A New Pecora Commission?

In Financial Crisis, History and Politics, New Deal, Political Ideology, Politics, Regulation, Social Democracy on August 31, 2009 at 11:38 pm


So it turns out we haven’t gotten financial regulatory reform, and we haven’t gotten executive compensation. We got stiffed on cram-down and on credit card reform. Business is more or less back to usual on Wall Street, with bonuses flowing freely, and even more disturbingly, the repacking of mortgages returning as a dog to its vomit.

Almost as a consolation price, what progressives have gotten is a Financial Crisis Inquiry Commission, headed by Phil Angelides. And a huge amount of hope has been generated that maybe this Commission will turn out to be a new Pecora Commission, exposing the greed, the fraud, the sheer incompetence of the financial sector, and discrediting the so-called “FIRE” (Finance, Insurance, and Real Estate) economic model. The original Pecora Commission gave the New Deal’s financial regulations an enormous amount of legitimacy in the eyes of the public, but in a larger sense they also wiped away the idea that business knows best – at least until the tide turned towards deregulation in the 1970s.

But before we get our hopes up, we need to take a second look at history.


If you pay attention at about 3:48, when FDR at his most aggressively populist attacks the nation’s bankers – ” the rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men” – you are hearing a president tapping into the deepest wellspring of popular opinion. But he wasn’t doing it alone; behind him, inside the U.S Capitol Building, the Pecora Commission began its work the very same day as Roosevelt’s Inaugural Address.

The Pecora Commission was a progressive dream, a slashing expose of double-dealing, corruption and plain incompetence that pulled back the veil on the “masters of the universe.” Banks were found to have floated bogus securities for the purposes of recouping bad loans and bank executives routinely ran companies on the side who issued stock which they sold to the bank for an easy rakeoff. No one, no matter how august, was safe: J.P Morgan, the grand old man of Wall Street who had once single-handedly stopped economic panics and dictated financial policy to Treasury Secretaries, was made to admit that he had dodged his income taxes.

And yet, we forget that the reason why the Pecora Commission was such  success was that it had a huge coalition backing it. Inside Congress, urban Northern Democrats who believed that money was being stolen from workers by the capitalist class made alliances with Progressive Republicans who hated monopolies and Southern Populists who just hated Yankee bankers. FDR worked behind the scenes to keep chief counsel Pecora in his job and the investigation going, knowing that the longer the revelations went, the easier it would be to pass New Deal reforms. Outside of D.C, a newly-aggressive and expanding labor movement, a small yet vocal left organized through the Communist and Socialist Parties, and a muckraking press amplified public pressure against the bankers.

Without this political support, the Pecora Commission would have died; but equally importantly, without this political coalition, the Pecora Commission’s findings would have found no outlet in legislation. As much as progressives have this romantic belief that truth and science can suddenly open people’s eyes and create an sudden surge of political outrage that rights all wrongs, we can’t forget the more prosaic reality


And the reality of the present is that, although we have majorities in both Houses, and the presidency, we don’t necessarily have an anti-corporate political coalition. The Southerners, of whatever party they may be, aren’t economic populists any more; they’ve allied themselves with the corporate interests of the Sun Belt, not the interests of their poorest constituents. There aren’t any more Progressive Republicans; they’ve all moved into the Democratic Party or into the history books. And while the median Democratic Senator or Representative in 2009 is substantially more progressive than they were in 1992, they’re not nearly as left-leaning as they were in 1932.

As for major social movements, they’re not so much in evidence. Not that the political support isn’t there, or that activists aren’t there, but the problem is that there are a thousand different organizations trying to draw from the same well of support, these organizations don’t always get along, and there isn’t really any coordinating body.

Moreover, without trying to be either to be leftier-than-thou or overly forgiving, it’s obvious that the Obama Administration has not made a challenge to corporate interests its cause. And to be clear – I don’t think this is the nefarious work of Goldman Sachs alumns Geithner and Summers or any other such conspiracy. We knew from the primaries that Obama wasn’t into populist attacks on corporations; he’s always had something of a fondness for behavioral economics and projecting the kind of cool, post-ideological technocratic liberalism that epitomized the New Frontier.

Pace to Paul Krugman, but that doesn’t mean the game is over. If history teaches us anything, it’s that presidents change dramatically over time. As someone who’s studied the New Deal for almost a decade now, I can tell you that in 1932, FDR was not a populist titan. I disagree with those who argue he was essentially similar to Hoover, but it’s fairly clear that Roosevelt in the early days of his Administration was a moderate progressive who was perfectly willing to sit down and cooperate with business if he thought it could advance the national interest. The FDR of 1936 was a very different politician; he had seen business scorn his very generous efforts – such as the NRA – to deal with their grievances and advance recovery, and he had taken their attacks on himself personally. By that point, his welcome of their hatred made his turn leftward to “soak the rich” good political sense as well as good policy, and there’s a reason it happened in the context of a re-election campaign opposed by corporate contributions to the Republican Party.

Obama isn’t yet in that position, hasn’t had to make that choice.  And we don’t know yet which way he’ll go.


I don’t want people to get the wrong idea from this post; I’m not a pessimist. But I am someone who tries to think through what I do and what I believe in when it comes to politics and tries as much as possible to check my assumptions against historical evidence.

The belief that political change comes through an exultant, transfiguring moment of national renewal is a deeply held belief in American politics, dating right back to the Revolutionary Generation. In Common Sense, Tom Paine wrote “we have it within our power to begin the whole world over again.” Contrary to belief, the “Spirit of ’76” was not a moderate but a radical political philosophy that had to be with great difficulty molded by political elites for more than thirty years before it could be safely channeled through the new constitutional order.

The problem is that it’s not a good strategy for reform. You can’t really operate a democracy in a constant state of ecstatic exaltation; that level of spiritual and sensory bliss is simply not sustainable for any length of time. The body’s natural equilibrium begins to revert, the high stops, the heart slows, and you have to return to the material world again. You need that exaltation, the memory of it, to keep you going through the long, boring hours of hard political work, but you can’t rely on it for every political fight.

A Pecora Commission, ultimately, isn’t the be all and end all of progressive change. Regardless of what it turns out to be, it will be just one more battlefield in a longer struggle to shape the political imagination of both the public at large and political elites. And that struggle, to undermine the cultural and intellectual deification of financial capitalism and the belief in inherently efficient markets that goes with it, will take work to win, work to build political coalitions that have muscle behind them, work to strengthen social movements to create the pressure for such a coalition.

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