Pecora Percolating

A little-known financial fraud bill in the Senate could be the vehicle to a wide-ranging Congressional commission to study the financial crisis and make recommendations for regulation.

The Senate signaled a willingness late Wednesday to create a select committee to investigate causes of the nation’s financial crises.

In an amendment accompanying other legislation on financial fraud, senators agreed in a voice vote to consider creation of a special commission that would delve into the roots of the collapse.

The amendment had bipartisan support from Senators Kent Conrad, Democrat of North Dakota, and Johnny Isakson, Republican of Georgia, as well as Senators John McCain, Republican of Arizona, and John Dorgan (it's Byron -ed.), Democrat of North Dakota. In a statement, Senator Dorgan’s office said the select committee would have full subpoena power and would not only hear testimony, but make recommendations for reforms to try to prevent future downturns of this type.

However, that vote contrasts with a separate commission voted through on the same bill, which would make the commission independent of Congress.

The Senate passed an amendment to an anti-fraud bill yesterday that would create an independent outside commission, complete with subpoena power, to investigate the causes of the crisis on Wall Street. The amendment was written by Sen. Johnny Isakson (R-GA), but was cosponsored by, among others, Sen. Chris Dodd (D-CT) [...]

These developments comes amid high level discussions among Congressional Democrats about the creation of an internal commission--modeled on the Pecora investigation into the 1929 collapse--to investigate the key events that preceded today's financial crisis. Dodd's staff has been largely silent on the idea of an internal commission, noting that his committee has already laid the groundwork for a thoroughgoing investigation. (Interestingly, the Pecora commission was conducted under the auspices of the Senate Banking Committee, which Dodd currently chairs.)

If the bill passes both the House and Senate with both amendments in tact, then the two commission will move forward, one outside the direct control of Congress. Democratic leaders agree that an investigation of some kind is in order have indicated some flexibility as to the exact specifications of such a commissions. Among the chief concerns are whether an external commission would enjoy subpoena power (though that concern might now be allayed) and that it could be stacked with people who lack either accountability or the incentive to investigate the issue thoroughly. One could, of course, raise similar concerns about an internal commission.

Barney Frank is already pulling back legislation on regulation, presumably until this commission business is straightened out. And I think that's somewhat wise. We're only going to get one shot at decent regulations, so we'd better array all the evidence and show all the fraud in the system before we set up the new rules of the road.