Tough questions after Madoff

June 29, 2009

Even as Ponzi king Bernard Madoff goes away to prison for the rest of his life and then some, there are still so many unanswered questions — both big and fundamental.

Were Madoff’s sons involved? What did his wife Ruth know? Were the operators of the giant feeder funds that sucked in tens of billions of dollars in investor money in on the charade?

Those questions, though important, ultimately pale when compared with the bigger ones that remain about the root causes of the worst financial crisis since the Great Depression.

Indeed, for all the misery Madoff and his Ponzi brethren have caused, none of those scam artists were the cause of the crisis that brought the financial system to the brink. If anything, it was the financial crisis that helped flush out Madoff and his scurrilous ilk, as many investors rushed for the exits at the same time.

So that’s why Congress needs to act quickly to get up and running a bipartisan commission to study the underlying causes of the financial crisis. House Speaker Nancy Pelosi likens this new 10-member panel to the Pecora Commission, the famous Depression-era investigative committee that led to passage of Glass-Steagall — the 1933 law that drove a wall between commercial and investment banking.

The 1999 repeal of Glass-Steagall contributed mightily to the current crisis by opening the door to an anything-goes mentality on Wall Street and allowing far too many banks to become too big to fail.

This new commission, armed with the power to subpoena witnesses and documents, is meant to investigate all aspects of the crisis, including regulatory lapses, Wall Street excesses and deceptive behavior by lenders and securities traders.

A first order of business for the commission should be looking at the Federal Reserve’s dereliction of duty for missing the warning signs of trouble. Congress can’t consider acting on the Obama administration’s proposal to upgrade the Fed’s status to supreme financial regulator before there’s a full accounting of its missteps.

But there are already worrying signs that this commission will lack the political nerve to tackle the tough issues, let alone ask the right questions.

Reuters reported last week  that some of the people being considered for the commission include many former Congressmen, governors and familiar talking heads from Washington think tanks. Let’s hope that will not be the case because the financial system can’t truly be fixed until there’s a candid assessment of who let things get so out of control.

Sure, put some wise political statesmen on the commission. But also allow room for some longtime Wall Street critics, derivatives traders and hedge fund managers — the kind of people who know the system from the inside out.

Maybe, even include one or two people who were sharp enough to stay away from Bernie Madoff.


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