It has always shocked me that it took nearly four years after the Crash of 1929 for the famous Pecora hearings to take place. One cannot believe that all that time passed before the Senate held hearings that exposed the corrupt and short-sighted practices that ruined the economy. Well, here we are, coming up on three years since the fiasco of 2008, and we still have not had the high profile hearings that focused public attention in a way that led to real reform. Why, there’s going to be an HBO movie about the crisis later this month! HBO got a movie before we got hearings!
Fortunately, we might still have a chance. Writing in The Baseline Scenario, Simon Johnson argues that if President Obama would come out and nominate Elizabeth Warren to head the new Consumer Financial Protection Bureau (CFPB), and agency she did so much to design, her confirmation hearings could provide the focused exposure necessary to real reform. “A proper Senate confirmation hearing,” says Johnson, “would be the perfect platform for Ms. Warren to explain, (a) not only do “too big to fail” banks now constitute and hugely dangerous government subsidy scheme, but (b) based on these subsidies, they are becoming larger and acquiring more market power that can be – and has been – used to abuse consumers in a nontransparent fashion.
“All attempts so far to construct some form of Pecora Hearings have failed – partly because the issues are complex and partly because of partisan fighting. The Financial Crisis Inquiry Commission made some progress but could reach no consensus (or bring anyone to justice). Senator Levin’s hearings into Goldman Sachs grabbed attention and were most helpful in the Dodd-Frank reform debate but again no one is going to jail – and few people even grasp what were the real issues at stake. And the Department of Justice has preferred to pursue insider trading cases, perhaps taking the view that these are easier to explain to juries. But Elizabeth Warren cuts through the complexity and offers a message that – outside of Washington – plays well across the political spectrum.
“Her message is simple: the consumer “market” for financial products does not operate like a proper market because leading firms (bigger banks and also nonbanks, like some payday lenders) have figured out how to make a great deal of money by confusing their customers. . . . If someone attempted to sell boxed cereal in the same fashion that many financial products are now sold, that person would be drummed out of the cereal business. The norms of that sector (and many other nonfinancial sectors in the United States) would not stand for this degree of deception and malpractice.”
Johnson is convinced that Warren’s confirmation hearing would become a defining moment for thinking about finance in America. “And reform would win,” he says. “All the missed opportunities, botched bailouts, and kowtowing to megabanks would fade into the background. Every attempt at change must face many setbacks – and financial reform has really struggled to have any impact. But at the end of the day, if Elizabeth Warren wins, we all win.” And there’s still a chance we could move faster than Pecora!
[Cross-posted at JamieMalanoski.com]