Keep An Eye On This

As much of the content of the traditional media rankles many of us, the editorial decisions should as well. Dozens of potentially game-changing stories go unreported while the Umbrage Brigade on cable talk about what Joe Wilson said about Jimmy Carter or whether Michelle Obama is overstepping her boundaries by talking about health care (I caught that one today). Meanwhile, the biggest financial crisis in 70 years just happened, and even people who consider themselves well-informed don't understand the entire story. The Congress enacted the Financial Crisis Inquiry Commission (some are calling it the new Pecora Commission, given its similarity to the Depression-era commission of that name led by chief investigator Ferdinand Pecora), headed by former California Treasurer and gubernatorial candidate Phil Angelides, and they held their first public session yesterday. The meeting was introductory in nature, but Tim Fernholz came away with a few thoughts.

• Given the membership [PDF], I worried that the committee would be beset with partisan bickering and/or clashing ideologies, like the Congressional Oversight Panel. The COP, appointed by Congress to provide oversight of the bank rescues, is regularly undermined by dissents from Representative Jeb Hensarling, whose deeply conservative economic views preclude almost any reasonable discussion about regulation and finance. But though some tensions showed, I though the conservative New Pecora commissioners seemed open-minded; former Bush administration economic official Keith Hennessey and McCain economic adviser Douglas Holtz-Eakin made productive comments, though Peter Wallison, a more doctrinaire conservative than either of the other two, seemed to have his mind made up about the financial crisis, essentially blaming Fannie Mae and Freddie Mac right from the outset. He may be the poison pill on this committee.

• Most surprising was Vice-Chairman Bill Thomas, a former Republican Congressman and Committee Chair. Thomas seemed to agree broadly with Chairman Phil Angelides goals of non-partisan fact-finding, and went out of his way to compliment the views of every member of the commission. He even singled out Commissioner Brooksley Born, who strongly advocated regulating derivatives during the Clinton administration, telling her that the crisis would have been much more manageable had her advice been acted on. Later, asked by a reporter if the issue of regulating markets would divide the committee, Thomas stepped forward to say that he thought regulatory reform was inevitable and that making it work correctly was critical. Though it is easy for him to say that now, Thomas' early impressions are much less doctrinaire than had been anticipated.

• One concern: There is no liberal economist on the committee, while there are three conservative economic thinkers in Hennessey, Holtz-Eakin and Wallison. The Democratic appointees have regulatory, legal, political and private business experience, but no specific economic expertise.

• Early in the week, the New Pecora Commission announced the appointment of Thomas Greene as its Executive Director. Greene, a lawyer, has done complex investigatory work both in Washington, D.C. and in California, coordinating anti-trust and securities investigations in a variety of venues. The appointment is critical; recall that the Pecora Commission was named after it's executive director, Ferdinand Pecora, not the members of congress who constituted the actual committee. And more talent is coming: As Greene hung around after the hearing, several different people, including several lawyers, approached him about working for the commission.

The FCIC will hold hearings and issue regular reports between now and December 2010. This needs to be watched. We all have a sense that the banksters turned Wall Street into their private gambling hall and took huge risks, secure in the knowledge that they could get the government to bail them out if things went awry. Currently there have been no prosecutions of the major players in the scandal, no accountability to any degree, and a year later, Wall Street appears to be going back to their same old ways, entirely at our expense. Michael Hirsh believes that this commission offers one last chance to make the record public, and use it as a lever to change the system. He's not optimistic, however. The ideological shadings of the commission and Angelides' wariness of using the subpoena power he's been given worry him (I actually think Angelides can be a lot tougher than Hirsh or anyone gives him credit for). But he offers a glimmer of hope.

Still, Angelides and his team may yet surprise us. It's happened before. The history of "blue ribbon" commissions like this one is rich and storied in Washington; one of them, in 1942, was led by an obscure senator from Missouri who was also seen as a political hack at the time. His name was Harry Truman, and he turned his commission on defense malfeasance into a ticket into the White House and the history books [...]

What we do need, however, is a parade of witnesses who will provide what's been missing so far in this crisis—a prominent outlet for public outrage. In the last nine months, the Obama administration and the grandees in Congress have been designing solutions without much input from the outside, often using experts from Wall Street (especially "Government Sachs"). It's pretty much been a closed system. Even Paul Volcker, considered perhaps the greatest Federal Reserve chairman in history (now that the Alan Greenspan era looks much worse retrospectively), has been all but ignored by the president he is advising. Volcker has been making a series of speeches around the country calling for sensible changes to the structure of Wall Street that the administration and Congress are not yet considering. He wants federally guaranteed bank deposits to be cordoned off from heavy risk-taking and proprietary trading. Volcker wants banks, in other words, to be barred from behaving like hedge funds. "Extensive participation in the impersonal, transaction-oriented capital market does not seem to me an intrinsic part of commercial banking," Volcker told a corporate group Wednesday in Los Angeles. He should be invited to Washington to say the same thing.

I can remember a time when commissions like these, from the Pecora Commission to the Truman Commission to Watergate to Iran-Contra to even the 9-11 Commission, were major public news, followed intensely by the media. You'd think that a similarly designed commission tasked with uncovering the greatest loss of wealth in world history would generated more than a few words on the cable news crawl. But we have to make this important, too. The FCIC may fall into partisan bickering, or it may create some powerful narratives about the criminal enterprise on Wall Street. But none of it will matter if nobody pays any attention.

Excuse Me, Now?

President Obama's speech on financial reform laid out the basis for a new regulatory structure, but this part puzzled me to no end.

So restoring a willingness to take responsibility -- even when it's hard to do -- is at the heart of what we must do. Here on Wall Street, you have a responsibility. The reforms I've laid out will pass and these changes will become law. But one of the most important ways to rebuild the system stronger than it was before is to rebuild trust stronger than before -- and you don't have to wait for a new law to do that. You don't have to wait to use plain language in your dealings with consumers. You don't have to wait for legislation to put the 2009 bonuses of your senior executives up for a shareholder vote. You don't have to wait for a law to overhaul your pay system so that folks are rewarded for long-term performance instead of short-term gains.

The fact is, many of the firms that are now returning to prosperity owe a debt to the American people. They were not the cause of this crisis, and yet American taxpayers, through their government, had to take extraordinary action to stabilize the financial industry. They shouldered the burden of the bailout and they are still bearing the burden of the fallout -- in lost jobs and lost homes and lost opportunities. It is neither right nor responsible after you've recovered with the help of your government to shirk your obligation to the goal of wider recovery, a more stable system, and a more broadly shared prosperity.

So I want to urge you to demonstrate that you take this obligation to heart. To put greater effort into helping families who need their mortgages modified under my administration's homeownership plan. To help small business owners who desperately need loans and who are bearing the brunt of the decline in available credit. To help communities that would benefit from the financing you could provide, or the community development institutions you could support. To come up with creative approaches to improve financial education and to bring banking to those who live and work entirely outside of the banking system. And, of course, to embrace serious financial reform, not resist it.

Yeah, same with the health insurance industry. You don't see them rushing to accept anyone regardless of pre-existing condition or renouncing the dumping of sick patients. The way our system works, for-profit companies don't change their ways unless forced to by law. Is this some rhetorical trick that benefits nobody in the end, or is the President really asking Wall Street nicely to reform themsleves, trim their sails and stop taking risks with our money?

Financial titans are not going to play fair because somebody tells them to. That's what makes them FINANCIAL TITANS. The only way to hold Wall Street responsible is through holding them directly responsible and investigating every nook and cranny of their dirty dealings. The President is not powerless to simply beg and grovel for responsibility. He has significant tools at his disposal. Turning the Justice Department loose on the fraudsters isn't a bad start. Or empowering the Angelides Commission to really attack the root causes. Point being, if you want any kind of significant regulatory reform to pass, you'd better get tough on Wall Street instead of engaging them as some kind of buddy.

Still, the measure is proving more troublesome than expected in the House, where top Democrats had initially thought it would pass easily.

Unease among Democrats prompted House Financial Services Chairman Barney Frank (D-Mass.) to postpone a markup on the Consumer Financial Protection Agency proposal scheduled before the August recess. It’s now expected to occur in early October.

Industry efforts to kill the CFPA seem to be having an effect. And moderate Democrats still aren’t entirely on board. “Distinct parts [of the bill] are real problems for a lot of people,” including the enforcement powers granted to the agency and the lack of state pre-emption, said a Democratic aide.

Maybe the thinking in the White House is to turn over regulatory reform to Richard Shelby the way other progressive policy agenda items have been turned over to Republicans and moderates.

What happened in the financial market should have been a wake-up call. As Phil Angelides said, "If this shock doesn't do it, I don't know what would." But that requires leadership to see the changes through. And it's frankly lacking at the top.

...Arianna nails it.

And that's the way it is with our leaders. They stand on the bridge making theatrical gestures they claim will steer us in a new direction while, down in the control room, the autopilot, programmed by politicians in the pocket of special interests, continues to guide the ship of state along its predetermined course [...]

I don't dispute for a minute that his heart is in the right place, and that he means it when he says "the old ways that led to this crisis cannot stand" and touts "the need for change and change now."

But we've been hearing similarly great sentiments for months now -- and they've had the same impact as my friend's ten year-old yanking on the cruise ship wheel. None. President Obama won't be able to change the course our financial system is on unless he goes down into the boiler room and disengages the autopilot -- which means taking on the bankers and their hordes of lobbyists who continue to dictate policy in DC.

I'd give Obama a little more agency here - the Presidency carries tremendous power - but basically this is right.

Angelides On Pecora II

Tim Fernholz talks with Phil Angelides, the new chairman of the Financial Crisis Inquiry Commission, a modern-day analogue to the Pecora Commission of the 1930s, charged with finding out the origins of the financial crisis, who we should hold responsible, and how we can ensure it never happens again. There are some interesting tidbits in the interview. First, we can be sure that Angelides has an understanding of the problem.

Why is this commission important?

The magnitude of what's happened in this country is astounding. Millions of people have lost their homes, millions of people have lost their life savings, millions of Americans have seen their pensions disappear. We have seen over a trillion dollars in taxpayer money go to prop up a dying financial system. This is a cataclysm. My view is that there is a real hunger in this country to have a pursuit of the truth, to find out what happened and why it happened, so hopefully, instead of sweeping it under the rug, it will not happen again in our lifetimes. This is an important commission with a critical role of serving the nation's best interests because we are called on to look into something that has been fundamentally important to this country: The very foundations of our financial system have been shaken [...]

Do you believe we already have a broad understanding of what led to this crisis, or do you feel there are a lot of questions still unanswered?

All of us come with our personal views. I'll start by saying that in the early part of this decade, as early as 2002, I was concerned about what was happening the marketplace. I was deeply concerned about executive compensation so I mobilize shareholders across the country to push back on executive compensation. I was concerned about lax enforcement at the SEC. ... I was part of a movement of activist shareholders in an effort to bring some common sense to the market place. In the wake of the Enron and Worldcom, we had some momentum, but the economy recovered and the regulators took their foot off the brakes. We all come in with our own viewpoints, but our job is to look at this fresh.

Next, he's willing to give his Republican colleagues on the committee some input, but he's setting ground rules and he thinks he can get the others on the commission to play ball:

The commission has the ability to subpoena information, but only if at least one of the Republican appointees supports the decision. Are you at all concerned about disagreement within the committee hurting its ability to gather information?

When the Speaker and the Majority Leader asked me to serve as chair, [I knew] this would be a hard and difficult road. I'm starting on the assumption that other commissioners, like myself, are interested in getting to the facts and the root causes. If we have to issue subpoenas, I hope we can do that. Hopefully people [with information] will cooperate, but if not, we were given the tools to get the facts. I would want to start on the basis that no commissioner would want to deprive us of information to make a good judgment on behalf of the American people. The commission is interesting because it really focuses on the inquiry, rather than the policy and political implications. I think that gives us a better chance of coming up with a nonpartisan, bipartisan findings of facts.

And finally, he seems to recognize something that a lot of people don't - the regulators probably had the capacity to stop at least the most egregious criminality happening in the markets, but they didn't use the authority they had. What the Financial Crisis Inquiry Commission can offer is, in Angelides' words, "a road map" and "a guidebook" to the next generation of regulators, so they know what to look for and where to go.

Now, Zachary Roth has a long piece about Bill Thomas and the other Republicans on the FCIC, or Pecora II, and how they are partisan enough to resist a real inquiry. The provision that one Republican must vote with Democrats in order to issue subpoenas could allow anyone Republicans don't want testifying to be able to do so; and all of the Republicans appear, to Roth, to be candidates to hang together:

None of the three rank-and-file Republican appointees seem like good candidates to break ranks. Peter Wallison is a fellow at the American Enterprise Institute, who has been a prominent advocate of the favored conservative notion that Fannie Mae and Freddie Mac are the true culprits in the crisis, and who argued this week in the Washington Post against creating a consumer protection commission for financial products -- an idea seen by many as a cornerstone of any effort to reform the financial regulatory system. Doug Holtz-Eakin, for his part, was John McCain's top economic adviser at the time when the GOP presidential nominee declared the fundamentals of the economy strong. And Keith Hennessey is a former economic adviser to President Bush and a former aide to Sen. Trent Lott.

But it's the identity of the Republican-appointed vice chair -- whose support is required by law for the commission to perform several other key functions, like hiring staff -- that's the really ominous sign. That's Bill Thomas, the Republican former congressman from California, who earlier this decade chaired the House Ways and Means committee.

During his years in Congress, Thomas, who now works for a major DC lobbying firm, acquired a reputation as a smart, highly-skilled and acutely partisan supporter of big business, who once tried to have Democrats forcibly ousted from a capitol meeting room, and was accused of being literally in bed with a corporate lobbyist.

I'd agree that Wallison and probably Hennessey and Thomas are useless, but Holtz-Eakin, a former head of the CBO, has at least displayed flashes of intellectual honesty when he wasn't in charge of a Presidential campaign's economic policies. He has acknowledged the need for higher taxes. He has called for the Bush tax cuts to expire. He's definitely conservative and he sometimes says some boneheaded things, but I don't see him as a hardcore partisan, actually. And if Angelides structures this as a just the facts inquiry, there's at least the promise of a legitimate investigation.

Phil Angelides To Chair Financial Crisis Inquiry Commission

As part of an earlier bill, Congress initiated the modern-day analogue to the Pecora Commission of the 1930s, named after its chief counsel Ferdinand Pecora. That commission detailed the origins of the financial crisis that caused the Great Depression, and led to the passage of several banking reforms, including the Glass-Steagall Act, which separated investment banks and commercial banks. The Pecora Commission was credited for the reforms that stabilized the financial system after a 19th century full of depressions. After decades of neglect and deregulation, we needed a new Pecora Commission to examine the breakdowns in the financial system and recommend best practices to ensure it never happens again. And the man who will head this commission is Phil Angelides.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid today announced six appointments to the 10-member Financial Crisis Inquiry Commission, established by Congress to examine the domestic and global causes of the financial crisis.

Speaker Pelosi and Majority Leader Reid appointed Phil Angelides as chairman of the Commission. The statute requires the House Speaker and the Senate Majority Leader to jointly appoint a commission chair. Mr. Angelides, one of Speaker Pelosi’s three appointments to the commission, served with distinction as the elected California State Treasurer from 1999 to 2007. He has earned national recognition as an effective public and private sector leader with broad expertise and accomplishments in the fields of investor protection, housing, finance, and corporate and financial market reform.

The Commission will conduct a comprehensive examination of, and hold hearings on, more than 20 specific areas of inquiry related to the financial crisis, including the role of fraud and abuse in the financial sector; state and federal regulatory enforcement; tax treatment of financial products; credit rating agencies; lending practices and securitization; unregulated financial products and practices; and corporate governance and executive compensation. The Commission will also examine the causes of major financial institutions that failed or were likely to fail had they not received exceptional government assistance. The Commission will provide its findings and conclusions in a final report due to Congress on December 15, 2010.

Obviously this takes Angelides out of the running for any political races in the 2010 cycle. But he'll actually have a far more influential position - determining the causes of the financial crisis and how to fully reform the system. I'm pleased that Speaker Pelosi and Senator Reid went outside of Washington for this task, not to any of the typical high priests of bipartisanship. I hope Angelides can get this job done, and it seems to fit with his skills.

The rest of the Democrats on the commission, including Clinton-era official Brooksley Born (who wanted to regulate derivates in the late 1990s) and former Florida Sen. Bob Graham, can be found at the release.

...The Republicans added a vice-chairman with a California connection: former House Ways and Means Chairman Bill Thomas.

CA-03: Gary Davis Announces

Randy Bayne reports that Gary Davis, a member of the Elk Grove City Council, has announced that he will run against Dan Lungren in CA-03. He's unveiled an official campaign website named Davis Beats Lungren, which certainly displays confidence.

Davis also works as the Political Director for EdVoice in addition to serving on the Elk Grove City Council, and was a legislative director for Darrell Steinberg when he served in the State Assembly. EdVoice has lined up on the "reformer" side of the divide inside the Democratic Party over education, supporting charter schools and vouchers, and often raising the ire of teacher's unions. CEOs like Reed Hastings of Netflix and Don Fisher of the Gap fund EdVoice, and they have played in many local races with independent expernditure money. See this very lame EdVoice attack on eventual winner Mariko Yamada used in AD-08 last cycle on behalf of Christopher Cabaldon for an example. Simply put, EdVoice has used deep pockets to try and become a special interest player in Sacramento, with mixed results.

I've been adamant that we need a real candidate in CA-03 to take advantage of this opportunity in that district. I still believe Phil Angelides, who has been unusually active in the special election battle (advocating a No vote, I might add), could make a good fit here. Hopefully, I'll have a chance to talk to Davis in the next couple weeks, but his association with EdVoice doesn't exactly make me leap to the phone to make a donation.

Campaign Update: CA-10, CA-03, CA-47, CA-50

The Internet moves at, well, Internet speed, so parts of my House race roundup were already out of date or incomplete by the time I published it. So here's an update on a few races.

• CA-10: John Garamendi announced a significant series of national labor endorsements for the upcoming CA-10 race, despite Mark DeSaulnier having locked up the Contra Costa County Central Labor Committee endorsement and the local Building Trades (which cover almost 100 local unions) and chairing the Senate Labor Committee. They include:

AFSCME: American Federation of State, County and Municipal Employees
CNA: California Nurses Association
CFT: California Federation of Teachers
UFCW: United Food & Commercial Workers
CSEA: California School Employees Association
Laborers International Union of North America
International Union of Operating Engineers
CWA: Communication Workers of America

Many of those can provide PAC money, resources and support to Garamendi, leveling the playing field in a race where DeSaulnier captured all the early endorsements.

• CA-03: I passed on the rumor about Phil Angelides and CA-03 in my roundup, but local blogger Randy Bayne dismisses that report and notes that Elk Grove City Councilman Gary Davis will likely run, having met with the DCCC and begun the process of putting a team together. I don't agree with Bayne that a contested primary (Dr. Amerish Bera has also announced) would impact negatively on the race. Especially when the candidates have low name ID, a primary can increase their public profile and show them to be a "winner" in front of the district, at the end. Momentum can build. Primaries don't necessarily have to be nasty and debilitating, and I fail to understand why anyone would reject them out of hand.

Incidentally, I never took much stock in the rumor about Angelides, I simply thought it would be a decent line of inquiry, given his name ID, fundraising ability and progressive profile.

CA-47: One potential challenge to a Democratic incumbent I overlooked yesterday was Van Tran's run against Loretta Sanchez, profiled in Politico.

On the heels of an election marked by a dismal performance among Asian voters, top Republicans are aggressively recruiting California Assemblyman Van Tran, a Vietnamese-American, to challenge Rep. Loretta Sanchez (D-Calif.) next year.

If elected, Tran would be the second Vietnamese-American in Congress, after Rep. Anh “Joseph” Cao (R-La.), who won his seat in a 2008 election.

Tran has already been feted at the National Republican Congressional Committee’s March fundraising dinner as a guest of the committee’s recruitment chairman, Rep. Kevin McCarthy (R-Calif.), and he was encouraged to run by House Minority Leader John Boehner and Minority Whip Eric Cantor. He also made a trip to Washington after last November’s election to meet with officials from the NRCC.

Even Sen. John McCain (R-Ariz.) has assisted in the recruitment process, meeting with Tran and offering support for any potential candidacy. Tran was an outspoken backer of McCain’s 2008 presidential campaign and helped him carry Orange County over Mitt Romney in the Republican presidential primary.

What the story fails to mention is that, not only does Tran not have full support among the Vietnamese community in the district, not only does Loretta Sanchez have experience easily defeating Vietnamese challengers, but Tran didn't even do that well in his own Assembly race last year, winning over 55% of the vote against Ken Arnold. If Tran is one of the Republicans' top recruits, they're in even bigger trouble than I thought. Incidentally, Sanchez' voting record has greatly improved over the past couple years.

• CA-50: I should have cited Francine Busby's Firedoglake chat from a couple weeks ago. I don't think I agree with her on this, though:

I’ve alway said that the Latino voters have to organize register and educate from within their own community. I see more activism and organizing going on than I did before. In fact, I will be attending a meeting on Monday of the reconstituted Latino American Democratic Club in Oceanside. We may have a strong Latina running for a state office who can rally the base. Also, Bilbray is their worst nightmare, so I expect that to motivate them to get out to vote. I reach out to leaders in the community as much as possible to maintain good communications and understanding.

Outreach consists of more than "hopefully they'll self-organize." You need to actually engage the Latino community instead of hoping some other local candidate can do it for you. Not a good sign.

General Session Open Thread

Here's a thread for the opening session at the CDP convention. Secretary of Labor Hilda Solis is taking the stage right now, leaving me wondering what this would be like if she was speaking as a candidate for Governor. Ah well.

The juicy tidbit I've heard is that Phil Angelides is strongly considering jumping into the CA-03 race against Dan Lungren. This makes a pretty good deal of sense. Angelides has the policy chops, the ability to raise money (he has a huge list of supporters to tap from 2006), and a focus on green jobs and clean energy from the Apollo Alliance. I'd like to see this.

Solis' money quote: "This is the most progressive Administration I've seen in a long time."

More later.

...The Garamendi-bots are out, bringing him to the floor. I think they just had a bunch of leftover signs from when he was running for Lt. Governor.

...Most awkward quote ever: "George W. Bush, you are bad history!" Garamendi followed up with the old "We now have a President who can speak a complete sentence" standby...

...So Gavin Newsom is being introduced now. Lots of "visibility" in the crowd.

As Gavin talks about his alleged delivery of health care to everyone in San Francisco, can someone please ask him about cutting the city health care budget by 25% across the board to cover his city's budget deficit? I will, in a couple hours.

Money quote - "We're not intent to relive history." Yes, just to rewrite it.

Boy, Jack O'Connell is wooden.

Barbara Boxer is up right now. I'm reading over the speech, and it's a bunch of red meat.

Department of Unsurprising Things Dept.

Hey, so remember how, during the campaign, that audio of Gov. Schwarzenegger talking about Bonnie Garcia and her "hot Latin blood" was leaked, and Arnold's campaign started claiming that their site was hacked, and launched a criminal investigation into the Angelides staffers who did it?

Funny story....

Some five months after Gov. Arnold Schwarzenegger's office kicked off a high profile criminal investigation of alleged computer hacking to determine how his private conversations ended up leaked to the press, a California Highway Patrol report has effectively cleared the campaign of Democrat Phil Angelides saying that there was no crime involved.

The 38-page CHP report, just released, says that the digital files of the governor's conversations were placed on a website that was "accessed by backwards browsing ... which does not constitute a crime."

Of course, we all knew that erasing the end of an URL and finding the parent directory was not hacking, but it took the CHP 5 months. Still, it seems like every time one of these things comes up, it turns into absolutely nothing several months down the road. Remember the Joe Lieberman site hack?

This wasn't a crucial part of the governor's race, but it actually was kind of a big deal, and the Schwarzenegger team was being righteously indignant the whole time, vowing to "get to the bottom of this larceny," etc. Once again, they were just blustering to cover up their own ineptitude. And they were directing police investigations for political purposes, and perhaps even delaying those investigations to avoid embarrassment. How typical.