traders responsible for the frauds remain employed at Deutsche Bank. The DOJ claims that it may still prosecute individuals, and we hope it will pursue such work. To date, some traders at other firms such as Rabobank have been convicted, but no senior officers of any of the banks involved in the LIBOR case have faced charges."
Naylor has been sounding the alarm bell on financial wrongdoing for many years. In 2012, he noted of the LIBOR scandal: "I think what this scandal shows is that Wall Street is making this money, it's overtaking our economy, any way it can...and that includes cheating." Unfortunately, Naylor's logical analysis of the problem doesn't trump Fox News. And if Fox News says our nation's economic problems stem from a surfer on food stamps, then tens of millions will believe it. Indeed, the suits in the corner offices must be thanking God every day for the diversionary tactics of Fox News and other right-wing media.
U.S. Senator Elizabeth Warren has observed, "Without criminal prosecution, the message to every Wall Street banker is loud and clear. If you break the law, you are not going to jail, but you might end up with a much bigger paycheck." And Warren should know. When she warned Jaime Dimon, CEO of JP Morgan Chase, about possible lawbreaking he smiled and said, "So hit me with a fine. We can afford it." Dimon knows full well that, at least within the realm of financial activities, he's immune from criminal prosecution and that no civil penalty will ever make a dent in his company's profits.
At the end of the day, we're kind of stuck with white collar crime and fraud, aren't we? Because whenever we try to reign in Wall Street with common sense regulations, Republican and Tea Party politicians cry "socialism!," and tell us "You can't hinder the work of the Job Creators!" And whenever we ask the executive branch to prosecute white collar crime more harshly, it nods in charming but empty agreement, thereby letting us know that they consider some criminals to be too big to jail.
Thanks to weak leadership, timid regulators, campaign cash from super-wealthy donors, and mass media misinformation & blame-shifting, we are truly living in the "Golden Era of White Collar Crime." I mean, let's be honest here, we've essentially come to the conclusion that, "Hey, if you've made billions of dollars through corporate wrongdoing, it's okay as long as you pay us a certain percentage of that profit, some of the time, through fines." But what kind of cultural message is it, when we essentially say, "Certain kinds of crime are, well, sorta okay."
It's been amazing to witness the rich & powerful treated with kid gloves, after so much criminal and civil wrongdoing while, at the same time, those who lost their jobs because of such wrongdoing have been scolded as lazy good-for-nothings and have faced a relentless attack on their social safety net programs (unemployment benefits, food stamps, expansion of Medicaid, etc.).
This upside-down ethical system we've embraced inspires me to ask, in desperation, "Ferdinand Pecora, where are you?"
Things, of course, have changed a lot since 1981. Ever since Reagan and his Republican colleagues ushered in distrust of government, de-regulation, and gargantuan tax breaks for the wealthy, banking has veered towards its pre-New Deal way of doing things. For example, during the years 1981 through 2014 there were 2,906 bank failures, or about 85 per year - a 600% increase from the 1934 through 1980 period.
Attitudes have changed as well. During the Pecora hearings the public became incensed at the misdeeds of Corporate America. But today?...outside of a few concerned citizens, groups, and politicians? Neh, not so much. As Jeffrey Sachs, director of Columbia University's Earth Institute observes: "Our society increasingly values people and their behavior according to their wealth, not to their integrity. Many of our leading CEOs preside over companies that have committed massive financial crimes -- fraud, price rigging, insider trading, and more -- and have paid tens of billions of dollars in fines; yet these CEOs are still revered because they are rich, and they remain frequent guests at the White House for the same reason."
Why is the public so complacent? Well, there are an awful lot of reality shows to keep up with, e.g., "Keeping Up with the Kardashians." So that takes up a lot of time. Also, the political right tells us that public school teachers and the unemployed are the real culprits behind our economic woes. Never mind that the middle class has shrunk in every state, and never mind that the Forbes 400 keeps adding billions to their private fortunes. No, the real economic catastrophe is that a public school teacher makes $60,000 and has her summers off. And food stamp recipients, my God, sometimes buy potato chips! The horror...the Horror!
(Richard Whitney, the president of the New York Stock Exchange from 1930 to 1935, in Washington, D.C. to testify before Congress in 1937. Whitney was a fierce opponent of government regulations, but had to stop his anti-regulatory lobbying when he was convicted of embezzlement in 1938. He spent three years in New York's Sing Sing Prison. Photo courtesy of the Library of Congress Prints and Photographs Division.)
And so, while the public's anger is being diverted by right-wing think tanks, advocacy groups, and mass media outlets (diverted to the "evils" practiced by teachers' unions and homeless people) the people wearing the suits in corner offices are getting away with murder. Many Americans, it seems, find a bag of nacho chips and salsa bought with food stamps to be infinitely more damaging to the economy than multi-billion dollar frauds, insider trading, collusion, price-fixing, money laundering for drug cartels, cheating soldiers on loans, cooking the books, tax evasion, predatory & illegal debt collection, etc. (activities, by the way, for which financial institutions have paid nearly $200 billion in fines and settlements in recent years - but don't shed any tears for them just yet, the executives and wealthy investors of these firms are still living in gated communities that you're not allowed in).
Bartlett Naylor, former Chief of Investigations for the U.S. Senate Banking Committee, recently commented on a settlement between U.S. regulators and big banks in the LIBOR interest rate-rigging scandal:
Bartlett Naylor, former Chief of Investigations for the U.S. Senate Banking Committee, recently commented on a settlement between U.S. regulators and big banks in the LIBOR interest rate-rigging scandal:
"[Law enforcement] discovered pervasive fraudulent practices where traders gave false information about rates at which they borrowed or loaned money with other banks. That established false benchmarks on which other rates were based. That harms average Americans when they agree to mortgages. Law enforcers also found that Deutsche Bank withheld and even destroyed information about the investigation. Yet, surprisingly, despite the severity of these offenses, the government concluded that these crimes should be punished only through a financial penalty...This settlement, which involves no jail time for any traders, seems out of sync with the problems identified. To make matters worse, many of the traders responsible for the frauds remain employed at Deutsche Bank. The DOJ claims that it may still prosecute individuals, and we hope it will pursue such work. To date, some traders at other firms such as Rabobank have been convicted, but no senior officers of any of the banks involved in the LIBOR case have faced charges."
Naylor has been sounding the alarm bell on financial wrongdoing for many years. In 2012, he noted of the LIBOR scandal: "I think what this scandal shows is that Wall Street is making this money, it's overtaking our economy, any way it can...and that includes cheating." Unfortunately, Naylor's logical analysis of the problem doesn't trump Fox News. And if Fox News says our nation's economic problems stem from a surfer on food stamps, then tens of millions will believe it. Indeed, the suits in the corner offices must be thanking God every day for the diversionary tactics of Fox News and other right-wing media.
U.S. Senator Elizabeth Warren has observed, "Without criminal prosecution, the message to every Wall Street banker is loud and clear. If you break the law, you are not going to jail, but you might end up with a much bigger paycheck." And Warren should know. When she warned Jaime Dimon, CEO of JP Morgan Chase, about possible lawbreaking he smiled and said, "So hit me with a fine. We can afford it." Dimon knows full well that, at least within the realm of financial activities, he's immune from criminal prosecution and that no civil penalty will ever make a dent in his company's profits.
(In the video above, from 2013, Cenk Uygar and Ben Mankiewicz of the Young Turks, analyze Elizabeth Warren's questioning of Wall Street regulators. Warren asks the regulators when the last time they took a big bank to trial for wrongdoing, and also expresses her concern about America's two-tiered justice system, i.e., a lenient system for the rich & powerful and a harsh system for everyone else. YouTube link at https://www.youtube.com/watch?v=dQo9W7sRbKQ.)
At the end of the day, we're kind of stuck with white collar crime and fraud, aren't we? Because whenever we try to reign in Wall Street with common sense regulations, Republican and Tea Party politicians cry "socialism!," and tell us "You can't hinder the work of the Job Creators!" And whenever we ask the executive branch to prosecute white collar crime more harshly, it nods in charming but empty agreement, thereby letting us know that they consider some criminals to be too big to jail.
Thanks to weak leadership, timid regulators, campaign cash from super-wealthy donors, and mass media misinformation & blame-shifting, we are truly living in the "Golden Era of White Collar Crime." I mean, let's be honest here, we've essentially come to the conclusion that, "Hey, if you've made billions of dollars through corporate wrongdoing, it's okay as long as you pay us a certain percentage of that profit, some of the time, through fines." But what kind of cultural message is it, when we essentially say, "Certain kinds of crime are, well, sorta okay."
It's been amazing to witness the rich & powerful treated with kid gloves, after so much criminal and civil wrongdoing while, at the same time, those who lost their jobs because of such wrongdoing have been scolded as lazy good-for-nothings and have faced a relentless attack on their social safety net programs (unemployment benefits, food stamps, expansion of Medicaid, etc.).
This upside-down ethical system we've embraced inspires me to ask, in desperation, "Ferdinand Pecora, where are you?"
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