Alan Brinkley: When Washington Took On Wall Street
[Alan Brinkley is the Allan Nevins Professor of History at Columbia University.]
J.P. Morgan Jr. was terrified. He was the most famous and arguably the most powerful banker in the United States, and also among the most secretive. But in May 1933, in the aftermath of the greatest financial crisis in the history of the United States, he was being called to testify before the Senate Committee on Banking and Currency to explain how the catastrophe had occurred. Morgan dreaded the prospect, in part because it was a painful reminder of his famous father’s unhappy experience testifying before the 1912 Pujo Committee, which had investigated the “money trust” (and was partly responsible for the creation of the Federal Reserve Board). The elder Morgan, mercilessly interrogated, had died shortly after the hearings. Many of his associates, not least his son, had blamed his death on his public humiliation.
Now it was the younger Morgan’s turn....
He was to be questioned by Ferdinand Pecora, a former prosecutor who was now the special counsel to the committee. Pecora was known to be tough and unrelenting, and the prospect of his cross-examination attracted enormous publicity. There was front-page coverage on newspapers across the country. A large and eager crowd swarmed the Senate Office Building. “They thronged about the door and packed the corridor nearing the committee room,” The New York Times reported, “so that in the morning those who had business inside had to fight their way through. Only a large detail of policemen and a rope prevented a similar scene in the afternoon, and even motorcycle policemen wearing cartridge belts and revolvers were called to police the room.”...
The Pecora Commission, as the Senate investigation came to be known, was a spectacular event in the darkest days of the Great Depression. It had a lasting impact on the public’s image of the financial world, and it helped make possible new laws and regulations aimed at preventing a Depression-size calamity from befalling the country again. What few anticipated was how fragile those laws and regulations would eventually prove to be—and how, in time, the tide would turn. The abuses highlighted by the Pecora Commission have clear parallels with the abuses that led to the financial meltdown of the past two years. Where the parallel breaks down is in comparison with the Pecora Commission itself. Congress has been remarkably decorous about investigating what went wrong. No Wall Street executives have been questioned for days at a time by a skilled interrogator. The Obama administration’s financial-reform bill—which would establish new procedures for seizing and dismantling failed banks, and also diminish the prospect of taxpayer-funded bailouts—faces strong, perhaps unanimous, Republican opposition. Even if the bill passes, it would represent a relatively modest response to the existing range of problems. In April, the Securities and Exchange Commission agreed (on a split vote) to file civil charges against Goldman Sachs, alleging that the firm defrauded some of its investors by selling them a portfolio of highly risky mortgage-related securities. The S.E.C. further charged that Goldman did not inform clients that the securities they were purchasing had been selected with the help of an investor who was expecting to profit from their decline in value. So far, the charges do not name any figures in Goldman’s senior management....
Read entire article at Vanity Fair
J.P. Morgan Jr. was terrified. He was the most famous and arguably the most powerful banker in the United States, and also among the most secretive. But in May 1933, in the aftermath of the greatest financial crisis in the history of the United States, he was being called to testify before the Senate Committee on Banking and Currency to explain how the catastrophe had occurred. Morgan dreaded the prospect, in part because it was a painful reminder of his famous father’s unhappy experience testifying before the 1912 Pujo Committee, which had investigated the “money trust” (and was partly responsible for the creation of the Federal Reserve Board). The elder Morgan, mercilessly interrogated, had died shortly after the hearings. Many of his associates, not least his son, had blamed his death on his public humiliation.
Now it was the younger Morgan’s turn....
He was to be questioned by Ferdinand Pecora, a former prosecutor who was now the special counsel to the committee. Pecora was known to be tough and unrelenting, and the prospect of his cross-examination attracted enormous publicity. There was front-page coverage on newspapers across the country. A large and eager crowd swarmed the Senate Office Building. “They thronged about the door and packed the corridor nearing the committee room,” The New York Times reported, “so that in the morning those who had business inside had to fight their way through. Only a large detail of policemen and a rope prevented a similar scene in the afternoon, and even motorcycle policemen wearing cartridge belts and revolvers were called to police the room.”...
The Pecora Commission, as the Senate investigation came to be known, was a spectacular event in the darkest days of the Great Depression. It had a lasting impact on the public’s image of the financial world, and it helped make possible new laws and regulations aimed at preventing a Depression-size calamity from befalling the country again. What few anticipated was how fragile those laws and regulations would eventually prove to be—and how, in time, the tide would turn. The abuses highlighted by the Pecora Commission have clear parallels with the abuses that led to the financial meltdown of the past two years. Where the parallel breaks down is in comparison with the Pecora Commission itself. Congress has been remarkably decorous about investigating what went wrong. No Wall Street executives have been questioned for days at a time by a skilled interrogator. The Obama administration’s financial-reform bill—which would establish new procedures for seizing and dismantling failed banks, and also diminish the prospect of taxpayer-funded bailouts—faces strong, perhaps unanimous, Republican opposition. Even if the bill passes, it would represent a relatively modest response to the existing range of problems. In April, the Securities and Exchange Commission agreed (on a split vote) to file civil charges against Goldman Sachs, alleging that the firm defrauded some of its investors by selling them a portfolio of highly risky mortgage-related securities. The S.E.C. further charged that Goldman did not inform clients that the securities they were purchasing had been selected with the help of an investor who was expecting to profit from their decline in value. So far, the charges do not name any figures in Goldman’s senior management....