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Last week, tragedy was averted when savvy security at Deutsche Bank (DB) in Frankfurt, Germany, spotted a suspicious package and sequestered a letter bomb intended for the DB CEO. This was the second time Deutsche Bank was attacked in this manner. In 1989, their CEO was killed by a bomb later traced to violent extremists in Germany’s Red Army Faction.

Scanning the horizon for someone to blame for the latest attack on Germany’s largest bank, FOX news pundit Dan Gainor worked “the Internets.” Did he detail Deutsche Bank’s track record of making friends by ripping off consumers and foreclosing on their homes? Did he mention that Deutsche Bank stirred public ire when it was bailed out by multiple governments, including two billion from the U.S. Federal Reserve? Did he even bother to notice that it was widely reported that an Italian anarchist group had already claimed responsibility for the attack?

No. In his piece on FOX News, “Left, Obama Escalate War on Banks Into Dangerous Territory,” Gainor decided to go after the bank-busting activists at the Center for Media and Democracy in Madison, Wisconsin, specifically our BanksterUSA.org site, because the Bankster masthead is riddled with bullet holes.

While I am Italian, I doubt very much that Italian anarchists are getting their inspiration from our little site, which at the moment features a Smithsonian Magazine profile of Ferdinand Pecora and which has been documenting the financial crisis for the past two years.

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Mary Bottari is an experienced policy wonk and communications professional. Bottari launched the “Real Economy” project at Center for Media and Democracy. It demystifies complex issues like synthetic derivatives. She launched the BanksterUSA.org website which urged the FBI to “Book the Crooks” and Congress to “Repo the Dough” in the form of a financial transaction tax.. She coined the term greedwashing to describe bank PR campaigns. She blogs for multiple sites including Campaign for America’s Future, Huffington Post, and the Nation Magazine. Earlier, Bottari worked as senior analyst in Public Citizen’s Global Trade Division and as press secretary to U.S. Sen. Russ Feingold

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This is republished from Open Salon.

Robert Kuttner
Co-Founder and Co-Editor of The American Prospect

In 1932 through 1934 the Senate Banking Committee, led by its Chief Counsel Ferdinand Pecora, ferreted out the deeper fraud and corruption that led to the Crash of 1929 and the Great Depression. The Pecora Committee’s findings helped change the political mood, and laid the groundwork for the sweeping financial reforms of Roosevelt’s New Deal. Roosevelt himself often conferred with Pecora, encouraged him, and depended on Pecora’s work to build the public support for reform. He appointed Pecora to one of the newly created results of his handiwork, the Securities and Exchange Commission, though Pecora was disappointed not to be its chairman.

President Obama has now signed legislation, The Fraud Enforcement and Recovery Act of 2009, which among other things creates an investigative commission inspired by Pecora.

The new Financial Markets Commission has a sweeping mandate, including subpoena powers, to investigate all the causes of the collapse. The list is as comprehensive as one could wish for.

FUNCTIONS OF THE COMMISSION.–The functions of the Commission are–

(1) to examine the causes of the current financial and economic crisis in the United States, specifically the role of–

(A) fraud and abuse in the financial sector, including fraud and abuse towards consumers in the mortgage sector;

(B) Federal and State financial regulators, including the extent to which they enforced, or failed to enforce statutory, regulatory, or supervisory requirements;

(C) the global imbalance of savings, international capital flows, and fiscal imbalances of various governments;

(D) monetary policy and the availability and terms of credit;

(E) accounting practices, including, mark-to-market and fair value rules, and treatment of off-balance sheet vehicles;

(F) tax treatment of financial products and investments;

(G) capital requirements and regulations on leverage and liquidity, including the capital structures of regulated and non-regulated financial entities;

(H) credit rating agencies in the financial system, including, reliance on credit ratings by financial institutions and Federal financial regulators, the use of credit ratings in financial regulation, and the use of credit ratings in the securitization markets;

(I) lending practices and securitization, including the originate-to-distribute model for extending credit and transferring risk;

(J) affiliations between insured depository institutions and securities, insurance, and other types of nonbanking companies;

(K) the concept that certain institutions are ”too-big-to-fail” and its impact on market expectations;

(L) corporate governance, including the impact of company conversions from partnerships to corporations;

(M) compensation structures;

(N) changes in compensation for employees of financial companies, as compared to compensation for others with similar skill sets in the labor market;

(O) the legal and regulatory structure of the United States housing market;

(P) derivatives and unregulated financial products and practices, including credit default swaps;

(Q) short-selling;

(R) financial institution reliance on numerical models, including risk models and credit ratings;

(S) the legal and regulatory structure governing financial institutions, including the extent to which the structure creates the opportunity for financial institutions to engage in regulatory arbitrage;

(T) the legal and regulatory structure governing investor and mortgagor protection;

(U) financial institutions and government-sponsored enterprises; and

(V) the quality of due diligence undertaken by financial institutions;

(2) to examine the causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period beginning in August 2007 through April 2009;

It’s hard to improve on that. Whether the commission carries out this mandate, Pecora-style, will depend entirely on who its chair and members are, and whether they hire a tough staff. The ten commission members are to be appointed, three by the Speaker of the House, three by the Senate Majority Leader, and two each by their Republican counterparts. The Staff Director is to be hired jointly by the Chair (a Democrat) and the Vice-Chair (a Republican). Interestingly, none are to be appointed by the White House, and President Obama has already issued a signing statement reserving the right to invoke executive privilege in cases where materials or testimony from the executive branch are requested under subpoena.

To get a flavor of what the original Pecora Committee did, consider this observation from Donald A. Ritchie, associate senate historian, in his study, “The Pecora Wall Street Expose”"

With the power of the subpoena, his staff would descend upon a banker or broker, and go through is records, file drawer by file drawer, page by page, selecting and photostating documents. Staff lawyers and accountants would assemble this material to reconstruct motivations, discrepancies, delinquencies, and frauds involved. They drew a multitude of charts, tracing every event and statistic. After narrowing down the documentation, they outlined the subject’s transactions in chronological narrative on letter-sized sheets with citations in the margins to specific documents which could prove each assertion.

Will the new Financial Markets Commission be this diligent in exposing the facts and kindling public demands for sweeping reform? You can be sure that House Speaker Pelosi and Senate Majority Leader Harry Reid will be getting friendly calls urging them not to make appointments that will embarrass the administration.

Three names have surfaced in the financial press as possible chairs, supposedly based on leaks from the Democratic leadership: Paul Volcker, 81, the former Fed Chairman, Arthur Levitt, Jr., 78, SEC Chairman during the Clinton era, and retired Supreme Court Justice Sandra Day O’Connor, 79. Volcker, an honest conservative, has turned against financial deregulation in recent years, and Levitt was a reasonably tough SEC chair, who bucked (and sometimes buckled) in the face of intense Congressional pressure from both parties not to crack down on abuses. Levitt now advises one of the most powerful private equity companies, the Carlyle Group, not exactly a constituency for tough reform.

Here are two better names:

*Paul Sarbanes, the retired Senate Banking Committee chairman. Sarbanes, a well-liked senator with admirers in both parties was both highly expert, incorruptable, and tough. In the fight to get what became the Sarbanes-Oxley Act, cracking down on accounting fraud, he showed real leadership. Sarbanes, now a vigorous 76, stepped down in 2006.

*Harvey Goldschmid, probably the most expert and public-minded SEC commissioner in recent decades. Goldschmid, 69, is now a law professor at Columbia. He was seriously considered by President Obama to chair the SEC, but was passed over in favor of the somewhat weaker Mary Schapiro.

It is important that this investigation be conducted not by a figurehead, but by one with the knowledge, passion, and predisposition to build the public case for sweeping reform, and without fear or favor.

Some Republicans, such as Richard Shelby, the ranking minority member on the Senate Banking Committee, are as disgusted with the Wall Street corruption as progressive Democrats are, though that does not describe the minority leaders in either house, Sen. Mitch McConnell and Rep. John Boehner, who will make the Republican appointments.

This could be one of those rare, historic commissions that changes the course of history — or it could be window-dressing. Stay tuned.

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Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos www.demos.org. His recent book is “Obama’s Challenge: America’s Economic Crisis and the Power of a Transformative Presidency.”

By Robert L. Borosage
Co-Director Campaign for America’s Future

Treasury Secretary Tim Geithner has called for “sweeping regulation” of the financial community, beginning a discussion of how we restructure the banking system — in and out of the shadows — as we emerge from what Robert Kuttner calls the Great Collapse. Literally trillions have already been committed in loans, guarantees, swaps, direct equity to stave off a complete financial collapse, even as the real economy declines.

But before we decide on the salvation, we need a public probe of the fall. What caused the Great Collapse? We need a grand inquest — either a special congressional committee or an independent commission like the 9/11 Commission armed with subpoena power — to expose misbegotten policies, malpractices, and mistaken ideas that allowed the wizards of Wall Street to transport us over the cliff.

In the 1930s, the dramatic hearings by the Senate Banking and Currency Committee became known as the Pecora Commission, after Ferdinand Pecora, the fierce former assistant prosecutor from New York who served as general counsel. Born in Sicily, the son of an immigrant cobbler, Pecora was a crusader. As counsel, he hauled the barons of Wall Street before the committee, and took them apart with often withering cross examination. By the time Pecora was done, the hearings had captivated the country’s attention and, as Ron Chernow reports, Senator Burton Wheeler of Montana was comparing the bankers to Al Capone and the public began calling them “banksters,” rhyming with gangsters.

The Senate committee unearthed the assorted frauds, the abuses, the ponzi schemes that led to the 1929 crash. And in doing so it provided both the case for reform and built a public demand in support of it.

The hearings came under fierce criticism. Wall Street bankers charged that they were “undermining confidence.” Some Senators scorned them as running a “circus,” and in fact, some of the excesses deserved the tag.

Yet, Pecora was deadly serious. By the time the hearings ended in May 1934, they had generated 12,000 printed pages of testimony — providing the source that historians have mined ever since to fuel their descriptions of the era. And they paved the way for reform: the Securities Act of 1933, the Glass-Steagall Act of 1933, and the Securities Exchange Act of 1934. In recognition, Roosevelt named Pecora to be a commissioner of the new SEC.

We need the same fearless investigation now. As Elizabeth Warren, the brilliant head of the congressional oversight panel on the bank bailout has noted, no one has exposed the record of pervasive fraud and misdealing that was at the base of the housing bubble. Her panel doesn’t have subpoena power, and has no little difficulty getting documents from the Treasury. There have been scattered congressional hearings on different aspects of the folly, some quite good. But none have laid out a systematic record of what went wrong, hauling miscreants before the committee, using subpoena power to expose the extent of the malfeasance — for example, the extraordinary percentage of mortgages that revealed signs of fraud on the face of the loan, and yet were marketed as sound by ratings agencies, banks and hedge funds that never looked at the underlying documents.

A broad, public investigation is also vital to help provide citizens with a clear narrative of what went wrong. It will counter the pernicious efforts on the right to cook up the notion that a powerful poverty lobby created the crisis by forcing hapless banks to make loans to the unqualified because of the Community Reinvestment Act.

There are many reasons for Congress to duck an inquest. An honest inquiry will show that the de-regulatory follies took place under presidencies of both parties — Reagan, the two Bushes, but Clinton also. The inquest would undoubtedly embarrass some of the former Clinton appointees now at the center of the Obama economic team, like Lawrence Summers. Many of the legislators who voted for deregulation, including dismantling the Glass-Stegall Act, would, no doubt, prefer that the past remain in the mists.

But serious reform of the banks — and that restructuring that is vital — will take new laws, new authority, and most likely more money from the government. That will require public support that can only be engendered by a clear view of what went wrong, by a sense that the most extreme wrong-doers are being brought to justice. Exposing the regulatory failures, the legal changes, the ideological blindness, the institutional structures, and the compensation packages that propelled the reckless gambling that eventually brought down the house is vital if we are to understand what must be changed and can mandate change to it.

If the banks are revived without the inquest, then Congress will find it hard to drive the restructuring and re-regulation essential to a new, more balanced economy. This will take courage — and a modern day Ferdinand Pecora with the necessary fire in his stomach.