It’s been more than two years since the economy cratered and we still have no explanation as to what happened.
Calls for a “modern version of the Pecora Hearings — the Senate Banking Committee hearings in the 1930s that laid bare the inner (and rotten) workings of the biggest financial firms” — have fallen on deaf ears.
But there’s still a chance we can get to the bottom of the mess — if we listen to Simon Johnson. The economist and MIT professor is calling for confirmation hearings for Elizabeth Warren as the official head of the new Consumer Financial Protection Bureau.
A proper Senate confirmation hearing would be the perfect platform for Ms. Warren to explain, (a) not only do “too big to fail” banks now constitute and hugely dangerous government subsidy scheme, but (b) based on these subsidies, they are becoming larger and acquiring more market power that can be — and has been — used to abuse consumers in a nontransparent fashion.
All attempts so far to construct some form of Pecora Hearings have failed — partly because the issues are complex and partly because of partisan fighting. The Financial Crisis Inquiry Commission made some progress but could reach no consensus (or bring anyone to justice). Senator Levin’s hearings into Goldman Sachs grabbed attention and were most helpful in the Dodd-Frank reform debate but again no one is going to jail — and few people even grasp what were the real issues at stake. And the Department of Justice has preferred to pursue insider trading cases, perhaps taking the view that these are easier to explain to juries.
But Elizabeth Warren cuts through the complexity and offers a message that — outside of Washington — plays well across the political spectrum.
Her message is simple: the consumer “market” for financial products does not operate like a proper market because leading firms (bigger banks and also nonbanks, like some payday lenders) have figured out how to make a great deal of money by confusing their customers.
Will the president make the nomination? We can hope, but we shouldn’t get our hopes up.
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Hank Kalet 