[Corp. Watch] Time to shine a spotlight on Wall Street pathology

[Corporation Watch]

Investigate Wall Street

  By Julian E. Zelizer

(CNN, Feb. 26) -- In Tuesday night's speech, President Obama attempted  
to calm the nation, explaining how his programs will stimulate the  
economy and create a foundation for long-term economic growth.

	Obama sought to explain what went wrong, starting with the  
elimination of regulations on the purchase of homes that people could  
not afford. Obama explained that it is "only by understanding how we  
arrived at this moment that we'll be able to lift ourselves out of  
this predicament."

	The president's speech was badly needed. And President Obama is  
right, we need to understand how we arrived at this moment. But one  
speech is not enough. Americans are more frightened about the economy  
with each and every new day. Jobs are being lost, stock prices are  
falling and home values plummeting.

	According to an Associated Press-GfK poll, about half of those  
surveyed said they were seriously worried about losing their jobs and  
two-thirds expressed serious concern that they would not be able to  
pay their bills.

	Americans are not sure what has gone wrong. Under those conditions,  
it will be difficult to restore confidence in the future. The  
conventional wisdom says that presidents should be the leaders to use  
the bully pulpit and explain to Americans the nature of any crisis  
that we face.

	But history shows that Congress has played an extremely important  
role in shaping public debate in times of crisis and bringing to light  
crucial information. Although Congressional hearings are often derided  
for grandstanding, the power of investigation is one of the most  
important functions Congress has played.

	For every example of congressional excess, such as Sen. Joseph  
McCarthy's anti-communist witch hunts, there have been moments when  
Congress demonstrated its ability to explain and to educate.

	Congress has been central to the investigation of political  
corruption. One of the most famous moments in the history of the  
institution took place in 1973 when the southern Democrat Sam Ervin,  
known for his folksy speech, chaired Select Committee hearings into  
the scandals surrounding President Richard Nixon.

	The committee put together the various pieces of the Nixon White  
House's scandalous behavior, providing the fullest picture of the  
corruption that defined that presidency.

	The investigation, watched by millions, revealed the cover-up that  
had taken place, as well as a much wider web of illegal activities.  
The hearings altered popular understanding of what Watergate was about  
-- namely that Nixon's wrongdoing was potentially far more serious  
than they had thought.

	Congress has also helped raise questions and gather data about  
foreign policy.

	In 1966, Arkansan Sen. William Fulbright, chairman of the Senate  
Foreign Relations Committee, dragged members of President Lyndon  
Johnson's administration before his committee to expose some of the  
weaknesses that were only starting to become apparent in the  
administration's Vietnam policies.

	As a result, criticism about the war -- which had been confined to  
college campuses -- started to spread into middle-class, suburban homes.

	Most relevant to today, Congress has previously investigated the  
causes behind economic downturns, using the power of investigation to  
raise public concern and improve knowledge of the economy.

	This was the case with the famous Pecora Commission, the Senate  
Committee on Banking and Currency formed in the period between  
President Franklin Delano Roosevelt's election in November 1932 and  
his inauguration in March. It was a commission that lasted through May  
1934.

	The commission set out to discover what had led to the stock market  
crash in 1929. Committee Chairman Duncan Fletcher of New Jersey placed  
Ferdinand Pecora, the committee's chief counsel, in charge of the  
investigation. Pecora, a tough New York prosecutor, proved to be a  
masterful interrogator.

	"I looked with astonishment," said his staffer John Flynn, a former  
journalist, "at this man who, through the intricate mazes of banking,  
syndicates, market deals, chicanery of all sorts, and in a field new  
to him, never forgot a name, never made an error in a figure, and  
never lost his temper."

	Pecora brought some of the most prominent figures from Wall Street to  
speak with the commission and to answer difficult questions. For  
example, Americans learned that the tycoon J.P. Morgan had not paid  
income taxes for three years. Even worse, tax evasion was common among  
the wealthy.

	In his new book on FDR's first one hundred days in office, Adam Cohen  
recounts how the hearings revealed how National City Bank had caused  
enormous problems by mixing commercial and investment banking, reaping  
huge profits as customers were persuaded to make terrible investments.

	Preferential treatment on stock, Americans learned, was routine as  
certain clients on Morgan's "preferred list" were given the best  
offers. By the time it closed, the commission produced thousands of  
pages of data about the inside operations of the financial world.

	As a result of the Pecora Commission, the 1929 crash seemed like much  
less of a mystery, and public pressure for banking reform greatly  
intensified.

	In response, Congress passed historic banking regulations during the  
New Deal, including the Glass-Steagall Banking Act of 1933, the  
Securities Act of 1933, and the Public Utility Holding Company Act of  
1935, all of which vastly expanded the role of the federal government  
in overseeing and regulating Wall Street.

	Partisan warfare in the 1990s, including the impeachment proceedings  
against President Bill Clinton, made many Americans cynical about  
Congressional investigation, as it seemed to be just another tool in  
the bitter culture of Capitol Hill.

	But Congress can help us learn. We need another Pecora Commission,  
another Fulbright Committee, another Sam Ervin to use the power of  
Congress to shed light on the causes of our current economic meltdown.

	Congress needs to learn more, not only about the kind of criminal  
activity for which Bernard Madoff is being charged, but also the  
ostensibly legal practices -- such as risky home loans -- that created  
dangerous bubbles and put families at risk.

	If voters and politicians are going to be able to evaluate  
legislation that is being proposed on a weekly basis, citizens must  
understand what has gone wrong. This will be the first step toward  
restoring the confidence that the country needs if it is to start a  
better day.

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Julian E. Zelizer is a professor of history and public affairs at  
Princeton University's Woodrow Wilson School who writes widely on  
current events