A dream team should probe the meltdown

Taking a break from my relentless labors the other day, I turned on the TV in search of a suitable intellectual accompaniment for my nutritious midmorning snack (12 ounces of vitamin water and a 3 Musketeers).

On C-SPAN I found the perfect thing: The House Financial Services Committee was grilling Treasury Secretary Timothy F. Geithner and Federal Reserve Chairman Ben S. Bernanke about the AIG rescue.

Rep. Jeb Hensarling (R-Texas) grumbled about “socialized medicine,” as though he had wandered into the wrong committee room. Rep. Maxine Waters (D-Los Angeles) obsessed about the “small group of Wall Street types who are making decisions,” especially Goldman Sachs & Co., which she described in terms James Bond uses to describe SPECTRE.

Their colleagues, meanwhile, emitted what the writer David Foster Wallace might have described as “recombinant strings of dead cliches” about undeserved bonus payments, U.S. taxpayer money paying off foreign banks and the mushrooming of that new American art form, the bailout.

They showed, in sum, that they have no understanding of the roots or remedies for the financial crisis, and -- more to the point -- no great desire to understand. They left me convinced that if we are to have a productive investigation of the financial meltdown, it must be taken away from posturing lawmakers.


With the public still clamoring for an answer to the question “How did this happen?” I have accordingly decided to name my own investigative board.

My board’s models are the Pecora hearings of 1933, which placed Wall Street under the gimlet eye of Ferdinand Pecora, a prosecutor from New York serving as counsel to the Senate Banking Committee, and the Truth and Reconciliation Commission convened in South Africa after the apartheid era. Its aim would be to investigate and elucidate the roots of the crisis, and prescribe solutions.

I haven’t aimed for demographic or political balance among my commissioners, nor asked permission of any of these people to use their names; for all I know, many would be unavailable for service or even appalled at being called. So it’s best to think of this as a fantasy lineup, based on the qualities of those who might serve.

First, the fiscal and monetary policy skeptic: This seat goes to James Grant, founder and editor for the last 25 years of the indispensable biweekly Grant’s Interest Rate Observer. In that time he has chronicled the coming and passing of not a few financial epochs, trying to identify the peculiar investment follies that accompanied every one -- often to a heedless world. In June 2005, he wrote, “In residential real estate from Miami to Seattle, ‘bubble’ is the word.” Claiming no particular perspicacity, he was just taking the measure of history.

The anti-trader: John Bogle founded the Vanguard Group of mutual funds in 1974 on the principle of index investing. It made no sense to pay high fees and commissions to active fund managers who failed to beat the benchmark Standard & Poor’s 500 index year after year, he reasoned; better to simply invest in the S&P; 500 via a fund that exactly mimicked its action.

Some years ago I had a chance to ask Bogle about the then-common claim that the stock market had entered a “new paradigm,” meaning it could go only up. This was at the time of the dot-com boom.

He chuckled tolerantly. “If that’s so, it’ll be the first time,” he said. Inured as he was to Wall Street flapdoodle, he was absolutely correct.

The political attack dog: Is it time to rehabilitate Eliot Spitzer? The former New York governor and attorney general made his name exposing the workaday frauds and lies of white-shoe Wall Street investment firms, then lost it for reasons that don’t bear repeating.

In the last year he has resurfaced as an occasional contributor to on the subject of financial ethics, showing that his finely honed sense of outrage still has edge.

A month ago he labeled President Obama’s proposed $500,000 executive compensation limit for companies taking a government bailout “a primal scream of outrage more than . . . a coherent policy.” Then he pointed the finger at the guilty parties: the compensation committees of corporate boards, the compensation consultants they hire for cover and the institutional investors that condone the excesses.

The economist on the outside looking in: Joseph Stiglitz of Columbia University, passed over for any of a dozen roles he could have played in the new administration, instead retained the luxury of independent thinking.

This week in the Nation magazine, he warned that Geithner’s bank bailout plan wouldn’t save the banks, only “the bankers and shareholders.” His preferred solution is a form of conservatorship in which the government would assume the good assets of a troubled bank, leaving the toxic assets to be sold on the market. After a brief period of conservatorship, the “good bank” would be refloated as a private enterprise.

The Depression expert: Theda Skocpol of Harvard has specialized in social history and reform movements. Her study, with Kenneth Finegold, of the divergent fates of two New Deal agencies, the failed National Recovery Administration and the more successful Agricultural Adjustment Administration, is as good a study as anyone has written on how bureaucratic realities affect the course of economic recovery efforts.

The regulator: Arguably the high-water mark of law enforcement at the Securities and Exchange Commission came during the tenure of Stanley Sporkin as enforcement chief (1974-1981). The very model of a proactive regulator, Sporkin pursued corporations for illicit political contributions and overseas bribery, leaving a trail of gnashed teeth in corporate boardrooms and on Wall Street.

The voice of the working class: Thomas Geoghegan’s three-decade career as a labor lawyer, chronicled in his classic memoir “Which Side Are You On?” left him well-equipped to understand how the financial finagling of recent years, and its sucking up of money and talent from the productive end of the economy, affected the average working man and woman. “In the United States, we shrank manufacturing. We got rid of labor. Now it’s just the banks,” he wrote in a recent essay in Harper’s Magazine about the debt bubble in America.

This is an incomplete and obviously idiosyncratic list. You’re free to compile your own.

My only suggestion: Keep grandstanders to a minimum. As Rep. Bill Posey (R-Fla.) remarked near the close of this week’s House hearing, “We’ve beaten a lot of dead horses today.” For the sake of the equines still alive, let’s turn the investigating and the proposing over to fresher hands.


Michael Hiltzik’s column appears Mondays and Thursdays.

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