Saturday, October 3, 2009

FCIC Then and Now

First off, 25 years ago I wanted to be an engineer. Back then I couldn't even spell engineer, now I are one. Forgive the grammar. The point is to make a point.

Congress set up the "Financial Crisis Inquiry Commission". FCIC was established in May 2009. Have "we" learned anything? CIT is on the brink, ready to try to stab their bond holders in the back. This is the same as disruption of contract to the wild west. With Bernanke in the saddle, how does that make you feel?

Since then banks have ramped up their risk levels, increasing profits by risky bets.

In 1929, after the first drop, an investigation was launched, although before it ever got off the ground, and a "good size" stock market recovery was already occurring, people began losing interest in banking reform...after all the system was working.  Any intervention was cast in the light of being disturbing to the recovery.  Instead the banking system headed towards "policing themselves".   OK can I be cynical here?  The wolves are watching the wolves, decide which sheep can be decimated.

After much foot dragging, in 1932 the first hearings into the financial fiasco were conducted.  Hoover had finally allowed the investigation to start.  The commission that was appointed to investigate the Great Depression was basically a bunch of lame ducks, one leader after another failing to get any traction against the highly motivated and smooth talking operators of Wallstreet.

Roosevelt won the election in 1932 with a landslide win by his "New Deal Coalition".

It is interesting that in 1919, the Volstead Act was passed, Prohibition.  But at the time it was considered a big enough measure that it required the 18th Amendment of the United States Constitution.   Amazing, that nowadays, Government can allow things like torture based on simple letter commissioned by a Berkeley Professor.    Back then just outlawing booze required a change to the Constitution.
Then the Roaring 20's ensued, with a chicken in every pot, and a continuously high plateau where economic cycles and downturns never need be feared again.

1933 -  Roosevelt works to repeal Prohibition.

In 1988, the Omnicus Drug Act and the Defeince Authorization Act, the "War on Drugs" had officially been started, but without any Constitutional Amendment.  Note how coincident with this War on Drugs, that a raging bull pushing into the end of the millineum occurred.  Similar to Prohibition in the Roaring 20's.

Now Obama states that the term "War on Drugs" will no longer be used. 

Theory in a Nutshell -- Social mood creates a need to vilify some of our vices (Prohibition and War on Drugs), however these vices are somewhat repressed, and transformed into other avenues (Speak Easy's, Opium use, and in this last War--a transition to easy to transport, manufacture and deliver, on a dollar per pound basis, uppers like cocaine and meta-amphetamine) and other vices---in particular ---Greed.

Thesis--The net total of vices of the human population as a whole, stays about the same, just shifting in type.

OK back to the stock market proper: 

In 1932, more than 2 full years after the first crash, the first hearings were starting investigating why the crash happened and if there were any illegal dealings, in particular short selling by those who crashed the market.  A 30 year old "junior" corruption investigator was put in charge of the investigation, and requested 500 subpoenas, to which he was shot down in flying colors.  Obviously no one with vested interests wanted the truth to come out.  

Finally in 1933, someone with the knowledge and guts to attack the problem was appointed, an Assistant District Attorney from New York.   Ferdinand Pecora.   AND he was given broad powers to subpoena which he did, resulting in many public floggings of financiers of all sorts including JP Morgan Junior. 

The public was suffering through the Depression, they wanted a pound of flesh and they got it.

In January 2009, The NYT asked "Where is our Ferdinand Pecora"

Where indeed.  

It seems like Mr Clean, Sptizer, had the chance to take the reins and bring some reality to the current investigation.   But he was setup with a prostitute and then run out of town.

Who indeed.

The new FCIC may also be a lame duck, like the 1929 investigation started.  The FCIC is promising a "no holds barred" investigation. 

They publicly ask the question "Why wasn't this crisis detected".  This leads me to believe that either they are ignorant or are intentionally just on a witch hunt.   Why?  Because they are asking the wrong question---  because in fact, many people detected this crisis way before it blew up.   I can provide dozens of samples.

The members of the "new" Financial Crisis Inquiry  Committee:

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