Who Da Heck is Ferdinand Pecora?
It’s understandable if your first guess was midfielder for the Italian soccer team. Pecora’s stature, regrettably, has fallen to a footnote in history.
Ferdinand Pecora led the Congressional investigation into the Wall Street collapse of 1929. He unearthed J.P. Morgan’s “preferred list”
that sold steeply discounted stock to influential friends, including former President, Calvin Coolidge. He revealed that National City sold off bad loans by packing them into securities and selling them to unsuspecting investors. (Sound familiar?) He exposed how top officers at National City helped themselves to $2.4 million in interest-free loans from the bank. But the news that made everyone in the soup lines nauseous was hearing that J.P.
Morgan and many of his partners paid no income tax in 1931 and 1932.
This all sounds pretty nasty, but believe it or not in 1929 it was all legal. As a result of these revelations Congress enacted the Securities Act of 1933 and the Securities Exchange Act of 1934.
Sadly we need someone to emerge again from the depths of the bureaucracy to expose the foulness of how we buy and sell investments as well as manage risk. Derivatives, credit default swaps, collateralized debt obligations, and other instruments can be powerful and useful tools, but we need to be assured they are being used properly and transparently.
They need to be regulated.
With any luck, abusing these tools in 50 years will sound as egregious as the conduct Pecora exposed in 1933. The only problem is that we need another Ferdinand Pecora.
