Latest from CEC The Banking and Finance Consumers Support Association (BCFSA) (bfcsa.au/) has initiated an on-line petition at change.org, calling on Financial System Inquiry Chairman David Murray to recommend, in his final report, a Royal Commission into the banks. Click here to sign the petition: https://change.org/p/mr-david-murray-chairman-of-the-financial-system-inquiry-recommend-an-urgent-royal-commission-into-australian-banks-australian-non-banks-collapsed-companies-the-regulators-asic-apra-and-all-subsidiaries-and-joint-partners Australian Pecora Commission The CEC since 2009 has called for a thorough investigation of criminality in Australias banking system, stipulating it must be modelled on the 1933 U.S. Congressional investigation into the crimes of Wall Street fearlessly led by Ferdinand Pecora. The Pecora investigation is detailed in Michael Perinos brilliant book The Hellhound of Wall Street . Below is a review of this book, first published in the CECs Australian Alert Service on 10 September. Book review: The Hellhound of Wall Street By Michael Perino Penguin Press 2010 No-one who reads this book has any excuse for tolerating the continued existence of too-big-to-fail banks, nor the continuance in office of any politician or public official who either defends the current system, or bandies about pathetic non-solutions designed to stave off a market panic while doing nothing to solve the problem. For this we owe thanks to Professor of Law Michael Perino, who describes in meticulous detail the pivotal ten days of the US Senate Committee on Banking and Currency investigation into the causes of the Great Depression, in early1933: how one after another the high and mighty of American finance walked into the Senate Chambers as members of a breed apart, a species of aristocrat, held in awe by the masses; and how one after another they left humbled, subject to public scorn and in some cases soon to face prosecution, their mystique smashed to slivers and their reputations torn to shreds by the man the press had dubbed “The Hellhound of Wall Street”, Ferdinand Pecora. Ironically, Pecora had been hired as the committee’s legal counsel on a six-week contract to summarise its investigation thus far and prepare its report for the incoming Roosevelt administration; instead, he accomplished in those few weeks what his predecessors had been unable or unwilling to do in more than a year. Two years earlier, President Herbert Hoover had instigated a transparently ineffectual investigation into organised short-selling practices, with his pet Senator (and former investment banker) Frederic Walcott in charge; since both men had publicly opposed any Federal regulation of the securities market, Wall Street was not exactly shaking in its immaculately-polished shoes. After ten months of such impotence, Senate Committee chairman Peter Norbeck, a retired artesian well driller from South Dakota and fierce advocate of reform, was able to take personal control of the inquiry and had its scope expanded to investigate just about anything he pleased, but still it idled along for almost a year with no tangible result, and by January 1933 it seemed to be dead in the water; Norbeck was unable to find a sufficiently competent lawyer who 1) was willing to do the requisite work for the low salary which the committee’s budget allowed, and 2) would follow the evidence wherever it led, regardless of political allegiances or concerns for career advancement. Pecora’s wasn’t the last name on the list; he came recommended by the man Norbeck called after the list was exhausted, and was probably hired out of desperation as much as anything else, but he turned out to be a godsend. Although he was unknown in Washington, he had been regarded as “the best cross-examiner in New York” during his days at the New York District Attorney’s office, possessed of a prodigious memory for detail and a relentlessness that would put a bulldog to shame, a reputation for incorruptibility, and a willingness to cut across the grain of political allegiances in pursuit of justice. The ten days of public hearings which are the principal subject of this book were mainly focused on the operations of the National City Bank of New York (today’s Citigroup), which, through its affiliate the National City Company, was the biggest purveyor of securities in the 1920s speculative boom, and as such representative of Wall Street as a whole. Despite dire warnings that the mere act of questioning such men could destroy what little confidence remained in the banking system and precipitate a complete collapse, with Norbeck’s firm backing Pecora subpoenaed such untouchables as City Bank Chairman Charles Mitchell, (known as “Sunshine Charlie” for his delusionally ebullient market predictions), New York Stock Exchange (NYSE) President Richard Whitney, and JP Morgan Jr, and proceeded to parade High Finance’s dirty secrets before the world. The hearings exposed a system of institutionalised fraud of a type assumed to be the province of cowboy operators and outright conmen, which in a sense was true; what people had not realised until Pecora came along was that the biggest con artists were sitting on the boards of the major banks and stock exchanges. Mitchell had invented the cut-throat sales culture which has become industry-standard for investment banks the world over; under his direction City Bank began accepting deposits of as little as one dollar and issuing fifty-dollar loans to members of the working class, ostensibly as an exercise in “democratic finance” but actually to recruit thousands of unsophisticated targets for the affiliate’s bond salesmen, who proceeded to peddle deliberately obscure products of grossly overstated value and understated risk to people with no hope of understanding them, while the board paid themselves, their executives and their top salesmen huge bonuses and commissions; all aided and abetted by the NYSE and studiously ignored by government. (As an aside, all of this should sound eerily familiar to anyone involved in or familiar with the ongoing Bank West/ CBA “financial planning” scandal.) The Company even targeted the Bank’s own lower-level employees, many of whom were milked for years for the full pre-crash value of the stocks they had contracted to purchase, then sacked; all the while the board members were authorising interest free personal loans to themselves and their cronies, which were never disclosed to the shareholders. The regulatory framework that allowed shady operators like Sunshine Charlie to pillage their way through their own clients and staff and engage in de-facto proprietary trading (that is, operating in the stock and bond markets on their own account, which was technically illegal at the time), required that commercial banks trade in securities only through a “securities affiliate” constituted as a separate legal entity, but under the control of the parent bank’s board. Does this sound familiar? It ought to, since that is exactly the ‘ring-fence’ model of which David Murray’s Financial System Inquiry is so enamoured, a thin veil behind which predatory speculation goes on unabated. Enacting such a system today would be akin to slapping a fresh coat of paint on a wall riddled with rot, woodworm and termites, and claiming to have erected a new wall. Two days after the Senate Committee’s hearings wrapped up, Franklin Roosevelt was sworn in as President of the United States. Perino writes that when Roosevelt proclaimed in his now-famous inaugural address on March 4 1933 that the “money-changers have fled from their high seats in the temple of our civilisation; we may now restore that temple to the ancient truths”, he had Ferdinand Pecora to thank for the truth of those words. The revelations brought about by the combination of Norbeck’s steadfastness and Pecora’s brilliance provided the necessary impetus for the passage of the Glass-Steagall Act later that year, which in turn paved the way for the rest of FDR’s “New Deal” without which the United States would have utterly collapsed; without the industrial might of the revitalised USA, it is doubtful that the Fascists and Nazis (all good friends of Wall Street) could have been successfully opposed. Today, with the prospect of financial meltdown looming large and another world war bearing down upon us because of it, there is ongoing in Australia a Senate Committee investigation into the wrongdoings of our largest bank, a loose thread that if correctly grasped could unravel the entire fabric of the corrupt and moribund Australian banking system. The potential exists; to quote Perino’s closing lines, “the Pecora hearings remain a model to which future investigations can aspire. All they need is a Hellhound.” — review by Richard Bardon.
Posted on: Thu, 18 Sep 2014 04:18:28 +0000