Corporate Accountability

The Fed Under Fire

Isaiah J. Poole — Mon, 13 Jul 2009 08:24:26 -0700

The Federal Reserve is already one of the most powerful and secretive institutions in Washington, long considered beyond the reach of lawmakers. Yet some Washington leaders are looking to give the Fed even more power in the name of financial reform—even as the Fed is unable or unwilling to fully and publicly account for the trillions of dollars it has already distributed to the financial sector in the wake of the current financial crash.

A growing number of progressive and conservative lawmakers are pushing for a financial audit of the Federal Reserve. A bill that would authorize this first-ever audit is currently pending in the House. This American News Project documentary explains the reasons behind this bipartisan movement to hold the Fed accountable.

Some Choice Words for 'The Select Few'

Bill Moyers — Mon, 13 Jul 2009 08:11:05 -0700

with Michael Winship

If you want to know what really matters in Washington, don't go to Capitol Hill for one of those hearings, or pay attention to those staged White House "town meetings.” They’re just for show. What really happens – the serious business of Washington – happens in the shadows, out of sight, off the record. Only occasionally – and usually only because someone high up stumbles -- do we get a glimpse of just how pervasive the corruption has become.

Case in point: Katharine Weymouth, the publisher of The Washington Post – one of the most powerful people in D.C. – invited top officials from the White House, the Cabinet and Congress to her home for an intimate, off-the-record dinner to discuss health care reform with some of her reporters and editors covering the story.

But CEOs and lobbyists from the health care industry were invited, too, provided they forked over $25,000 a head – or up to a quarter of a million if they want to sponsor a whole series of these cozy get-togethers. And what is the inducement offered? Nothing less, the invitation read, than “an exclusive opportunity to participate in the health-care reform debate among the select few who will get it done.”

The invitation reminds the CEOs and lobbyists that they will be buying access to “those powerful few in business and policy making who are forwarding, legislating and reporting on the issues…

"Spirited? Yes. Confrontational? No." The invitation promises this private, intimate and off-the-record dinner is an extension “of The Washington Post brand of journalistic inquiry into the issues, a unique opportunity for stakeholders to hear and be heard.”

Let that sink in. In this case, the “stakeholders” in health care reform do not include the rabble – the folks across the country who actually need quality health care but can’t afford it. If any of them showed up at the kitchen door on the night of this little soiree, the bouncer would drop kick them beyond the Beltway.

No, before you can cross the threshold to reach “the select few who will actually get it done,” you must first cross the palm of some outstretched hand. The Washington Post dinner was canceled after a copy of the invite was leaked to the Web site Politico.com, by a health care lobbyist, of all people. The paper said it was a misunderstanding – the document was a draft that had been mailed out prematurely by its marketing department. There’s noblesse oblige for you – blame it on the hired help.

In any case, it was enough to give us a glimpse into how things really work in Washington – a clear insight into why there is such a great disconnect between democracy and government today, between Washington and the rest of the country.

According to one poll after another, a majority of Americans not only want a public option in health care, they also think that growing inequality is bad for the country, that corporations have too much power over policy, that money in politics is the root of all evil, that working families and poor communities need and deserve public support if the market system fails to generate shared prosperity.

But when the insiders in Washington have finished tearing worthy intentions apart and devouring flesh from bone, none of these reforms happen. “Oh,” they say, “it’s all about compromise. All in the nature of the give-and-take-negotiating of a representative democracy.”

That, people, is bull – the basic nutrient of Washington’s high and mighty.

It’s not about compromise. It’s not about what the public wants. It’s about money – the golden ticket to “the select few who actually get it done.”

When Congress passed the Helping Families Save Their Homes Act, "the select few” made sure it no longer contained the cramdown provision that would have allowed judges to readjust mortgages. The one provision that would have helped homeowners the most was removed in favor of an industry that pours hundreds of millions into political campaigns.

So, too, with a bill designed to protect us from terrorist attacks on chemical plants. With “the select few” dictating marching orders, hundreds of factories are being exempted from measures that would make them spend money to prevent the release of toxic clouds that could kill hundreds of thousands.

Everyone knows the credit ratings agencies were co-conspirators with Wall Street in the shameful wilding that brought on the financial meltdown. But when the Obama administration came up with new reforms to prevent another crisis, the credit ratings agencies were given a pass. They’d been excused by “the select few who actually get it done.”

And by the time an energy bill emerged from the House of Representatives the other day, “the select few who actually get it done” had given away billions of dollars worth of emission permits and offsets. As The New York Times reported, while the legislation worked its way to the House floor, “it grew fat with compromises, carve-outs, concessions and out-and-out gifts,” expanding from 648 pages to 1400 as it spread its largesse among big oil and gas, utility companies and agribusiness.

This week, the public interest groups Common Cause and the Center for Responsive Politics reported that, “According to lobby disclosure reports, 34 energy companies registered in the first quarter of 2009 to lobby Congress around the American Clean Energy and Security Act of 2009. This group of companies spent a total of $23.7 million – or $260,000 a day – lobbying members of Congress in January, February and March.

“Many of these same companies also made large contributions to the members of the Senate Environment and Public Works Committee, which has jurisdiction over the legislation and held a hearing this week on the proposed ‘cap and trade’ system energy companies are fighting. Data shows oil and gas companies, mining companies and electric utilities combined have given more than $2 million just to the 19 members of the Senate Environment and Public Works Committee since 2007, the start of the last full election cycle.”

It's happening to health care as well. Even the pro-business magazine The Economist says America has the worst system in the developed world, controlled by executives who are not held to account and investors whose primary goal is raising share price and increasing profit – while wasting $450 billion dollars in redundant administrative costs and leaving nearly 50 million uninsured.

Enter "the select few who actually get it done." Three out of four of the big health care firms lobbying on Capitol Hill have former members of Congress or government staff members on the payroll – more than 350 of them – and they’re all fighting hard to prevent a public plan, at a rate in excess of $1.4 million a day.

Health care policy has become insider heaven. Even Nancy-Ann DeParle, the White House health reform director, served on the boards of several major health care corporations.

President Obama has pushed hard for a public option but many fear he’s wavering, and just this week his chief of staff Rahm Emanuel – the insider del tutti insiders – indicated that a public plan just might be negotiable, ready for re-engineering, no doubt, by “the select few who actually get it done.”

That’s how it works. And it works that way because we let it. The game goes on and the insiders keep dealing themselves winning hands. Nothing will change – nothing – until the money lenders are tossed out of the temple, the ATMs are wrested from the marble halls, and we tear down the sign they’ve placed on government – the one that reads, “For Sale.”

Bill Moyers is managing editor and Michael Winship is senior writer of the weekly public affairs program Bill Moyers Journal, which airs Friday night on PBS. Check local airtimes or comment at The Moyers Blog at www.pbs.org/moyers .

2044 on FireDogLake

Eric Lotke — Wed, 01 Jul 2009 08:02:38 -0700

I’ve blogged about my novel, 2044, here and here. 2044 is a future tale that starts where George Orwell’s 1984 left off. The problem in 2044 isn’t Big Brother and the leviathan government. The problem is Big Brother, Inc., and the all-powerful marketplace.

This post broadens the horizons. FireDogLake will feature 2044 on its book salon on Sunday.

If you weren’t familiar already, FireDogLake’s book salon is a terrific forum where authors discuss their work. It’s an on-line conversation and a chance for direct Q&A on important subjects. This Sunday’s forum will put me in the company of James Galbraith (about the economy), Tom Ricks (about Iraq) and Eric Boehlert (about blogging on the bus), who have all been on Firedog’s book salon. Of course, I’ll be talking about 2044, my new novel where the government doesn’t take over. It gets taken over.

The salon takes place every Sunday evening.
I’ll be on this Sunday, July 6 from 5:00 to 7:00 p.m. EDT. Right after we celebrate our independence.

Please join us. And ask me a question. A hard one.
It’s not necessary but of course it’s more than okay if you buy a book.

PS: Chapter one is available on my web page.

2044: The Novel Comes True

Eric Lotke — Fri, 26 Jun 2009 13:17:01 -0700

Remember a while ago I wrote about my new novel, 2044? 2044 starts where George Orwell’s 1984 left off. The problem isn’t Big Brother and the leviathan government. The problem is Big Brother Inc., and the all-powerful marketplace.

The 2044 story is about water. Giant businesses control the water supply. An entrepreneur who figures out how to take salt out of seawater gets hammered.

Of course, I want you to read my novelized version of corporate domination. But reality is even scarier.

As Arianna Huffington puts it, the lobbyists are “on a roll.” What’s getting rolled? The change we need.

The first roll is over health care reform. The American people want health care reform, and more than three-quarters of them (76 percent) want a public plan option. But the insurance lobby doesn’t, and their lobbyists outnumber elected officials on Capitol Hill by more than three to one. The health care industry spent $267 million on lobbying and campaign contributions last year alone, and they aren't spending money for nothing.

But oil and gas companies are racing to catch up. They increased spending on lobbying faster than any other industry, according to the Associated Press with data from the Center on Responsive Politics. It’s better for the old fuel industries to keep us hooked on dirty and finite fossil fuels than to explore new sources. And they’re paying to advance their interests. The industry spent $44.5 million lobbying Congress and federal agencies in the first three months of this year, on pace to shatter last year's record, which itself was up 73 percent from the year before that.

And the bailout on Wall Street continues to consume billions, with virtually no accountability. We give the mega-banks money to make loans, and the banks use our money to buy other banks, reconstructing the house of cards that got us into this mess. The banks are "still the most powerful lobby on Capitol Hill," lamented Senator Dick Durbin (D-Ill.)." And they frankly own the place."

Goldman Sachs is set to make record bonus payouts this year. According to the London Guardian, “Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms.”

Record bonus payouts! That’s the reward for (not quite) wrecking the global economy. Or in the words of the stranger watching TV in 2044, “They couldn’t say it if it wasn’t true.”

2044 is a warning. One of many. There’s a lot of work to do.

The Weekly Audit: Why Accountability Matters

Zach Carter — Tue, 26 May 2009 09:05:04 -0700

With workers all over the globe trudging through a catastrophic recession, it's almost a given that governments will be battling the economic slide for a long time. Part of the effort to rebuild must involve new rules and regulations, but meaningful systems for economic accountability will be just as essential. If we do not hold the reckless executives who caused this crisis accountable for their actions, we risk regressing into similar turmoil in the near future.

We all know that times are tough, and almost all of us agree on the cause: A massive Wall Street risk-binge combined with an almost total failure of regulatory oversight. It's surprising that few meaningful criminal charges have been filed amid what may very well be the worst financial crisis in history. Bernie Madoff will likely spend the rest of his life behind bars, but the subprime mortgage brokers who specialized in predatory loans–and the Wall Street banks that bought them–have yet to face consequences in court.

In The American Prospect, Tim Fernholz details the efforts of some state-level officials to investigate and punish white-collar crime at the nation's largest financial firms. Much of the problem, Fernholz explains, results from an insane legal landscape at the federal level. Active deregulation of the financial sector, which began in the 1980s, is shielding the irresponsible risk-taking that caused the current crisis from legal penalties.

Despite these obstacles, Massachusetts Attorney General Martha Coakley and other key officials are going after some of the worst offenders, and have successfully taken action against some of the predatory profiteers, including subprime mortgage lender Fremont Investment & Loan and Wall Street icon Goldman Sachs. Coakley secured an injunction against Fremont to prevent the company from foreclosing on its borrowers, and Goldman agreed to modify $50 million in predatory mortgages.

But while Coakley's investigations may bring some much-needed relief to troubled homeowners, they're only part of the solution. If executives that approved their companies' subprime policies go through this crisis unscathed, it will be difficult to deter similar behavior in the future.

Fremont had to be sold off last year at fire-sale prices to avoid bankruptcy, but Goldman has weathered the economic downturn better than many of its Wall Street brethren. Much of the company's resiliency, however, stems from its ability to secure billions upon billions of dollars of bailout financing from the U.S. government. Over at AlterNet, Jim Hightower blasts Goldman for its multiple avenues of taxpayer support and emphasizes that only the notorious Troubled Asset Relief Program (TARP) comes with any strings attached whatsoever. While Congress attached some very modest restrictions on executive compensation to the TARP bailout, the FDIC and the Federal Reserve have provided big banks with trillions in loans and guarantees completely free of restrictions on how these perks are deployed.

Goldman received $10 billion under TARP, which the company hopes to repay soon to shrug off those CEO pay limits. When the government bailed out AIG, $12 billion of the funds were directed Goldman's way. But perhaps the greatest and lowest-profile outrage comes in the form of the FDIC's Temporary Liquidity Guarantee Program. Hightower notes that the FDIC has guaranteed $28 billion of Goldman's recently issued corporate debt without imposing any restrictions on the Wall Street giant. In short, if Goldman were to default, the government would pay off its investors. This taxpayer guarantee has allowed Goldman and many of its banking peers to secure capital at exceptionally low rates, helping the firms survive during a time when any financing is hard to come by.

Even if Goldman is able to repay its TARP money, the company remains thoroughly dependent on taxpayer assistance. Once the TARP funds are paid off, Goldman will be free to pay its executives whatever it wants—even when that salary is subsidized by American tax dollars. That's a pretty perverse definition of accountability.

Of course, botched bailouts are not unique to the financial sector. As John Nichols explains in The Nation, the terms of automaker Chrysler's bankruptcy proceeding include plans to close down manufacturing plants across the Midwest, a strategy that undermines the entire economic justification for bailout: Sparing investors pain in order to save jobs.

"Tens of billions of taxpayer dollars are being poured into Chrysler and General Motors, ostensibly to 'save' the U.S. auto industry," Nichols writes. "Yet, the companies have acknowledged that they plan to use the money to shutter factories, lay-off tens of thousands of factory workers and dramatically downsize dealership networks–at the cost of as many as 100,000 additional jobs."

Still worse, it appears that both Chrysler executives and officials from the Obama administration mislead Congress on the implications of the bankruptcy. Nichols cites a letter from Rep. Dennis Kucinich, D-Ohio, in which the lawmaker says Congress was told there would be no permanent job losses a result of the Chrysler bankruptcy filing. The very next day, plant closings were announced in Michigan, Missouri, Wisconsin, and Ohio.

Even the economic stimulus package rewarded companies with a history of recklessness. In a piece for Salon, ProPublica journalists Michael Grabell and David Epstein reveal how contractors that have paid substantial fines for violating environmental regulations, federal safety rules and laws against racism have been able to score new business with the federal government. The worst offender? A contractor known as CACI International, which has been awarded three contracts worth $1.5 million under the stimulus package, despite ties to abuses at Abu Ghraib prison in Iraq.

CACI helped hire interrogators at Abu Ghraib, but an Army investigation found that the contractor ended up employing people with "little or no interrogator experience." Abuses committed by CACI employees included dragging a handcuffed prisoner on the ground, placing a prisoner in an "unauthorized stress position," dressing a prisoner in women's underwear and lying to investigators about using dogs in interrogations, according to Grabell and Epstein.

If the government relies on criminals to build the recovery, the public is not going to get the results it needs. But the recovery is only part of the solution to the current economic crisis. If we fail to prosecute executives whose active scheming and criminal negligence brought down the global economy, we are inviting more of the same behavior in the future.

Zach Carter writes The Weekly Audit for The Media Consortium.

Wall Street Probe Needs Your Vigilance

Isaiah J. Poole — Fri, 22 May 2009 07:19:26 -0700

President Obama's signing of a financial fraud crackdown bill this week has been largely overshadowed by the erroneous and irresponsible rantings of Vice President Dick Cheney and his right-wing fear-monger allies, and that's unfortunate for two important reasons.

One, it's a significant victory progressives should celebrate. In addition to giving the federal government new tools to detect and punish the kind of law-breaking and deception that is at the root of the economic crisis, it creates a "Financial Crisis Inquiry Commission" charged with examining "the causes, domestic and global, of the current financial and economic crisis in the United States."

This commission is charged with playing the same role that the Senate commission led by Ferdinand Pecora in the 1930s did in exposing the wrongdoing and ethical breaches that precipitated the Great Depression. The 10 members of the commission will be chosen by the Senate and House leadership. It has a broad mandate to probe the operations of financial markets, regulatory agencies, compensation structures, tax policies—in short, all of the major factors that drove the actions that led to the economic crisis. It will have the power to subpoena witnesses (with the caveat that either the Democratic chairman and the Republican co-chairman agree or that a bipartisan majority of the commission agrees) and is charged with reporting wrongdoing that it uncovers to either the Justice Department or the appropriate state's attorney general.

President Obama, in signing the bill, noted that the commission was important "so that we make sure a crisis like this never happens again."

The other reason that this story should have gotten more attention is the signing statement that Obama attached to the bill. That statement says, in part:

Section 5(d) of the Act requires every department, agency, bureau, board, commission, office, independent establishment, or instrumentality of the United States to furnish to the Financial Crisis Inquiry Commission, a legislative entity, any information related to any Commission inquiry. As my Administration communicated to the Congress during the legislative process, the executive branch will construe this subsection of the bill not to abrogate any constitutional privilege.

This could be nothing more than the White House rattling sabers, but given the Bush administration's record of using signing statements as bald-faced defiance of congressional intent, it behooves the movement to be on high alert. This is a potentially troubling signal that the administration reserves the right to obstruct the commission if it probes too deeply into the now-opaque decisions made by, for example, the Treasury Department in disbursing bailout money through the Troubled Asset Relief Program.

That is why the next critical decision that we will have to relentlessly push is the appointment of a tough-minded commission leader. That will be the job of Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi, who was an active proponent of the Pecora Commission idea. Elizabeth Warren, the expertly probing chairman of the special congressional committee overseeing the Troubled Asset Relief Program, has exhibited the kind of leadership that this job needs.

What's also clear is that we will have to watch the watchdog. The administration could hamstring this commission with constitutional privilege claims, and Republican appointees could cripple the commission to score political points and protect its Wall Street bankrollers. Finally, a media preoccupied with what it perceives to be sexier issues and weakened in its capacity to do its own investigative journalism could allow the commission's work to fall into obscurity, thus robbing it of its power to drive fundamental reforms. We will have to be ready to push the commission to confront the tough questions; to call out the obstructionists, regardless of who they are; and to amplify the commission's findings as we forge new and better rules for our economy.

Ken Lewis Ouster: The Start of Something Big

Mike Elk — Thu, 30 Apr 2009 08:25:07 -0700

Wednesday marked the beginning of what could be a stockholders revolution as Bank of America CEO Kenneth D. Lewis was ousted as chairman of the board.

A coalition of unions, community groups, pension funds, and angry stockholders forced Lewis to step down over his acquisition of Merrill Lynch at $15 billion loss and decision to give out $3.6 billion in bonuses to Merrill Lynch's executives. His loss of the chairmanship is most likely a precursor to him being forced to leave as CEO as it was for Wachovia's Kennedy Thompson and Washington Mutual's Kerry Killinger.

A coalition called Take Back the Economy, composed of organized labor, religious groups, community organizations and Moveon.org, had been calling for Lewis' ouster for several months. Brave New Films produced a video narrated by former Labor secretary Robert Reich outlining the corruption occurring at Bank of America . Through a grassroots and netroots-driven campaign, over 100 events were held across the nation against Bank of America and more than 90,000 taxpayer proxy cards were collected calling for Lewis's ouster for his corruption and greed.

In addition to the ouster, these groups demanded that two new board seats be created for an independent taxpayer director and a front-line employee. They demanded that all bonuses for executives be eliminated until taxpayers are paid back money the bank received under the Troubled Asset Relief Program. They also demanded that stronger whistleblower protections for any workers who reports abusive lending or banking practices are put in place. Finally, they called for Bank of America to provide health-care to all of its 247,000 workers, which it currently does not.

Meanwhile, The Finger Brothers, owners of 1.1 million shares of Bank of America from the sale of their family-controlled bank, Charter BancShares, to Bank of America), spent over $100,000 of their own money running television ads against Lewis. At the same time, worker-controlled pension funds like the CalPERS (the California pension plan whose efforts to sucessfully bring down corrupt NYSE Chairman DIck Grasso I wrote about last month here) and other state workers' pension funds came out publicly that they were going to vote against Lewis. All the heat from activists, angry investors, and state pension funds lead proxy advisory firms like RiskMetrics and Glass Lewis, which advise the portfolio managers of large institutional investors such as churches and nonprofits, to advocate that their clients cast their votes against Lewis.

As a result of the organized campaign from activists, pension funds, and angry stockholders, Lewis was ousted as chairman by a narrow 50.34 percent to 49.66 percent margin.

The message to the CEOs was clear: Watch out! Either CEOs will be more responsive to the demands for reform from small stockholders and activists or they will risk sharing the same fate as Ken Lewis. With over $6 trillion of workers' money in retirement plans, pension funds, profit-sharing, and stock plans, worker-controlled pension funds and their allies have a lot of weight in making these CEOs more accountable.

Could we be onto the start of something big, perhaps a stockholder revolution? I certainly hope so. My message to all the people upset over their losing their retirement funds is, "Don't mourn, organize."

Senate Backs Financial Crisis Investigative Panel

Isaiah J. Poole — Thu, 23 Apr 2009 10:45:01 -0700

Momentum toward a Pecora Commission-style inquest into the roots of the financial crisis got a boost from the Senate on Wednesday when it approved an amendment to a financial fraud bill that would authorize a select investigative committee.

If the bill passes with the amendment, which was approved by voice vote Wednesday night, the panel would "examine all causes, domestic and global, of the current financial and economic crisis in the United States."

The amendment has some key elements of what we have been calling for. The committee would be comprised of 10 people chosen by both parties in the House and Senate, and would explicitly have the power to subpoena witnesses and collect sworn testimony. The committee would have a year to submit its first report to the Senate, and would have two years to submit a final report.

Sen. Kent Conrad,D. N.D., cosponsored the amendment with Sen. Johnny Isakson, R-Ga. The bill that the amendment was attached to, The Fraud Enforcement and Recovery Act, is being debated on the Senate floor today and could be voted on later today.

In the meantime, House Speaker Nancy Pelosi promised that she would flesh out her own call for a Pecora Commission by the end of this week. If it is at least as tough as the Senate bill, we will have an important foundation for driving the accountability and reform that we need.

This post has been corrected. Several details in the original version related to the creation of a Senate select committee on the financial crisis, which was also added by amendment, not to the independent commission.

Pecora: A Look Back That Moved Us Forward

Mike Elk — Wed, 22 Apr 2009 08:49:23 -0700

Nowadays only a handful of financial wonks know who Ferdinand Pecora was. Yet in the depths of the Great Depression this son of a Sicilian shoemaker made his mark on history by uncovering the wrongdoing that led to the 1929 market collapse. The findings from the congressional commission he led fostered the regulatory structures that rebuilt the market and lasted until conservatives all but dismantled it during the past decade. We need another Pecora Commission in order to right the wrongs of the markets and get the economy moving again.

Ferdinand Pecora was a tough-nosed, street smart prosecutor who had learned about corporate abuse taking down stock fraudsters and predatory lenders as a New York City Assistant District Attorney in the 1920s. He was hired as chief counsel for the Senate Banking Committee in 1933.

Pecora's work taking down white-collar criminals in the 1920's led him to a fundamental belief:

"Had there been full disclosure of what was being done in the furtherance of these schemes, they could have not long have survived the fierce light of publicity and criticism. Legal chicanery and pitch darkness were the banker's stoutest allies."

For these reasons, many on Wall Street opposed his work, claiming that it would expose financial markets to undue risks. Critics argued, as they do today, that opening up all of Wall Street's books would erode market confidence. Three previous chief counsels to the committee had been stymied in their ability to expose fraud in the market because they had been denied subpoena power. However, the economy was in such dire shape that Franklin Roosevelt declared that the nation had to know what was wrong in order to fix it and insisted that Pecora be granted subpoena power.

Pecora's subpoena power allowed his team to uncover Wall Street frauds. The commission exposed corporate Ponzi schemes in which banks wrapped junk loans in convoluted plans to make them appear to be good investments. The similarity to today's schemes bring to the mind the old Yogi Berra phrase "It's like déjà vu all over again".

As Jackie Corr of Counterpunch explains in a must-read piece written on the Pecora Commission back in 2003:

Conspiring with Cuban President Gerado ("The Butcher") Machado as the National City Bank, [Charles Mitchell, chairman of National City Bank, now known as Citicorp] unloaded $31 million worth of useless Cuban sugar loans by transferring the insolvency to the stockholders of the National City affiliate without their knowledge. To do this the National City Company created a dummy Cuban company, the General Sugar Corporation.

... [I]n 1927 and 1928 the National City Bank dumped $90 million of worthless Peruvian government bonds on unsuspecting customers of the National City Company. Under the grilling of Pecora, Mitchell also conceded that the bonds were not "a good moral risk." Mitchell and Baker both testified to a memory loss when asked if there was any reason to consider the bonds sound.

Pecora uncovered how National City bank made huge profits through predatory lending practices and artificially inflating prices (deja vu again):

National City Bank and the Anaconda Copper Company conspired to defraud the public through call loans. Call money was first lent at 15%. This was followed by manipulation of Anaconda Copper fueling the speculative mania which was pushing stocks to record highs. In addition, Mitchell confessed to a series of National City Bank/Anaconda Copper operations that as of 1933 were the greatest frauds in American banking history. Among the details grudgingly given by Mitchell was the single most sensational Wall Street "sting" of the "Roaring Twenties." First, Mitchell, Rockerfeller and Ryan set up a "joint account" of nearly a million and a half shares of Anaconda Copper Company stock.

The stock was then repackaged and aggressively advertised and sold through the National City affiliate and its salesmen. At all times the "joint account" was being manipulated by Mitchell and Ryan who ran the stock up, from $40 in December, 1928 to $128 in March of 1929. The trio then dumped the stock, the results being one of the great fleecings of Wall Street. The hearings concluded that this single National City/Anaconda operation cost the public at least $150 million. At the time of the hearings Anaconda stock was listed at $4 a share. In addition to the millions made from these "transactions and others, " as Mitchell called them, none of the National City-Anaconda "joint accounts" required the insiders to put up any money.

Mitchell's admission that he had defrauded investors forced him to resign as the CEO of National City Bank. Additionally, a number of corporate wrongdoers were forced to resign and accept accountability due to the intense media pressure of the hearings. Most famously, under tough questioning J.P. Morgan even admitted under oath that he had not paid income taxes for three years.

Arthur Levitt, the former chairman of the Securities and Exchange Commission, gave the Pecora Commission credit for uncovering many abusive practices and bringing about new regulatory changes. By May 1934, the commission had generated 12,000 printed pages in several volumes. This work lead to the passage of the Glass-Seagall Act in 1933 to separate commercial and investment banking, the Securities Act of 1933 to prevent against false information, and the Securities Exchange Information Act of 1934 to regulate the stock exchange. The modern regulatory state was built as a direct result of Ferdinand Pecora's exposure of Wall Street. It worked well until it was dismantled in the late 1990's by conservative deregulatory ideologues such as former Sen. Phil Gramm, who led the Senate Banking Committee in the late 1990s.

With our economy in shambles, it is essential that learn what went wrong and why in order to rebuild. Bob Borosage, Co-Director of the Campaign for America's Future, has been a leading voice calling for a Pecora-like Commission here and Nancy Pelosi recently announced that Congress will start such a commission. It's important, though, that this Commission not be a whitewashing commission; it needs broad subpoena power to get to the bottom of this matter. Most importantly, we need a tough-nosed prosecutor like Ferdinand Pecora who is not afraid of ruining the careers of Wall Street criminals and their political patrons.

The Truth About Consequences: Conservatives, Progressives, and Accountability Moments

Sara Robinson — Tue, 21 Apr 2009 18:59:51 -0700

Whew. Run your bank into the ground? Hey, it was our fault for not keeping a better eye on you. Here's some cash. Since you're rich guys, we trust you to do the right thing going forward, so we're not going to bother you with a bunch of rules and oversight—but you promise to be good now, 'K?

Also, you Bush guys and CIA operatives who thought torture was a fine idea? Yeah, we know we've signed a bunch of treaties that unequivocally require us to bring you up on charges; but we're looking forward now, not back, so, y'no, whatever. It was pretty ballsy of a few of you to actually admit to committing war crimes in public. We know from "audacity" (it's our middle name, in fact), and that was audacity with the gain turned up to 11. I mean, really: We're impressed. Shocked and awed, even. But we're not gonna hassle you about ancient history, because it's so much more important that we keep our eyes firmly on the future. Just promise you won't do it ever ever again, all right?

It's interesting to watch the Democrats trying to work some life back into their long-neglected oversight muscle. Thirty years of conservative misrule have muddled Americans' understanding of words like responsibility, accountability, discipline, and punishment to the point where nobody knows that they mean any more—and don't seem to want to know, either. The social conservatives go on and on about the evils of postmodern morality and situational ethics; and on this score, I can't quite summon myself to disagree. It's been as though nobody on Planet Washington ever had a parent who was able to explain right from wrong, or demonstrate the role cause-and-effect plays in the ethical universe. It's like a moral-gravity-free zone.

Stuff happens. Whatever.

I am neither an ethicist nor a philosopher. But I am a mother, and know a thing or two about disciplining children. (I've got a freshly grounded teenager pouting upstairs right now who would be delighted to tell you all about it. At length. With loud choruses of what a Mean Mommy I am. What he doesn't know is: I take that tune as a clear sign I've done my job right.) And, as an observer of the differences between conservatives and liberals, I know that our attitudes toward discipline—whether it's children or adults who are being called to account—is one of our core areas of disagreement.

Understanding that difference may explain something about how we got here.

For conservatives, the goal of discipline is to assert the power of external authority. In their worldview, most people aren't capable of self-discipline. They can't be trusted to behave unless there's someone stronger in control who's willing to scare them back into line when they misbehave. Don't question the rules. Don't defy authority. Just do what you're told, and you'll be fine. But cross that line, dammit, and there will be hell to pay.

In this view, the whole point of punishment is for greater beings (richer, whiter, older, male) to impress the extent of their authority upon lesser beings (poorer, darker, younger, female). I'm in control, I make the rules, and I'm the only one of us entitled to use force to get my way. Since emotional and/or physical domination is the goal, the punishments themselves often use some kind of emotional or physical violence to drive home that point. Spanking, humiliation, arrest, jail and torture all fill the bill quite nicely. I'm not interested in what you think. Do as I say, or I will be within my rights to do whatever it takes to make you behave.

Note, too, the hierarchical nature of this system. Those at the top of the heap enjoy the freedom that comes with never being held accountable by anyone. This exemption is implicit in conservative notions of "liberty," and is considered an inalienable (if not divine) right of fathers, bosses, religious leaders, politicians, and anyone else on the right who holds power over others. The privilege of controlling others' liberty, without enduring reciprocal constraints on your own, is at the heart of the true meaning of "freedom."

Liberal parenting books, on the other hand, talk a lot about "logical and natural consequences." Since liberals believe that most people are perfectly capable of making good moral choices without constant oversight from some outside authority, the goal of discipline is to strengthen the child's internal decision-making skills in order to prepare him for adult self-governance.

Wherever possible, parents are encouraged to do this by letting misbehaving kids live with the natural consequences of their own bad choices. I'm not mad at you. I still love you. But you spent all your allowance on Tuesday, and now you get to be broke until Saturday—and I'd be lying to you if I let you think that the world works any other way. Since you two can't figure out a peaceable way to share that toy, I'm going to take it away. Now that you've annoyed the bus driver to the point where the principal had to call me and put you off the bus for a week, you're not going anywhere else for a while, either—including that big event this weekend you've been looking forward to for the past two months.

Ah...I've said too much. But you get the point: Conservative discipline is all about reinforcing power hierarchies and achieving control through "respect" (that is: fear), and liberal discipline is about teaching accountability and reinforcing the consequences of one's own choices. And I think the muddle we're hearing out of Washington these days is based on the seriously crossed wires between these two ideas of accountability. We're all using the same words, but we're also all hearing very different things.

Let's be clear: Our system of laws was built entirely on the liberal model. The objective of a hearing, investigation, or trial is to dispassionately discover the facts of the matter, and make sure that the consequences are as natural and logical (read: fair) as possible. We're not judging your inherent worth, just your actions. We are forbidden from using force, or punishing you just to prove to you that we can. We have a sacred obligation to ensure that the consequences are more or less proportional to the crime. A good chunk of our Bill of Rights is devoted to making sure the conservative notion of punishment—the arbitrary exercise of power for power's sake—doesn't ever become part of our system of justice.

Given that, we need to be very concerned that the Democrats, as the liberal party, have apparently completely forgotten how any of this is supposed to work. These days, when you broach the subject of holding someone accountable, they physically seize up. You can actually see the wave of terror gripping their bodies. Over the past 20 years, they've completely internalized the conservative frame that "accountability" can never be anything but an ugly partisan witch hunt designed mainly to take out enemies and bludgeon the other side with the full fury of state power. The idea that such moments might be (and, in fact, very often have been) something noble, fine, cleansing, and healthy for the country is almost beyond their comprehension. Pecora? Truman? Ervin? Church? That was a long time ago. We couldn't possible do that sort of thing any more.

When you think about it, it's not hard to see how this dangerously uniform bipartisan consensus against creating actual "accountability moments" came about. The bracing revelations of Watergate were followed by the Church investigations and Iran-Contra—all of which were liberal-style open inquiries that sought nothing more than to establish the truth and restore justice, but shook conservatives to the core. What the Democrats saw as doling out logical and natural consequences (break the law, go to jail—what's so hard about this?) the conservatives experienced as being on the receiving end of an authoritarian-style punitive smackdown. They were powerful people, above punishment. This wasn't ever supposed to happen to them. (How dare they challenge our authority?) Being who they were, they couldn't help seeing it as anything other than pure payback, a raw demonstration of power. And the only appropriate response was to show the Democrats how very, very out of line they were—by disciplining them in the conservatives' preferred way, with a show of unrepentant and overweening force.

Which, of course, led to the full frontal assault on Bill Clinton. They had to teach that boy who was boss, and get him back in line. The Democrats, in turn, were so stunned by the ferocity of the whole thing (there was nothing logical or natural about any of it) that they decided, en masse, to make sure it never happened again.

Unfortunately, they did this by giving up and swallowing the conservative frame whole. Yep, we get it now: "accountability" is only ever a synonym for "ugly brutal partisan persecution," and we don't want any part of it. Even more unfortunately, this abdication happened just in time for the arrival of George W. Bush—who, as his own parents might be the first to tell you, is the one president in history most likely to grab hold of that lack of oversight and run with it all the way to the end zone, thus clinching the all-time record for Most Fascist President.

I don't have research on this, but I'm pretty sure that after eight years of the most lawless presidency in history, most of us had "restoring real accountability" fairly high up on the Hope and Change list when we cast our votes for Barack Obama. We were craving that even-handed, reasonable, cleansing moment—a season of transparency that would show us where we went wrong, let some air and light into the wounds, and allow us to begin to heal. He sounded for all the world like the kind of morally serious person who understands the difference between right and wrong—and between that kind of old-fashioned even-handed inquiry that simply finds what it finds and deals with miscreants without fear or favor, according to the demands of the law; and a partisan witch hunt that's conducted for no higher purpose than terrorizing your opponents into submission with naked displays of unchecked power. He seemed like just the guy to do it.

So the last thing we expected was to hear him warbling that same terrified-Democrat line, starting within days of his inauguration. Fortunately, as outrage over the torture memos spreads, both the President and Congressional Democrats seem to finding their moral feet again. And not a moment too soon, either—because if they blow this one, it's nothing short of the end of America as we know it.

When the administration says that "we're not looking backward" and "we're not out to assign blame or punish anyone," what it's really saying is that there no longer any real relationship between cause and effect in our government. The very idea of consequences has absolutely no meaning. If you have access to enough money and/or power, there is nothing you can say or do, no amount of money you can steal, no lie perfidious enough, no fraud brazen enough, no treason heinous enough, to get you so much as called up before a hearing to explain yourself.

And that's a truly frightening development. A government that cannot fairly, honestly, transparently hold people to account—where, in fact, nobody can apparently even imagine that such a thing might be possible—is by definition, no longer a government of laws, because the law depends on a strong relationship between cause and effect. When our leaders have so thoroughly internalized the idea that the only possible use of justice is to use government force to seize political advantage or economic power over other people, we've pretty much irrevocably passed the point where we are now a government of men. When even liberals resign themselves to those medieval conservative ideas about justice as our new national norm, they have failed the country—and we have ceased to be America.

The truth about consequences is this: There can be no restoration and reconciliation until people are reassured that the outcome will actually matter, that the real story will be told, and that people will be held accountable for their choices. They are also the very definition of justice, and the necessary precondition of freedom. The most important change we need right now is leaders with a quickening sense of liberal discipline—including the self-discipline and moral courage to stop looking the other way.