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                               March 9, 2009

Ferdinand Pecora:
        American Hero


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Ferdinand Pecora: American Hero

Obscene executive bonuses, Ponzi schemes, excessive leveraging, self-
           serving lies, false rumor mongering, knowingly bad recommendations, front-running,
           flagrant stock manipulation, pools and bear raids without having to borrow stock,
           Swiss bank accounts, cozy relations between regulators and the regulated,
           income tax avoidance,   credit rating company lies, ubiquitous insider trading,
           millions from Wall Street to bribe and buy Congress...

                   Out of control greed and Gilded-Age extremes of wealth and poverty.
           out--of-control greed.... Is this what America has come finally too?

                   All this is what we know now.  How much worse is the full truth
           about Wall Street?   Until there is a thorough, outside investigation of
           Wall Street, investor confidence will remain shattered.  Rallies will fizzle and
           regulatory agencies will be mere window-dressing. 

                  We need another Ferdinand Perora.  He was the Senate investigator in
            1932 who broke open for public viewing the widespread corrupt practices that
            lay behind the Crash of 1929 and prolonged the Depression, by shattering
            investor confidence in Wall Street.  Congress needs to thoroughly investigate
            Wall Street.    Obama is silent.  His rise to power depended on Wall Street
            money.  Congress is knee deep in Wall Street bribes (campaign contributions.)

wpe153.jpg (31342 bytes)
                                                                       Time    June 12, 1933

                      Pecora, the quintessential outsider, challenged and exposed the corrupt world of
              Wall Street insiders, swindlers and good-old-boys.  His investigations paved the way for
              the Securities and Exchange Commission and the healthy separation of banks from brokerages
             and investment banking until 2000.

                      Ferdinand Pecora  (January 6, 1882December 7, 1971)    Born in Nicosia, Sicily.  He earned
             a law degree from New York Law School and eventually worked as an assistant district attorney
             in New York City, during which time he helped shut down more than 100 bucket shops.  He was
             a Progressive Republican when he was appointed Chief Counsel to the U.S. Senate's Committee
             on Banking and Currency in the last months of the Herbert Hoover presidency by its outgoing
             Republican chairman and then continued under Democratic chairman Duncan Fletcher,
             following the 1932 election.

                    In these hearings,  the Senate Committee and Pecora  probed the causes of the
             Wall Street Crash of 1929.  Pecora, personally interrogated such high-profile Wall Street
             characters, as Richard Whitney, president of the New York Stock Exchange, George Whitney
             a partner in J.P. Morgan & Co. and investment bankers Thomas W. Lamont, Otto H. Kahn,
             Albert H. Wiggin of Chase National Bank, and Charles E. Mitchell of National City Bank.
             The popular name for these hearings was the Pecora Commission,  

                  Pecora's investigation unearthed evidence of banking practices that greatly enriched
             insiders at the expense of ordinary investors.  JP Morgan’s “preferred list” of influential
             friends included Calvin Coolidge, and Owen J. Roberts, a justice of Supreme Court of the United States.
             These insiders got stock offerings at steeply discounted rates.  Pecora's work revealed that
             National City had bundled and then sold bad loans to Latin American countries to unsuspecting
             investors.   Chase Bank's Albert Wiggins had shorted his own companies shares during the crash.  
             Others received interest free loans worth $2.4 million from their own banks.

                        These revelations motivated Congress to enacted the Securities Act of 1933
             and the Securities Exchange Act of 1934.    In July 1934 FDR appointed Pecora to be a Commissioner on
             the new  Securities and Exchange Commission (SEC).  Many though Pecora should have been made
             its first Chairman.  That honor went to Joseph Kennedy, himself a well-known stock manipulator and
             short seller.   In 1939 Pecora wrote about the Senate's investigations he was Chief Counsel for.   It
             was entitled Wall Street Under Oath: The Story of Our Modern Money Changers.In 1935, Pecora
             became a judge of the New York State Supreme Court.   He ran unsuccessfully for Mayor of New York
             City in 1950.

                       In his 1939 book, Pecora wrote that much remained to be done.  The torch needed to be picked up.
               He was right.  So much of all the regulatory legislation of those days has disappeared or been diminished.

                                                             Source: http://www.larouchepac.com/node/9325

                       The New Deal had not yet conquered Wall Street and its investment banks. At the center
              of the new legislation were the principle of Full Disclosure and the Need for Regulation.  These
              threatened the "old boys' network".   The central source of Wall Street's power was their control of
              information about corporate earnings.  Now the SEC was demanding a level playing field for
              all stock trading participants -  individual investors, mutual funds, pension funds, charitable trusts
              and university endowments.

                        Perhaps, the high point for the SEC came in 1937, with the help of a major scandal.    
             "Richard Whitney,  an aristocrat and the former president of the New York Stock Exchange,
              was found   to have embezzled millions of dollars from his clients to cover losses from his own
              speculations.   In a matter of weeks, he was sent to Sing Sing prison. Whitney's disgrace led
              the SEC Chairman Douglas to say "the Stock Exchange was delivered into  my hands."  

                       The Chairman was fooling either himself or the public.  For the power and credibility of the
              SEC to last, constant vigilance and political support was needed.  The public is fickle in its
              attention span.  Out of the spotlight, politicians could be bribed by campaign contributions and
             Wall Street lawyers could found loopholes to expand in the regulations.  The SEC eventually
             developed a cozy relationship with Wall Street.  This is the pattern for nearly all regulatory
             agencies.   Sooner or later, they seem always to get captured by the very groups that they are
             supposed to regulate. 

                      The regulatory pendulum swung the other way under Ronald Reagan's Presidency.  In his
inaugural address, he declared that "government is not the solution to our problem; government
             is the problem."  He saw his job to dismantle the New Deal.  To let the "free market" have its

                      Deregulation and lower taxes on high income individuals and big corporations initially
             did not help the market in 1981.  But the advent of computers, much lower interest rates,
             expansion of the US military and then the fall of Communism sent the stock market soaring
             even more than in the roaring 1920s.  All the while, honor, veracity and even-handed dealing
             on Wall Street gave way to short-term plundering and indifference to downside risks.

                                        Wall Street's CCC Program

                    In this environment, corruption, connivance and crooks thrived.  The SEC was no match.
             It failed in its oversight time after time.  Only the most egregious cases of insider trading were
             pursued by the agency,  and those were mostly cases that had already been publicly spotlighted.
             One scandal after another showed the SEC's decline:
                               1. Michael Milken's junk-bond operations;
                               2. Keating and the savings-and-loan collapses of the 1980s;
                               3. Collapse of Long Term Capital Management in 1998;
                               4. Collapse in 2001 of Enron,
                               5. Housing/real-estate bubble;
                               6. Disaster-derivatives--
                               7. False packaging and selling of toxic mortgage securities,
                               8. Credit-default swaps;
                               9. Bernard Madoff and Stanford Ponzi schemes.
                              10.Meltdown of the whole financial system in 2008


Many elements were responsible for the backsliding that led to these scandals, not least the Republican Party. The decline of regulation began in earnest with Ronald Reagan's inaugural address, in which he famously noted that "government is not the solution to our problem; government is the problem." Guided by excessive faith in "the free market," regulators in the SEC, the Fed, the NASD (which merged in 2007 with the regulatory arm of the New York Stock Exchange to form the Financial Institution Regulatory Authority), and other agencies had simply stopped doing their jobs. Even during the Clinton administration, the craze for deregulation had so worked itself into the national culture that Congress blocked major accounting reforms pertaining to stock options, and, in 1999, Clinton's financial advisers supported the very ill-advised repeal of Glass-Steagall. Worse, in 2000 they accepted the catastrophic exemption of credit-default swaps from any regulatory oversight at all. By the time George W. Bush became president in 2001, the SEC's strategy of transparency had been thoroughly undermined. The return of opacity was in full swing. The elements of a perfect storm were in place, and, by 2007, Bush's policies had brought them all together for the explosion of 2008.

While all this deregulation was going on, the financial services industry had found even more new ways to circumvent transparency. An unregulated shadow banking system arose, through hedge funds, private-equity funds, off-balance-sheet operations, offshore tax havens, and the widespread trading by money managers in completely opaque instruments, especially credit default swaps. Because of the enormous profit potential in these securities, the movement of vast sums from the regulated sunshine to the unregulated shadows became inevitable.

Today, banks and other institutions have a very uncertain idea of what their holdings of the new instruments are actually worth. Therefore, they cannot accurately calculate their own assets and liabilities, let alone those of others. This is why they are so reluctant to lend, and why the nation's credit system remains in gridlock despite the $700 billion bailout. Opacity has thus turned inward upon the very institutions that created it, which would be an ironic farce if its consequences weren't so tragic.


Obviously, there is much work to be done. The SEC still has an acceptable structure, but it needs robust infusions of talent, expertise, and money. The staffs of both the Fed and its twelve regional banks are far more sophisticated now than they were during the 1930s, and the fdic is working well under Sheila Bair, one of the few people who began warning years ago of potential catastrophe. But banking regulation remains extremely fragmented, with far too many players: the Fed, the fdic, the Comptroller of the Currency (a part of the Treasury Department), dozens of state banking commissions, and still other agencies. They are in desperate need of better coordination and, possibly, consolidation. What's more, the regulatory talent emblematic of the New Deal is not gone altogether, but it is thinner to the point of anorexia. After years of ideological hiring, large clusters of ineptitude bedevil the SEC, the Commodity Futures Trading Commission, the Department of Justice, and many other federal bodies. Nearly every important agency has long been starved of resources--and even of the elementary belief that regulation is necessary.

The political opposition to reform will be stiff. The Republican Party will likely fight every step of the way. So will the financial services industry, some of whose stalwarts are Democrats. Even now, Wall Street remains in deep denial: The lavishing of billions in executive bonuses by firms that received federal bailout money is all we need to know about this industry's feral determination to protect its outrageous pay scales.

Source: http://www.tnr.com/politics/story.html?id=686e3d61-aa6f-4431-acac-d067fe28ed8e&p=4


                      Imagine being in the audience on a hot July afternoon when Pecora questioned JP Morgan.   Pecora
           was being paid just $225 a month!

 wpe155.jpg (7052 bytes)       Has Morgan paid any income tax in 1930? Morgan mumbled
                "I can't remember."  1931?  Same question.  1932? Same answer. Then Pecora revealed that
                 J.P. Morgan had paid no income tax in any of these years.  Pecora then showed that the total taxes
                 paid by the entire House of Morgan, not only J.P. Morgan, but the entire House of Morgan, and
                 its partners in the previous five years, was a single payment of $5,000 in 1931. Then came the
                 list of J.P. Morgan's and his associates' properties.

Source: http://www.larouchepac.com/node/9325

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