Welcome Michael Perino, and Host, Cynthia Kouril.

[As a courtesy to our guests, please keep comments to the book.  Please take other conversations to a previous thread. - bev]

The Hellhound of Wall Street: How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance

Cynthia Kouril, Host:

The country is in the grip of a great financial crisis. People face record unemployment.Wall Street executives are described as geniuses who are fully worth the exorbitant salaries and bonuses they are paid, but those salaries are coming out of money that should rightfully go to their shareholders.

Banks are on the verge of collapse as a result of “innovative” new “financial products” that in reality are incestuous self dealing and market manipulation. Millions of dollars have been lost by investors who bought these new financial products believing them to be safe, but in reality they were backed by next to nothing.

You think I’m talking about mortgage backed securities and counter-party trades, don’t you?

Attempts at reform by a few brave souls in Washington are met with political isolation and derision from the Masters of the Universe. It seems that there is no political will to rein in the excesses of Wall Street or to impose meaningful regulation.

Now you are sure I’m talking about today, aren’t you?

The year is 1933. An unlikely former ADA from Manhattan named Ferdinand Pecora in named as the 4th in a series of counsels to the Senate Banking and Currency Committee, which had held a year of unproductive and under reported hearings that moved nary a vote in favor of reform. In just 10 days of riveting hearings during the lame duck session at the end of the Hoover administration, Pecora managed to put on an instructive passion play that captured the imagination of the public and Capitol Hill and presented a narrative that was both easy enough to explain in a 400 word newspaper story and dramatic enough to ensure that such stories were written in bulk, every day of the hearings.

Reform proposals that were laughed off in Washington just a few months earlier were now getting serious hearings in the waning days of the congressional session.

Investigators before Pecora had hesitated to rip the band-aide off the festering wound on the American and world economy fearing that it would further erode public confidence in the banking system; we hear that same argument today. As New York Herald Tribune columnist Walter Lippman wrote:

The much debated question as to whether Congressional exposure of the [the President of Citibank’s] conduct of the National City Bank was in the public interest can now be answered clearly in the affirmative. It is, of course, true that the exposure accelerated the banking crisis by adding to the popular distrust of banks. But the exposure has proved to be a good thing, not merely in the general sense that wrongs should always be exposed whatever the consequences, but in the specific sense that the way has been opened to a more thorough-going reconstruction. The crisis has not only made it possible for the Administration to reform the banking system drastically, but it has produced, or at least brought into the open, a recognition of evils and a desire for reform within the banking community itself.

It will not surprise you to learn that Pecora’s contract as committee counsel was renewed and the hearings continued through the first year of FDR’s new administration.

I have long been a fan of Ferdinand Pecora. The transcripts of the hearings he ring-mastered are page turners. They read like a movie script—I should know, I’ve read them too many times. The questions he asked are as timely today as they were in 1933. As a direct result of the influence the Pecora Hearings had on American opinion, the Securities Act of 1933, the Banking Act of 1933 (known around these parts as Glass-Steagall) and the Securities Exchange Act of 1934 overcame the political resistance that had once seem to doom their passage and they were signed into law.

Professor Michael Perino, the Dean George Matheson Professor of Law at St. John’s University Law School, has written a study of the man who brought about this miraculous change in public opinion and politics by understanding how a trial lawyer crafts a story for the mind of the jury; in this case, the jury was the American public and Congress. This biography is full of little known personal details about the times and events that shaped Pecora and the path that brought him to his pivotal service in room 301 of the Senate Office Building.

It contains the back stories and side stories of men and institutions that dominated the Crash of ’29 and the Great Depression. It’s got politics, gilded age opulence, Depression age poverty, and up by the bootstraps Horatio Alger story, a little sex and a lot of courtroom drama. If it weren’t all true, it would make a great historical novel.

Most of all, the parallels with today smack you in the face on almost every page.

149 Responses to “FDL Book Salon Welcomes Michael Perino, The Hellhound of Wall Street: How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance”

BevW December 4th, 2010 at 2:00 pm

Michael, Welcome to the Lake.

Cynthia, Thank you for Hosting today’s Book Salon.

egregious December 4th, 2010 at 2:00 pm

Great book – welcome to Firedoglake!

Michael Perino December 4th, 2010 at 2:00 pm
In response to BevW @ 1

Thank you for having me here today.

Michael Perino December 4th, 2010 at 2:01 pm
In response to egregious @ 2

I am glad you enjoyed it.

dakine01 December 4th, 2010 at 2:01 pm

Good afternoon Michael and welcome to FDL this afternoon.

Good afternoon Cynthia

Michael, I have not had an opportunity to read your book but let me cut right to the chase – where is the present day Pecora when we need him (or her)?

Cynthia Kouril December 4th, 2010 at 2:02 pm

Michael, I;s so glad you could join us. As you know I am a huge fan of the Pecora hearings, so you book was a real treat for me.

Cynthia Kouril December 4th, 2010 at 2:02 pm

OK, so lousy typing has already reared it’s ugly head.

Cynthia Kouril December 4th, 2010 at 2:03 pm

So, what led you to qwrite a biography of Pecora? How did this come about?

Michael Perino December 4th, 2010 at 2:03 pm
In response to dakine01 @ 5

That is an excellent question, and oone that I am frequently asked. Unfortunately, every time I am asked it I have to say the same thing–I have not see him or her yet. It certainly hasn’t been anyone on the Financial Crisis Inquiry Commission.

Cynthia Kouril December 4th, 2010 at 2:05 pm

Actually, related to Dakine’s question, maybe you could explain for our readers why the hearings that came before Pecora joined the committee staff were not fruitful and why Pecora was able to make a difference when nobody else could?

Michael Perino December 4th, 2010 at 2:05 pm
In response to Cynthia Kouril @ 8

I actually started off writing an entirely different book, but one tangentially related to the Pecora hearings. I went over to read pecora’s oral history at Columbia University and by page ten I was compelely hooked. He had this tragic immigrant childhood and his tory just immediately resonnated with me.

Michael Perino December 4th, 2010 at 2:09 pm
In response to Cynthia Kouril @ 10

The hearing were started in march 1932 by Herbert Hoover, who was convinced that short sellers were undermining his reform efforts. Early counsel proved to be ineffective for a variety of reasons–they had not done their homework, they were not willing to challenge the leaders of Wall Street and they remained focused on narrow inquiries about shady market operators. Pecora was a fabulous lawyer–he had tried something like 1000 cases as a DA. He was the best prepared person in the room. He refused to back down to the elite–J.P. Morgan complained that Pecora treated him like a common horse thief!

egregious December 4th, 2010 at 2:11 pm

How much corruption will there be before there will be a widespread call for a new Commission?

Cynthia Kouril December 4th, 2010 at 2:13 pm

As a New Yorker, one of the things I like about the book was the description of him as he went about his career in the City. I could picutre him walking into various buildings and imagine the traaffic and the people.

If you like Boardwalk Empire and all that period detail, you will love this book. In many ways it reads more like popular fiction than a heavy non fiction book. It really is a pleasure read.

Michael Perino December 4th, 2010 at 2:14 pm

Pecora did something else that proved important–he completely changed the focus of the hearings. Instead of focusing on manipulative pools and other market operations, Pecora set out to examine the way in which Wall St. “manufactured” securities. He also went after the elite leaders of the most prestigious firms. Unlike the market operators, many people still believed that these men (all men at the time) were of “unimpeachable integrity.” When Pecora showed that that wasn’t true, when he showed that these elite leaders had engaged in exactly the same financial wrongdoing as the shady market operators, it was eye-opening, and ultimately revolutionary in terms of Washington’s relationship to Wall Street.

Cynthia Kouril December 4th, 2010 at 2:14 pm
In response to egregious @ 13

Eg,
Nancy Pelosi called for the creation of a new new Pecora COmmission, and then appointed Phil Angelides to head it

Scarecrow December 4th, 2010 at 2:14 pm

Why did that era produce so much useful reform but ours cannot do it. What have we lost? What are we missing?

Michael Perino December 4th, 2010 at 2:17 pm
In response to egregious @ 13

I am worried that the time for such a commission has actually passed. There was, to be precise, no commission back then. Pecora was chief counsel to the Senate Banking Committee, not the leader of an independent commission. The problem with commissions, as I wrote in a piece for the NYT, is that they tend to be bipartisan (not nonpartisan) and are often hampered by rules making it very difficult for them to operate.

My NYT piece is here http://dealbook.nytimes.com/2010/10/14/another-view-lessons-from-pecora-were-ignored/

Cynthia Kouril December 4th, 2010 at 2:18 pm
In response to Michael Perino @ 15

Ah, “manufactured securites” is really what we have in the current day as well. There was so much profit to be made in mortgage backed securites, that loan originators completely dropped their underwriting standards and gave liars loans to anybody and everybody, and then you have the “manufactured security? that Goldman Sachs put to gether for a client, for the sole purpose of allowing him to bet against it

Michael Perino December 4th, 2010 at 2:19 pm
In response to Cynthia Kouril @ 14

I appreciate that. I wanted to write a book that was both infomrative and entertaining. I wanted it to read like a courtroom drama, not like a dry piece of academic writing.

Cynthia Kouril December 4th, 2010 at 2:19 pm
In response to Michael Perino @ 18

Actually, in the same way Pecora worked for an existing Senate Comittee, there is no reason why the Seante Banking Committee could not do the same thing

Michael Perino December 4th, 2010 at 2:22 pm
In response to Scarecrow @ 17

Pecora’s succcess was driven by three factors: (1) who was a superb lawyer who knew how to handle himself in the courtroom; (2) he was capable of taking dense and arcane economic concepts and turning them into simple morality tales; and (3) he had impeccable timing. Just as he decided to put the preeminent banker of the day, Charles Mitchell of City Bank, on the stand, the banking crisis of 1933 hit.

egregious December 4th, 2010 at 2:23 pm

Do you think the media of the day was helpful to Pecora, or did they stand in his way?

Michael Perino December 4th, 2010 at 2:25 pm
In response to Cynthia Kouril @ 19

Back then it was the debt of various South American countries. There was testimony in the hearings that US banks almost forced these loans on the countries, even though the bankers knew that the countries had little hope of repaying them. I talk in the book about Peru. City Bank sold Peruvian bonds even though internal memos at the bank recounted that the Peruvian treasury was “flat on its back and gasping for breath” and even though the bankers estimated that a revolution in Peru was a distinct possibility.

Michael Perino December 4th, 2010 at 2:28 pm
In response to egregious @ 23

As always there was a mixture. Many in the media accused Pecora of being a demogogue. But I think that was the minority. Pecora was a great story for reporters–here was this short little Italian immmigrant grilling the Anglo-Saxon elite of Wall Street. Most of the press loved the contrast, particularly when bankers were being to be referred to as “banksters.” Pecora also knew how to give the reporters good stories. Rather than getting bogged down in endless detail, he would use anecdotes to show how one set of bankers ripped off one set of clients in one particular transaction. He really was an incredibly effective teacher.

Cynthia Kouril December 4th, 2010 at 2:29 pm

Again going to the parallels between then and now, the Walter Lippman column I quoted above IMHO debunks most of the Chicken Little/sky will fall nonsense that suggests that banks are too big to fail and their excesses must be bailout, covered up or smoothed over lest the market crash.

Newsflah, the markets DID crash and we are heading into 10% unemployment

ghostof911 December 4th, 2010 at 2:33 pm
In response to Michael Perino @ 22

Is there more collusion between the banking system/Wall St. and the top tier of govt. now than in Pecora’s time? If there is, would that explain why useful reform is more difficult to achive now?

Cynthia Kouril December 4th, 2010 at 2:33 pm
In response to Michael Perino @ 25

You’d think some enterprising staff counsel would just dust off those trascripts, update the names and have at it.

Those same questions would work as well today as they did so long ago.

To any lurking hill staffers

–>hint –>Hint –>HINT

Michael Perino December 4th, 2010 at 2:34 pm
In response to Cynthia Kouril @ 26

I think if you look at the history of substantial reforms to financial regulation you see that such reforms are invariably episodic–they always come in the wake of crisis and scandal. One reason Pecora succeeded the way he did was because the banking crisis was as bad as it was. When FDR was sworn in on 3/4/33, 38 states had already completely shut down there banks. In the remaining ten states you could only take out about 5 or 10% of your money at any one time. The whole financial structure of the country seemed to be disintegrating before everyone’s eyes. Showing wrongdoing in the banker sector under those conditions paved the way for the federal securities laws, federal deposit insurance, and Glass-Steagall.

Michael Perino December 4th, 2010 at 2:37 pm
In response to ghostof911 @ 27

Hard to say. If you look back at the archival documents from the time period you see that top bankers had pretty easy access to the White House during the Hoover administration. One of the City bank lawyers during the hearings was a former assistant secretary of Treasury. The day after he left Treasury, he was named as a director of City Bank’s securities selling affiliate, The national City Company. The revolving door revolved pretty quickly back then as well.

Cynthia Kouril December 4th, 2010 at 2:38 pm
In response to Michael Perino @ 29

You’d thing throwing so many people out of their homes + huge unemployment, would = the kind of crisis that would get us some meaningful reform legislation.

What more can we do?

Dearie December 4th, 2010 at 2:39 pm

Mr. Perino, having written this interesting book, surely you have made some comparisons with then and now. Are there any politicians of today who have any integrity left and who might actually work to try to bring Wall Street and our current banksters to account. Or are we doomed?

PeasantParty December 4th, 2010 at 2:41 pm
In response to Dearie @ 32

Great question!

ghostof911 December 4th, 2010 at 2:41 pm
In response to Michael Perino @ 30

But did the banks have as much influence with Congress as they do today? It’s hard to imagine the Senate Banking Committee today letting a modern-day Pecora have free rein.

eCAHNomics December 4th, 2010 at 2:42 pm
In response to Michael Perino @ 29

But there is no guaranty that bad times will generate good solutions, is there? Bad times are a necessary, not sufficient, condition for the right thing to happen, no? I think that is one of the lessons of the current situation.

Cynthia Kouril December 4th, 2010 at 2:42 pm
In response to Michael Perino @ 30

The revolving door and its related conflicts of interest is another striking similarity between then and now.

December 4th, 2010 at 2:42 pm

Wondering if there is any way to slow down the revolving door between Treasury and Wall Street. Is this just wishful thinking?

Michael Perino December 4th, 2010 at 2:42 pm
In response to Cynthia Kouril @ 31

The real problem is these moments when real reform can happen are increadibly fleeting. The City Bank hearings in the winter of 1933 were happening against a back drop of Hoovervilles, 25% unemployment, breadlines, and a collapsing banking system. And it all happened at once. It was as if the Goldman hearings of last spring were happening at precisely the same time that Lehman Brothers collapsed and AIG and others were bailed out by the gov’t in the fall of 2008.

Cynthia Kouril December 4th, 2010 at 2:44 pm

OK, how much of this mess would simply go away if we reinstated Glass-Steagal?

Michael Perino December 4th, 2010 at 2:46 pm
In response to Dearie @ 32

I think there are people who are sincerely trying to do that. The problem is that it is simply not enough for a handful of people to want to do it. The forces for maintaining the status quo tend to overwhelm such uncoordinated efforts. Pecora’s success came because he created such pervasive outrage among Americans that Congress had no choice but to pass financial reform. And FDR knew how to capitalize on that kind of political moment. It was FDR who instructed Pecora to keep up the pressure on Wall Street, pressure that he knew he could use to ease passage of his reform proposals.

December 4th, 2010 at 2:46 pm
In response to Cynthia Kouril @ 39

That’s my question too. With evidence that Glass-Steagal prevented the type of garbage we saw happen, it seems to me to be a no-brainer to put it back.

If I removed a patch and my PC crashed you can bet I’d re-install that patch first thing.

Michael Perino December 4th, 2010 at 2:49 pm
In response to ghostof911 @ 34

I agree. The pervasive influence of campaign money seems to tamp down any attempt to hold meaningful hearings. When we do get hearings, they tend to be more show than substance. I think back to the AIG hearings. They didn;t tell us anything new–they were just an opportunity to legislators to demonstrate their righteous indignation.

eCAHNomics December 4th, 2010 at 2:50 pm

I picked up from casual reading but not from any careful studies, that both the communist party and the business community worked feverishly for the New Deal reforms. The former for obvious reasons, the latter because the economy was so bad, their business were in the toilet. Is that accurate? And does it apply to the financial reforms, or only the macroeconomics programs?

Cynthia Kouril December 4th, 2010 at 2:50 pm
In response to Kelly Canfield @ 41

I’m not suggesting that a reinstatement of Glass-Steagel is the only thing that needs doing, but I ma often struck by the notion that this one thing by itself would be a very big pebble with lots of ripples in the pond

Sebastos December 4th, 2010 at 2:51 pm
In response to Michael Perino @ 38

The real problem is these moments when real reform can happen are increadibly fleeting.

While each individual moment may be fleeting, we can count on them occurring again and again. The longer we go without real reform, the more extreme and frequent the resulting disasters will be, and each disaster will provide an opportunity for reform. The real question is: how much pain can the American people endure before they stop listening to the opioid echo-chambers inside and outside their heads, and start facing reality?

Cynthia Kouril December 4th, 2010 at 2:52 pm
In response to Michael Perino @ 42

Wasn’t the AIG hearing very similar to the year’s worth of useless hearings that occured before Pecora came along?

Michael Perino December 4th, 2010 at 2:52 pm
In response to Cynthia Kouril @ 39

A difficult and complex question and one that I will have trouble addressing fully in this forum. If you look at the motivating forces behind G-S, I think you see them reflected in the Volcker rules attempt to remove banks from proprietary trading. The problem with that rule is that it is likely to get water down in the adopting regulations. See my comments here http://marketplace.publicradio.org/display/web/2010/11/12/pm-its-up-to-the-gop-to-let-financial-reform-succeed/

eCAHNomics December 4th, 2010 at 2:52 pm
In response to Michael Perino @ 40

And aren’t today’s corp ‘news’ media in the same pockets as the other elite? Was that different in the 1930s? How did Pecora generate such outrage?

Dearie December 4th, 2010 at 2:54 pm

Michael Perino @ 40: In other words, We Are Doomed.

Michael Perino December 4th, 2010 at 2:54 pm
In response to eCAHNomics @ 43

Again, a mixture. Many in the business community were opposed to many aspects of the New Deal. You might want to look at David Kennedy’s book Freedom from Fear for a more fulsome answer than I can give here.

eCAHNomics December 4th, 2010 at 2:54 pm
In response to Sebastos @ 45

While each individual moment may be fleeting, we can count on them occurring again and again.

You got that right.

ghostof911 December 4th, 2010 at 2:55 pm

There are some who feel that punishing the perps of fraud is at least as important for achieving economic recovery as enacting reform.

Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals – and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future.

What is your feeling about that? Is that likely to happen?

Michael Perino December 4th, 2010 at 2:58 pm
In response to Cynthia Kouril @ 46

Yes. The hearing in 1932 got off to a very slow start. Part was ineffective counsel; part was a lack of preparation. At many points Senators were simply thundering at Wall Street with little evidence to back them up. Pecora succeeded because he had this crazy idea that an investigation should actually involvve some investigation. He did the detective work necessary to tell Americans something they didn’t already know. That is the real key to hearings that have staying power longer than the next news cycle.

Sebastos December 4th, 2010 at 2:58 pm
In response to eCAHNomics @ 48

And aren’t today’s corp ‘news’ media in the same pockets as the other elite? Was that different in the 1930s?

While it’s instructive to point out the similarities between the 2010s and the 1930s, significant differences would be even more instructive. In particular, my impression has been that the massive, systematic right-wing manipulation of academia and the news media (not just of politicians) is new. Back then every town had its own newspaper, often several; today, we have what Bagdikian calls The New Media Monopoly and its equivalent in the corporate infiltration and subversion of academia.

Michael Perino December 4th, 2010 at 2:59 pm
In response to Dearie @ 49

The immediate future does not look hopeful I am afraid.

Michael Perino December 4th, 2010 at 3:01 pm
In response to ghostof911 @ 52

I think that there is an enormous value to deterrence. If people feel that the risks of detecting wrongdoing are very low or if they are found out the punishment wil not be too severe, well we know what kind of incentives that creates.

eCAHNomics December 4th, 2010 at 3:01 pm
In response to Sebastos @ 54

Both good points about local newspapers & the right’s infiltration of academia.

Watt4Bob December 4th, 2010 at 3:01 pm
In response to Michael Perino @ 53

He did the detective work necessary to tell Americans something they didn’t already know.

The Wikileaks guy says he has a bunch of stuff on a major Bank.

Let’s hope that this is as big as he is hinting.

DWBartoo December 4th, 2010 at 3:04 pm
In response to Michael Perino @ 55

I suspect it was a literary effect, Michael, but are you really afraid?

Or actually … very concerned.

There are many who are, truly, afraid, and more will join them.

Making “things” look rather inviting for demagogues and “players”.

DW

Cynthia Kouril December 4th, 2010 at 3:04 pm
In response to ghostof911 @ 52

I for one, think a few well placed prosecutions would be very instructive

Michael Perino December 4th, 2010 at 3:04 pm
In response to Sebastos @ 54

There were a large number of news outlets for sure, but the Depression hit the media hard. Many news stories in local papers simply republished the AP stories coming out of Washington. Still you are right on one important account–the local papers still published their own editorials. It is in the papers in the mid-west, where Progressivism still flourished in many areas, where you saw some of the harshest indictments of what Pecora uncovered.

Michael Perino December 4th, 2010 at 3:05 pm
In response to DWBartoo @ 59

Literary effect–very concerned is better.

PeasantParty December 4th, 2010 at 3:05 pm

Michael,

I often think that the Eliot Spitzer fantazia was due to Eliot getting too close to the truth, or already knew the truth about Wall Street and the banks. Do you think my suspicions are close?

ghostof911 December 4th, 2010 at 3:06 pm
In response to Sebastos @ 54

Because of that real difference that you mention, the stimulus for the needed reform might have to come from an unexpected source. The intense frenzy over thwarting the release of the BoA memos by Wikileaks might indicate where the source of the needed stimulus will come from.

Sebastos December 4th, 2010 at 3:06 pm
In response to Michael Perino @ 56

The risk of overuse of legitimate services when they’re free is known as the “moral hazard”; let’s coin the expression immoral hazard to refer to the obvious drawbacks of risk-free crime. Punishing the individual evildoers should indeed be given at least equal priority with achieving short-term recovery.

But even more fundamentally, the structures that made everything possible should be reformed. The only really effective way to prevent corporations from committing crimes is to prevent them from existing. Their defining characteristic is limited liability, which is at the root of the immoral hazard. Our society has deliberately worked legislative black magic to conjure up these demons from the depths of our collective greed, and then are naively surprised when they break through the protective pentacle and try to destroy us.

Michael Perino December 4th, 2010 at 3:08 pm
In response to Watt4Bob @ 58

I actually suggested that one of the great services the Financial Crisis Inquiry Committee can perform is to relase every document they obtained and the transcripts of every interview they conducted. That would allow what I called a host of Wiki-investigators to analyze the documents and reach their own conclusions.

See here for the complete piece http://finance.fortune.cnn.com/2010/11/02/how-the-fcic-can-salvage-its-relevancy/#more-5457

ghostof911 December 4th, 2010 at 3:08 pm
In response to Watt4Bob @ 58

You were a few keystrokes ahead of me.

DWBartoo December 4th, 2010 at 3:09 pm
In response to Sebastos @ 65

Brilliantly well stated.

DW

eCAHNomics December 4th, 2010 at 3:11 pm
In response to PeasantParty @ 63

To add a Q to your observation.

Michael, why did Wall St. not try to blackmail or use other underhanded measures to diminish Pecora’s effectiveness. Or try to coopt or bribe him?

Cynthia Kouril December 4th, 2010 at 3:11 pm
In response to Sebastos @ 65

I don’t know that it’s necessary to go so far as to eliminate the corporate fiction outright, but laying off the crimes of the corporate executives by making the shareholders pay a fine is the height of stupidity

bigbrother December 4th, 2010 at 3:12 pm
In response to Michael Perino @ 38

California’s combined unemployment is 25%. Now large portion of homeowners have negative equity and it is going down more. The homeless population is not allowed to do encampments (Hoovervilles). Retirement equities were reduced 40% across the board. Students entering the workforce have little opportunity to pay of their school loans. Credit is usurous at 30% with fees and penalties. Dollar devalued and savings pay next to nothing. The infrastructures needs rebuilding with no funds in a deficit reduction environment. The environment has been destroyed since the 30′s. And add wars without end.
That isn’t scary enough to produce change we are toast1

PeasantParty December 4th, 2010 at 3:12 pm
In response to eCAHNomics @ 69

wink I owe you a drink!

Michael Perino December 4th, 2010 at 3:14 pm
In response to Sebastos @ 65

You’d love Pecora’s memoirs, Wall Street under Oath. He says, referring to the ability of national banks to create securities selling affiliates: “Surely the suave legerdemain of the corporate lawyer in the service of high finance has scarcely, if ever, achieved a more hairsplitting tirumph!”

ghostof911 December 4th, 2010 at 3:14 pm
In response to Michael Perino @ 66

Because your suggestion is likely to be ignored, Wiki provides an enormously valuable service.

Michael Perino December 4th, 2010 at 3:16 pm
In response to eCAHNomics @ 69

Actually, they did. Pecora recounts two instances (both detailed in my book) when financiers offered him substantial bribes to keep them off the stand. In one case the amount proferred was $1 million. Pecora was incredibily honest; someone described him as an “idealist with an inveterate passion for justice.” Pecora turned them down cold.

eCAHNomics December 4th, 2010 at 3:20 pm
In response to Michael Perino @ 75

Pecora’s personal life must also have been above reproach.

However, even that today wouldn’t be an impediment to undermining credibility. Remember the swiftboating of John Kerry.

DWBartoo December 4th, 2010 at 3:20 pm
In response to Sebastos @ 65

There have been long-term, coordinated assaults against both the economic and legal systems of this nation. The rule of law is effectively dead and the economy nearly destroyed … we create no wealth and do not make what we need, we have been delibrately made vunerable and bankrupt. Both, alone, and together, amount to nothing less than the most-treasonable of behaviors, for it is a most-seriously dangerous future we face, “looking forward”, if these actions go unpunished.

There will be no reasonable or humane future unless these calculated and vicious attacks on civil society are not seen for what they in fact are; the deliberate and intentional destruction of that society, of our society.

DW

Michael Perino December 4th, 2010 at 3:20 pm
In response to Cynthia Kouril @ 70

Limited liability structure are valuable (just ask the students who take Business Organizations with me), but they come with a cost–we might over-incentivize risky behavior because of no one will have to bear the costs associated with it. Indeed, the rcent financial crisis showed that banking leaders are perfectly willing to take actions that have huge potential systemic risk precisely because they will not bear the costs of those risks, but will tend to reap the reward.

Prosecutions for criminal behavior is only part of the answer. Some behavior that we want to deter is risky, but not criminal. That is where meaningful regulation of risks has to come into play.

Sebastos December 4th, 2010 at 3:21 pm
In response to Michael Perino @ 73

Thanks for the tip – and for giving us this peek into the 1930s. The black magic, legerdemain, hairsplitting, whatever you prefer to call it, is of the essence of corporations. They are engines of deceit. They all expect their employees to check their ethics at the door. Professional liar is part of the real job description of virtually every corporate job. Corporate officers are even required by law to give the bottom line priority over ethics – one of the most evil laws ever passed anywhere, and I know the competition has been stiff.

Michael Perino December 4th, 2010 at 3:22 pm
In response to eCAHNomics @ 76

Well, not exactly. Pecora reportedly had a bit of a problem with extra-marital affairs.

ghostof911 December 4th, 2010 at 3:23 pm
In response to eCAHNomics @ 76

Or about the International Arrest Warrant for sex without a condom!

RevBev December 4th, 2010 at 3:23 pm
In response to Michael Perino @ 75

Is there anyone in that league today? I’d like to think…..

Cynthia Kouril December 4th, 2010 at 3:23 pm
In response to eCAHNomics @ 76

Actually Pecora’s personal life was a bit messy, he liked to step out on the Mrs.

Watt4Bob December 4th, 2010 at 3:23 pm
In response to Sebastos @ 65

I’m fine with limited liability, what it has morphed into however, is unlimited immunity, which the sheeple have been taught to think is the same thing.

As for me, I’m waiting for small business owners, (the top 86-98%) to break with the MOTU, (the top 2%) over the murder of the Goose that laid the Golden Egg , (the American consumer).

It would seem inevitable?

Michael Perino December 4th, 2010 at 3:25 pm
In response to RevBev @ 82

Well, of course, we didn’t know until long afterward that Pecora was in that league. So maybe there is.

speakingupnow December 4th, 2010 at 3:26 pm

In the 1920′s and 1930′s, many citizens (especially outside of urban areas) still didn’t have bathrooms or other “luxuries” which the middle class has become accustomed to today. I have often wondered whether the middle class of today will become “outraged” more quickly or more slowly than people from the past for this reason.

Cynthia Kouril December 4th, 2010 at 3:26 pm
In response to Michael Perino @ 78

I could not agree more

PeasantParty December 4th, 2010 at 3:27 pm

So I take it that Eliot Spitzer’s story may be close to Pecora’s. Is it any wonder that only number 9 in that sting was made public?

RevBev December 4th, 2010 at 3:27 pm
In response to Michael Perino @ 85

Thanks…may we live that long. We certainly know some who are not.

Michael Perino December 4th, 2010 at 3:27 pm
In response to Watt4Bob @ 84

I don’t see limited liability as the primary issue either. I think letting back get leveraged 30 to 1 and allowing no regulation of derivatives is the problem. We want corporations to take risks, but we also want governmetn to step in a draw up the rules of the game so that those risks don’t run the risk of toppling the whole structure.

Sebastos December 4th, 2010 at 3:28 pm
In response to Michael Perino @ 78

I’m convinced that limitation of liability can never safely be paired with the private profit motive. Elected or appointed public officials are effectively limited in their liability for the results of risky (not criminal!) actions that they take – that’s all the limitation of liability that any free society needs.

Michael Perino December 4th, 2010 at 3:30 pm
In response to speakingupnow @ 86

There are some truly harrowing scenes in the book about conditions during the Depression. The one that always gets my wife is the school teacher who told an obviously famished student in Appalachia to go home and get something to eat. “It won’t do any good,” the student replied, “it’s my sister’s day to eat.”

eCAHNomics December 4th, 2010 at 3:30 pm

Michael,

I have also read, think it was in Yves Smith’s Econned, that part of the quid pro quo that made the 1930s financial reforms somewhat palatable is that they allowed room for supernormal rewards in each part of the business. When I started on Wall St. in the 1970s, I was amazed at how little work they did for such high pay. Even before that, in commercial banking, I was amazed at how inefficient they were in the sense that they employed so many people to do ‘work’ that never raised the bank’s profits. Smith goes on to argue that deregulation eliminated these supernormal returns, led to more competition, and eventually to consolidation, and also to much greater risk taking. Any comments?

Cynthia Kouril December 4th, 2010 at 3:31 pm
In response to PeasantParty @ 88

No wonder AT ALL

Watt4Bob December 4th, 2010 at 3:32 pm
In response to speakingupnow @ 86

I have often wondered whether the middle class of today will become “outraged” more quickly or more slowly than people from the past for this reason.

People sitting on the curb don’t have bathrooms either, and so are likely to become outraged more quickly than those with warm beds.

The fact that you were, until recently middle class does nothing to soften the impact of destitution.

So I’d say outrage can develope over-night, so to speak.

eCAHNomics December 4th, 2010 at 3:32 pm
In response to Michael Perino @ 80

Why didn’t they use his extramarital affairs to discredit him? Was that simply not done in those days? A barrier that existed then and no longer?

bigbrother December 4th, 2010 at 3:32 pm
In response to Michael Perino @ 78

Christopher Cox was Bush SEC regulator who stood by and watched while the banksters packaged fraudulently rated mortgages into tranches that were securitized without deeds going to the Trusts (NY law). What we have referred to as the shitpile was then fraudulently sold to pension funds and other large investors who are refusing to take the loss (haircut). That was fueled by monetary policy of Federal Reserve Chairman Alan Greenspan. It was a criminal conspiracy that rate RICO prosecution.

speakingupnow December 4th, 2010 at 3:33 pm
In response to Michael Perino @ 90

Enforcement agencies of the government have been “falling down” on the job for decades now. When will we stop the revolving door between jobs in the government, lobbyists, and corporations?

PeasantParty December 4th, 2010 at 3:33 pm
In response to Cynthia Kouril @ 94

He might have been able to stem some of the MERS mess we have now. I know you do excellent work in reporting on it.

Dearie December 4th, 2010 at 3:34 pm

Outrage without power is simply outrage. We have no leader at this moment, and the likelihood of one arising looks pretty slim.

Michael Perino December 4th, 2010 at 3:36 pm
In response to eCAHNomics @ 93

There is a fairly standard argument that gets made in academia that Glass-Steagall benefited investment banking firms by limiting competition fro commercial banks with securities affiliates as competitors. In terms of the 1970s, as you know there were fixed commissions on Wall street until the mid-1970s. By limiting competition, that structure created huge ineffiencies. When fixed commissions disappeared, so did a lot of firms. With shrinking commissions, firms did have to innovate in order to make money. Some of those innovation were useful. What we seemed to lose track of in the market-oriented deregulatory fervor of the last 30 years is that not all financial innovation is beneficial and laissez-faire doesn’t work.

Sebastos December 4th, 2010 at 3:36 pm
In response to Michael Perino @ 90

I don’t see limited liability as the primary issue either. I think letting back get leveraged 30 to 1 and allowing no regulation of derivatives is the problem. We want corporations to take risks, but we also want governmetn to step in a draw up the rules of the game so that those risks don’t run the risk of toppling the whole structure.

How can there be effective regulation in an environment that allows a level of secrecy that can only be pierced by heroes like Pecora, and then only on rare occasions when it has become inescapably clear to everyone that disaster is imminent if something drastic is not done? The distinction between unlimited liability for taking risks and unlimited immunity for committing crimes is purely theoretical. No feasible regulatory apparatus could ever deter criminal abuses before the fact in a society based on private control of awesome amounts of capital and veiled in secrecy. Yet the fraudsters will always be able to claim that the ability to conceal business secrets is essential to free enterprise.

DWBartoo December 4th, 2010 at 3:38 pm
In response to Dearie @ 100

It is not a leader which is needed, but a common understanding of what has happened.

That is what the PTB seek to prevent.

DW

Michael Perino December 4th, 2010 at 3:38 pm
In response to eCAHNomics @ 96

Different times. And also a double standard. One of the women he purportedly had an affair with was one of the first women commissioners of the federal administrative agency (the FCC). When she was later nominated to a position as a federal judge, rumors of the affair killed her candidacy.

bigbrother December 4th, 2010 at 3:39 pm
In response to eCAHNomics @ 93

TBTF we must bail! Corporate welfare not welfare to work. How sick is competitive markets that get tax exemptions, perks and $12 trillion in cash bail? While Americans do without necessities1

Cynthia Kouril December 4th, 2010 at 3:40 pm
In response to bigbrother @ 97

What we have referred to as the shitpile was then fraudulently sold to pension funds and other large investors who are refusing to take the loss (haircut).

I think those investors would be delighted to take a haircut, the alternative is that they find themselves with nothing at all. 1/2 a loaf is much better than no loaf at all

Cynthia Kouril December 4th, 2010 at 3:41 pm
In response to Dearie @ 100

We don’t have to wait for a hero, we should be our own heros

eCAHNomics December 4th, 2010 at 3:42 pm

Well aware of the events you detail. I even wrote a grad school paper, using econometric analysis to determine the price elasticity of the demand for trading on the NYSE.

At the time, I thought that was all to the good; you know, the efficiency thingy. In retrospect however, it is clear that very little financial ‘innovation’ was worthwhile. The innovations, among other factors, led to much less stable financial markets (bubbles & crashes) and NO noticeable benefits for the real economy in the sense of increased growth. The U.S. economy grew more rapidly before fin innov than after them

Michael Perino December 4th, 2010 at 3:44 pm
In response to speakingupnow @ 98

The SEC has taken some well-deserved lumps in recent years. It is hard to remember that it was once considered the gold standard of regulatory agencies. Part of the problem is neglect. If you graph SEC budgets as a percentage of capital raised in the market place you see a line that goes downward quite dramatically. That of course doesn’t include all of the other tasks the SEC has been given over the years. Combine that with leaders who seemed diametrically opposed to the SEC’s core mission of investor protection and you have a recipe for disaster.

PeasantParty December 4th, 2010 at 3:44 pm

My investments/401K took a haircut. It took a 45% haircut, then Bernanke got on his knees for congress to get some more dough.

econobuzz December 4th, 2010 at 3:44 pm
In response to Sebastos @ 102

IMHO, there simply can’t be. When billions of dollars are involved, regulation doesn’t work for any number of reasons.

Sebastos December 4th, 2010 at 3:44 pm
In response to Michael Perino @ 92

“it’s my sister’s day to eat.”

I hope Americans today have more sense than to let it get that bad! The only hope for averting disaster is for us to get outraged while we still live in comfort. I hope your book will help to accomplish that.

Watt4Bob December 4th, 2010 at 3:47 pm
In response to Sebastos @ 91

I’m convinced that limitation of liability can never safely be paired with the private profit motive.

It would be instructive at this point to revisit the origins of the concept of ‘Limited Liability”.

Ten guys in Holland individually own 100% of ten trading ships bound for Asia. Each has his entire life savings invested in the success of his individual adventure. If any one of these guys should loose his ship, it means ruin.

So these guys figure out a better way, they pool their resources and share their endeavors so that what you now have is the same ten guys owning a 10% share in each of ten ships and any one ship being lost means only a 10% loss for each of ten partners.

This is limited liability, but it is not unlimited immunity.

The MOTU have convinced us, as a people, that limited liability means unlimited immunity.

Great trick huh?

Michael Perino December 4th, 2010 at 3:47 pm
In response to eCAHNomics @ 108

You would have thought that after the 1930s we would have laid to rest the canard that markets are perfectly fine if we just leave them alone. History may not repeat, but sometimes it hums a familiar tune.

Dearie December 4th, 2010 at 3:47 pm

Cynthia @ 107: Goodness, do you have a clue how facile that sounds! I get from Mr. Perino’s book that Pecora was helped by FDR, for example. I’m not asking for a hero; I’m asking for a credible leader with integrity and intelligence. Perhaps I am expected to go solve this mess myself? I call BS on your wimp-out.

eCAHNomics December 4th, 2010 at 3:48 pm
In response to Watt4Bob @ 113

Dutch Golden Age, and its art, are one of my favorite moments in history.

Cynthia Kouril December 4th, 2010 at 3:49 pm
In response to Sebastos @ 112

I hope Americans today have more sense than to let it get that bad!

Congress did not ectend unemployment this weekend, it just got THAT bad

bigbrother December 4th, 2010 at 3:49 pm
In response to eCAHNomics @ 108

Bingo…why allow unproductive behavior to be rewarded. Econ 101 work creates value or not. Some products have greater and more lasting value. Fees for financial services are expenses that can be deducted from value. Wall street is a rigged casino. The market makers are the con artists.

econobuzz December 4th, 2010 at 3:51 pm
In response to eCAHNomics @ 108

Amen.

Michael Perino December 4th, 2010 at 3:51 pm
In response to Watt4Bob @ 113

To the extent that an executive of a corporation commits a tort or a crime while theoretically acting as an executive of that corporation, he or she will not be protected by limited liability. This goes back to Cindy’s earlier point about holding individuals accountable for their actions. Unfotunately, it seems to rarely happen.

eCAHNomics December 4th, 2010 at 3:51 pm
In response to bigbrother @ 118

The market makers are the con artists.

At least they’re not the Cahn artists. *g*

Sebastos December 4th, 2010 at 3:52 pm
In response to Watt4Bob @ 113

Limited liability doesn’t scale up safely. When it’s ten guys investing in the Dutch East India Company, it can give the illusory appearance of success. Yet any such apparent success inevitably leads to growth, and growth inevitably leads to an economy on a scale where the distinction between liability and immunity disappears. Then it takes a Pecora to blow the whistle. Our civilization can’t endure unending cycles of this!

Michael Perino December 4th, 2010 at 3:53 pm
In response to Dearie @ 115

Pecora was helped enormously by strong political backing from the White House. When FP put JP Morgan on the stand many, including Carter Glass, were calling for Pecora to back off. FDR said he wanted the hearings to go through without limit. And they did.

eCAHNomics December 4th, 2010 at 3:53 pm
In response to econobuzz @ 119

Ooops. I forgot to mention the terrible income disparity that has resulted in part from fin innov. Considering that, the U.S. economy has performed MUCH worse after fin innov than during the post-WWII period before they happened.

Cynthia Kouril December 4th, 2010 at 3:54 pm
In response to Dearie @ 115

FDR did not help Pecora at the front end, he only encouraged him to keep going. I don’t think I am wimping out, to the contrary, I don’t think we can sit around waiting for someone else ot solve this.

One of the things in the book that got me feeling all FrankCapra-ish, was the tsunami of letters and telegrams sent to Capital Hill and to newspapers all over the country

Michael Perino December 4th, 2010 at 3:55 pm
In response to bigbrother @ 118

I recommend John Cassidy’s piece in last week’s New York for a detailed discussion of whether and to what extent we overpay Wall Street for the services it performs for the country.

BevW December 4th, 2010 at 3:55 pm

As we come to the end of this great Book Salon,

Michael, Thank you for stopping by the Lake and spending the afternoon discussing your new book and Ferdinand Pecora.

Cynthia, Thank you very much for Hosting this great Book Salon.

Everyone if you would like more information:
Michael’s website, book

Cynthia’s website

Thanks all,
Have a great evening!

Sebastos December 4th, 2010 at 3:56 pm

holding individuals accountable for their actions. Unfotunately, it seems to rarely happen.

The problem is regulatory capture, and capture/subversion of academia, the news media, and the political system, as we discussed earlier. If you allow unlimited amounts of capital in private hands, it will be used for bribery, and history says that bribery works.

bigbrother December 4th, 2010 at 3:57 pm

Thanks for a very germane salon. Percora stood out for me as an example for us to insure orderly markets. We had a Bush led real estate bubble in the 1980′s when I lost my home. This last one was on steroids. Will we have another Resolution Trust?

Cynthia Kouril December 4th, 2010 at 3:57 pm

If you look at the way the DOJ’s guidleines for corporate proecution (originally known as the Thompson Memo) have been watered down in the past decade, you “get” it.

Everybody got all worried about the death of Enron and Arthur Anderson and the resulting loss of jobs for innocent employees that somehow things got bolluxed up and now the guilty who are directly repsonsible for the decisions that lead to corporate crime get a pass as well.

Michael Perino December 4th, 2010 at 3:58 pm

The one that still gets me is the man who wrote from the funeral home. His wife had died of pneumonia and he complained that if he had horded his money who could have taken her to Florida. He begged pecora to ask City bank how they could palm off such lousy securities on a poor retiring teacher.

Cynthia Kouril December 4th, 2010 at 3:58 pm

Michael,

Thank you som much for being such agreat guest

Dearie December 4th, 2010 at 3:58 pm

Mr. Perino @ 123: Your book is wonderfully informative AND instructive — if those in power will but read and learn. I cannot imagine, sadly, that anyone who might step forward to try to re-institute needed regulation at this point will receive any kind of support. And that, dear friends, is our tragic reality.

Michael Perino December 4th, 2010 at 3:59 pm
In response to BevW @ 127

Thank you for having me. I really enjoyed it.

speakingupnow December 4th, 2010 at 3:59 pm

Leadership and an understanding of who you are responsible too seems to be lacking in many of the government agencies today. In large part due to the revolving door and turning a “blind eye” to problems. As a former federal regulator in my earlier years, I can say for a fact that there WAS a time when at least one federal agency always placed the safety of consumers ahead of the corporations. So, it is very disturbing to see what has evolved.

Cynthia Kouril December 4th, 2010 at 3:59 pm

BTW, this book would make an excellent holiday gift, nostalgic for your parents and easy enough to follow for your teenagers.

PeasantParty December 4th, 2010 at 4:01 pm

Madoff’s incarceration has barely phased WS. This is because they are behind the shield of TBTF at all times. It is the one owner that gets caught, so they will fight regulation to the death. They will monopolize everything in sight to stay that way.

Michael Perino December 4th, 2010 at 4:02 pm

Thanks for the suggestion.

econobuzz December 4th, 2010 at 4:03 pm
In response to eCAHNomics @ 108

In retrospect however, it is clear that very little financial ‘innovation’ was worthwhile.

And “financial innovation” must be evaluated on the basis of its real economic effects, not on its contribution to financial sector profits.

econobuzz December 4th, 2010 at 4:03 pm

Thank you.

Sebastos December 4th, 2010 at 4:03 pm

Thanks for writing this book, and giving us another clue to the corporate puzzle palace!

Watt4Bob December 4th, 2010 at 4:06 pm

And of course we’ve got to remember the part that leverage plays in our current catastrophe.

The masses have been taught to worship God, and Free Markets, without having the faintest understanding of either. In this situation, explaining the impact of leverage might as well be quantum physics.

Watt4Bob December 4th, 2010 at 4:12 pm
In response to Sebastos @ 122

Limited liability is not directly related to unlimited immunity, but limited liabilty did lead to earning enough money to buy/bribe unlimited immunity.

We are left with the task of explaining this to a country full of wanna-be Ken Lays who don’t understand the problem.

We’ve got people living in trailer parks who think that taxing the rich is going to ruin their future opportunities.

Watt4Bob December 4th, 2010 at 4:18 pm

Thanks for mentioning that…

… I like to think I’m smart, but on any given day you might ask me my name, and I’d have to sleep on it!

I’ll give one to my son and one to my father, and I’ll feel like a genius.

Kathryn in MA December 4th, 2010 at 6:14 pm

Limited liability, indeed!

Our society has deliberately worked legislative black magic to conjure up these demons from the depths of our collective greed, and then are naively surprised when they break through the protective pentacle and try to destroy us.

awesome image.

EDIT to say was referring to Sebastos at #65

bobschacht December 5th, 2010 at 8:45 pm
In response to Cynthia Kouril @ 31

What more can we do?

Well, to start with, I’d like to spotlight this book salon to a bunch of news people, but that feature is not available. Is there a way to do that?

Thanks, Cynthia, for another dynamite post on the financial crisis.

Bob in AZ

bobschacht December 5th, 2010 at 8:53 pm
In response to Cynthia Kouril @ 60

I for one, think a few well placed prosecutions would be very instructive

I agree, but the present DOJ does not seem willing to prosecute. What other agencies have the power to prosecute, and which have the best chance of doing so? e.g., a State AG, such as NY? A lawsuit by a union retirement fund?

Bob in AZ

bobschacht December 5th, 2010 at 9:19 pm

You would have thought that after the 1930s we would have laid to rest the canard that markets are perfectly fine if we just leave them alone. History may not repeat, but sometimes it hums a familiar tune.

This may be one of those things that each new generation has to learn for itself.

Bob in AZ

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