Marc Johnson
Idaho Statesman
May 14, 2009
Seventy-five years ago, as we are reminded regularly in news coverage of our current economic problems, the U.S. economy was in disastrous shape. The Great Depression stalked the land. The stock market had plummeted. Banks were failing. Unemployment was growing daily. Credit markets, just like today, had virtually shut down. Economic turmoil dominated the headlines.
It has been said that those who forget history are doomed to repeat it. If so, then it would be foolish to ignore lessons from an earlier time that seem so relevant today. One lesson, illustrating a congressional response to those long ago, terrible economic times, seems particularly relevant today.
In 1933, as now, politicians and pundits had ready explanations for why the once booming U.S. economy had taken such a dramatic turn for the worse. The explanations, as with today's finger pointing and attempts to assess blame, were all over the economic map. Also like today, no one had attempted a systematic, orderly investigation of what had happened to the economy and what might be done to avoid a repeat.
Early in 1933, the Senate Banking Committee finally launched a comprehensive investigation of what caused the market crash and related turmoil. The committee turned over the investigative work to a Sicilian-born New Yorker, a cigar-chomping prosecutor named Ferdinand Pecora.
As historian Donald Ritchie has noted, "So thoroughly did Counsel Pecora dominate the proceedings that his name, rather than the committee chairman's, became irrevocably identified with the hearings. The Pecora probe, with its careful documentation of banker and broker misdeeds, and its contribution to corrective legislation, set a worthy model for future congressional investigations."
Pecora, with little financial background himself, mastered his subject, and in the process challenged the biggest names in finance. He called investment banker J.P. Morgan, Jr. as one of the first witnesses and got the Wall Street titan to admit, among other things, that he and his fabulously wealthy partners had paid no income tax in the previous two years and had a regular practice of offering preferential stock purchases to well-connected business, media and political leaders.
Pecora forced the resignation of another banker who admitted his practice of mixing commercial banking with risky stock investments had bilked millions from unsuspecting investors. Sound familiar?
Pecora's investigation produced big headlines and bigger results. Congress passed the Glass-Steagall Banking Act that created federal deposit insurance and banned banks from being both lenders and brokers. Congress repealed this provision during the Clinton administration, and some now suggest the need to revisit that deregulation. Creation of the Securities and Exchange Commission was a direct result of Pecora's dogged pursuit of facts and insight.
From Teapot Dome in the 1920s to Iran Contra in the 1990s, congressional investigations in the hands of skilled counsel committed to a bipartisan approach have made our American system work better by illuminating abuses and legislating reforms. It is time for another Pecora Committee.
The Senate Banking Committee is the logical sponsor of the investigation. Perhaps Idaho's scholarly Mike Crapo, a member of the committee, could get behind the idea.
And who to cast in the updated role that Pecora played during the Depression? The lead counsel would need skill, credibility and a bipartisan reputation. Here is one nominee: the U.S. attorney in Chicago, Patrick Fitzgerald. He could finish the prosecution of former Gov. Rod Blagojevich and take on the task of sorting out the full story of the economic mess. Such an investigation might just provide the necessary accountability and blueprint for reform that our economic system needs. It certainly worked before.
Marc C. Johnson is president of Gallatin Public Affairs and has written and lectured on the New Deal period in American
