A Thorough Investigation of the Financial Collapse

The original Pecora investigation documented the causes of the economic collapse that led to the Great Depression. It was named after Ferdinand Pecora, lead counsel for the Senate Banking and Currency Committee investigation, whose inquiries established that conflicts of interest and fraud were common among elite finance and government officials.

The Pecora investigations provided the factual basis that produced a consensus that the financial system and political allies were corrupt. They did not divide the nation or divert its response to the economic crisis. The investigations discredited the elites that benefited from that system and were blocking reform. By identifying the most acute problems, Pecora provided the basis for Congress to draft specific legislation that restored public confidence in the financial markets and helped honest bankers. This staved off future crises in the U.S. for 45 years until the protections were removed by deregulation and desupervision.

The Pecora investigation teaches us how to create a successful investigation that can provide the basis for the fundamental reforms necessary to protect the nation from future economic collapses. Pecora was a prosecutor in New York that had brought cases against “bucket shops” (fraudulent sellers of securities) and corrupt politicians (primarily Democrats). He was not a financial specialist. These are the key factors that made Pecora successful and that need to replicated today:

Leadership and accountability

• Pecora lead the investigation and conducted the questioning. There was no “bipartisan” fiction or friction: Pecora was in charge. A professional with expertise in investigations must conduct the questioning, as members of Congress cannot do so effectively. Pecora picked his aides, not Congress.

• Pecora was non-partisan and known to be non-partisan.

• Pecora was fearless.

• Pecora was relentless and confrontational.

• President Roosevelt personally and strongly supported Pecora.

Power

• The broadest subpoena authority is essential.

• No one, and no subject, is off limits to the investigation.

• No special treatment for elites. Everyone testifies under oath.

• No time limits that will encourage the subjects of the investigation and their political allies to stall. Pick a top investigator that wants to get the work done effectively and promptly but is willing to commit to stay as long as at takes to conduct a thorough investigation.

• Conduct hearings that do not permit interference by witnesses’ counsel. Counsel can obstruct an investigative hearing if they are not limited to their proper role in such a setting (where evidentiary rules are not at issue). Witness counsel’s function at such a hearing is to advise their client as to whether they should assert their Fifth Amendment right against self-incrimination. Their function is not to make statements, ask purportedly clarifying questions, or assert objections. The Committee members must back up the new Pecora (and, of course, avoid similar interventions of their own that would disrupt the questioning). In this era, this will require tremendous, non-partisan self-restraint by Committee members.

Resources

• Ample budget appropriated for multiple years. This must be done so that opponents of the investigation cannot impede it through the appropriations process

• No political limits on how that budget can be used. No limits on the number of staff that can be hired.

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