After trillions of dollars in losses on Wall Street, massive bailouts, the collapse of the American auto industry, rising unemployment and a mortgage foreclosure crisis not seen since the Great Depression, it hardly seems surprising that the American people want answers. They want to know why we find ourselves in this mess. They want to know how this crisis happened. They want to know which institutions and practices were to blame. They understand that the severe downturn in the real economy on Main Street is directly linked to the meltdown in the banking and financial sector on Wall Street. They are not fools. They want answers and they want real change, and their patience for equivocation is wearing thin.
Just over three quarters of a century ago, the mood in the country was not much different. The people wanted to know what caused the great crash on Wall Street; what brought on the Great Depression; why the banking system had collapsed; why they were out of a job; and most of all, how could we be sure this would never happen again.
To find the answers to these questions, Congress launched a formal inquiry under the direction of the Senate Committee on Banking and Currency. The hearings began on March 4, 1932, and by the time FDR assumed office one year to the day after the hearing began, they were widely known as “the Pecora Commission,” thanks to the relentless energy and zeal of the committee’s chief counsel, Ferdinand Pecora.
Pecora, an assistant district attorney for New York, assumed his post in January 1933, after his two predecessors had been dismissed for their lackluster performance and just as the commission was about to wrap up its work. His principle assignment was to write the final report. But after closely examining the records of the hearings, he came to the conclusion that the committee’s work was incomplete and as such pressed his Senate employers for an extension of the hearings. By this point FDR had won the election and as President-elect he not only agreed with Pecora’s request, but quietly urged him-as well as the committee’s chairmen-on. Pecora, who as the son of an immigrant Italian shoe-maker from Sicily represented the antithesis of the New York banking establishment, did not need much prodding. He ploughed into his work and was ruthless in his pursuit of the truth. He thought nothing of grilling such prominent financiers as Richard Whitney or J.P Morgan, Jr.
The revelations that the hearings disclosed under Pecora’s leadership, including the fact that J.P. Morgan, Jr. had paid no personal income taxes for the past three years, further outraged the public and helped inspire the sweeping banking and financial reforms of the first months and years of the New Deal. These included the all-important Glass-Steagall Act, the Securities Act, and the Securities and Exchange Act, which led the creation of the Securities and Exchange Commission in 1934.
For the most part, the banking and financial establishment vehemently objected to these provisions, even going so far as to say that they would undermine the recovery. But the public, better informed about the causes and consequences of the collapse of the financial sector, made it clear that they wanted change–and they got it.
For nearly seven decades–until they were largely eroded away in the 1990s-the reforms of the early New Deal stood as the bedrock of our financial system. If we are going to try to build a “new financial foundation” shouldn’t we be sure we are solid ground before were start? Shouldn’t we launch our own Pecora Commission to get to the bottom of what happened and why? Isn’t it time the American people received the answers they deserve?
David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.