Financial Crisis Hearing, Like Pecora Commission, Offers Rare Opportunity

Today's procession of top bankers before the ominously named "Financial Crisis Inquiry Commission" has a whiff of the show trial.

Financial execs will defend their industry and themselves, while acknowledging that mistakes were made. Lawmakers will ask questions that, already having been answered, resound mostly as headlines. The public will jerk between feelings of revulsion and despair like a puppet. The conclusions drawn at the end of the affair are (or should be) foregone.

Will there be bombshells? Doubtful. Certainly none to rival New York Mayor Fiorello La Guardia's revelations before what would later be called the Pecora Commission that a corporate publicist had over a ten-year period stuffed nearly $300,000 in the pocket of various journalists to ensure flattering coverage of certain companies (ah, those were the days).

But for all the comparisons to those hearings, which were conducted to investigate the cause of the 1929 stock market crash, this show is different. Crucially, the earlier probe was exhaustive. Investigators subpoenaed everyone in sight, sifting through bankers' (or "banksters," as they were dubbed) personal records, establishing motives, ferreting out discrepancies.

The man who ultimately led the proceedings, former New York prosecutor Ferdinand Pecora, meticulously exposed Wall Street's role in the crash. His famous inquisition of J.P. 'Jack' Morgan Jr., son of the financial titan, revealed the House of Morgan's control over other financial institutions. And Pecora put his finger on the precipitating factor behind the crash: oligarchy. I have yet to hear White House officials use that unfashionable word.

After the hearing, heads rolled. More important, new banking and securities laws were passed that fundamentally changed the financial industry, although that wasn't immediately apparent. The period also produced a new generation of financial regulators who, unlike their counterparts today, were unified in their suspicion of big banks and skeptical of concentrations of corporate power. The power relations between government and the financial industry changed.

Perhaps the more telling parallel between this hearing and Pecora are the political conditions confronting President Hoover in 1932, who was in office when the earlier probe began, and President Obama. Both were politically vulnerable. Both faced a public appalled at Wall Street's behavior. Hoover was in far worse shape, unable in an election year to fix the economy and shamed by such national calamities as the "Bonus March." Obama has at least stanched the economic bleeding and has time to recover.

The obvious difference is that Hoover had already staked out his laissez faire philosophy of government, and was punished for it when FDR came along. Obama is still searching for his.

Where the Financial Crisis commission is similar to Pecora is that it represents an opportunity. Not to confirm what everyone already knows, such as that offering people great rewards for taking great risks leads to great recklessness. Nor even to wring heartfelt apologies from our own financial barons, as therapeutic as that might be.

These hearings, and whatever inquiries into the Great Recession follow it, can serve as a lightning rod for change. After the spectacle ends, the real work begins.