"The decisions that are made in the next six months or so are likely to set the economic course of this country for the next 50 years," says Elizabeth Warren, who chairs the COP, the Congressional Oversight Panel charged with reviewing the banking bailout. "That's what happened coming out of the Great Depression, and I think that will happen now."
So Warren is pushing for Treasury to show us the money. What has been done with the $4 trillion the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporations have poured into the financial houses to date? In February, Warren's committee revealed that Treasury provided the top 10 TARP recipients with a subsidy of $78 billion over the market value of the preferred shares purchased for taxpayers, even while stating publicly that the purchases were made "at par."
But it has been hard going. This weeks' brief hearing with Treasury Secretary Tim Geithner represented the first time a Treasury official appeared before the panel. And repeated requests for documents were met with "prolonged silence," in the words of COP commissioner Damon Silvers, until Treasury finally disgorged 10,000 documents this week.
The Committee's April report summarized the experience of this and other countries in previous banking crises and concluded that successful resolutions all involved four critical elements:
transparency (particularly an honest evaluation of bank holdings),
assertiveness (including shutting down banks that were irreparably insolvent),
accountability (replacing management and prosecuting criminal conduct)
clarity (forthright reporting on use of public funds)"
These do not exactly evoke the current Treasury plan.
Warren's pluck is earning her the enmity of the banking lobby. In a shot placed in Politco, one of Capitol Hill's house newspapers, banking lobbyist Wayne Abernathy of the American Bankers Association groused: "A number of people wonder if this is the new Warren commission or the congressional oversight panel. It's looking more like the former than the latter."
This opposition has been echoed, naturally, by the two Republicans on the COP itself, Rep. Jeb Hensarling and former Senator John Sununu, recently rejected by voters as too conservative for New Hampshire. They dissented from the last report, suggesting bizarrely that COP's charter allowed it only to investigate Treasury's plan, not review other alternatives.
Remarkably, one of the three Democrats on the panel, New York State Superintendent of Banks Richard Neiman joined Sununu in a dissenting comment that might have been written at the bankers association. Neiman, who touts himself as House Speaker Nancy Pelosi's appointment, earned HuffPost kudos by inviting readers to send in questions to ask the Treasury Secretary. But he joined with Sununu to suggest that even "speculation on alternatives" like "nationalization" could end up "needlessly eroding market confidence."
Say what? The IMF says that U.S. finance sector faces $2.7 trillion in losses. Bank of America and Citibank are still writing off billions each month. Nobel prize winners like Paul Krugman and Joe Stiglitz are warning that the Geithner plan can't work. And Neiman and Sununu think that the COPs review of alternatives may shatter confidence? If not for that paragraph or two, our faith would be restored?
They go on to suggest that by merely parsing receivership for the major banks—something the FDIC does with insolvent banks regularly—Warren was verging on the subversive, since the Congress clearly wanted a plan like that current one that "avoids the subsequent need for more extensive forms of government intervention in the markets- forms less consistent with our American experience of democratic capitalism."
But even if Neiman regains his senses and rejoins the majority, Warren's investigation is limited because the COP is essentially unarmed. It has no subpoena power. No right to demand production of documents. No right to demand appearance of witnesses. It can ask questions and blow whistles. It can, as Warren says, be "cranky" in public. But it can't force answers or haul in the evasive. It has neither the charter nor the power to expose what is going on inside the banks, much less investigate the roots of the crisis.
Now House Speaker Nancy Pelosi has added her powerful voice to the call for an independent investigation—something like the 1930s Pecora Commission to probe the excesses and crimes that led to the current financial collapse that cost Americans some 20 percent of their wealth.
As I've written here, the Pecora Commission, named after its chief counsel Ferdinand Pecora, was the 1930s Senate Banking Committee investigation that exposed the frauds and crimes of Wall Street of that day. Armed with the subpoena power to delve into records and to haul miscreants and barons before the committee, Pecora helped create the record, fuel the public outrage, and gird the congressional courage to put in place real regulation of the banks.
What Pelosi intends isn't clear. She congratulated Rep. John Larson, a member of the House Democratic leadership, for his legislation calling for an independent bipartisan commission. But Larson's bill doesn't make clear provision for subpoena power. And it calls for the commission to report back in 90 days, an impossible deadline that would provide clear incentive for every target to run out the clock. The relevant committee chairs, Sen. Chris Dodd and Rep. Barney Frank, appear unenthusiastic, preferring to get onto reform and hold hearings themselves. .
Will Congress set up a special committee or an independent commission, armed with subpoena power, led by a fiercely independent counsel, to hold very public hearings into the roots of the crisis, exposing the crimes and follies of Wall Street? Or will it continue to leave the cop on the bank beat disarmed?
Cynicism is easy. The Wall Street "financial services" sector has been by far the largest contributor in every U.S. election cycle for the last 20 years, according to the Center for Responsive Politics. Individual and political action committee donations from Wall Street in 2007 and 2008 totaled $463.5 million, compared with $163.8 million from the health-care industry and $75.6 million from energy companies.
But now the follies of finance have devastated not just Wall Street but families across this country and the world. As Pelosi says, Americans are angry. We want to know what happened. We want those responsible to be held accountable and we want to make certain it can't happen again.
Will Congress step up? Whether we get this right will depend upon a citizenry outraged enough to demand the congress create an independent investigation with the charter, the capacity, and the sheer chutzpah to expose how Wall Street drove us off the cliff.