18 April 2010

Awaiting Our Pecora Moment (I)

The military reformer, Colonel John Boyd used to say that sooner or later questions about the Pentagon's unethical shenanigans  boil down to questions of incompetence or corruption or both.  

Simon Johnson, the crusading former chief economist of the IMF, who wants to break up the big banks ends up with the same observation regarding the leadership of Lloyd Blankfein, the CEO of Goldman Sachs, a company now known popularly the great vampire squid (see Matt Taibbi's stunning essay, The Great American Bubble Machine, Rolling Stone, 5 April 2010).  The SEC allegation of fraud puts this issue in the forefront of our political culture and raises the question of whether Congress has the courage to live up to the precedent it established in the 1930s.  Don't bet your house on it.

Our Pecora Moment
By Simon Johnson, Baseline Scenario, 17 April 2010

We have waited long and patiently for our Ferdinand Pecora moment – a modern equivalent of the episode when a tough prosecutor from New York seized the imagination of the country in the early 1930s and, over a series of congressional hearings: laid bare the wrong-doings of Wall Street in simple and vivid terms that everyone could understand, and created the groundswell of public support necessary for comprehensive reregulation.  On Friday, that moment finally arrived.
There is fraud at the heart of Wall Street, according to the Securities and Exchange Commission.  Pecora took on National City Bank and J.P. Morgan (the younger); these were the supposedly untouchable titans of their day.  The SEC is taking on Goldman Sachs; no firm is more powerful. .... (continued)