Monday, January 4, 2016
Hoover, Pecora, and the Banksters
(President Herbert Hoover and his wife, 1932. Photo courtesy of the Library of Congress Prints and Photographs Division.)
President Herbert Hoover, while not always averse to using federal action to respond to the Great Depression, preferred to use persuasion. He tried to persuade financial leaders to clean up their act and he tried to persuade the public to be patient for the economy to self-correct. This is reminiscent of modern libertarianism and conservatism, where we are told that the federal government should not intervene during economic downturns because the "market" will self-correct - sort of like magic.
But even Hoover had his limits. When financial leaders brushed his concerns off, year after year, he prodded the U.S. Senate Committee on Banking and Currency to begin an investigation of Wall Street (he was particularly concerned about "short-selling," a type of financial gambling in the markets). Eventually, the investigation would be led by attorney Ferdinand Pecora, who would expose a financial world of fraud, tax evasion, and other white collar misdeeds. The public learned, in detail, how they had been hoodwinked. Even Hoover, who had strong faith in the American system (outside of short-selling) was shocked:
"If only part of the things brought out prove true, these men have done the American people more damage than all the incidental operations of Al Capone... [I]f these stores are true these men are not bankers, they are banksters who rob the poor, drive the innocent to poverty and suicide and do infinite injury to those who honestly work and strive. Worse than that, they are traitors to our institutions and national ideas." (Michael Perino, The Hellhound of Wall Street, New York: Penguin Press, 2010, p. 190)
But, of course, the stories were true. In the years after the Pecora Investigation financial executives hid, resigned, or went to jail. Heck, even the president of the New York Stock Exchange, Richard Whitney, wound up in prison. You see, when there isn't oversight, people will do all sorts of crazy things. Isn't that a shocking revelation?
As a result of the Pecora Investigation, and as a result of the implementation of New Deal policies, the financial markets were reined in and stabilized for many decades. But then Reagan and Clinton era deregulation kicked in and started causing market instability and, lo and behold, Wall Street is up to its old tricks again - cheating the system and hurting people who just want a decent middle-class life (see, e.g., "Banks Keep Overcharging Service Members on Student Loans," Military.com, July 7, 2015).
But here's the funny thing: Unlike the Pecora and New Deal time frame, the government is largely excusing financial crimes (as long as they get a piece of the action via fines) and a significant portion of the American public has either continued to worship the wrongdoers as "JOB CREATORS," or has chosen to look the other way - even as their paychecks stagnate or shrink. And Republican & Tea Party politicians, in the wake of these enormous amounts of fraud, actually want to reward the wrongdoers with tax breaks, protection from law enforcement, and the elimination of the Consumer Financial Protection Bureau. And millions of voters are crying out, "Yes, I'll vote for that!"
I believe the military term for this phenomenon would be FUBAR.