Liam Halligan: Not Just Glass-Steagall - We Also Need Pecora
August 13, 2012 • 8:23AM

Prominent City of London economist Liam Halligan once again stressed the urgent need to restore Glass-Steagall legislation, in a commentary Sunday, which begins by denouncing the hyperinflationary intentions of ECB president Draghi — only surpassed by those of the Federal Reserve and Bank of England.

"Not for the first time, I've ended up writing about the eurozone when my intention was to highlight something else," Halligan wrote. "That was the recent volte-face by Sanford Weill, the swaggering Wall Street financier who, in the late 1990s, forged the merger of Travellers Insurance and Citibank. In creating the mighty Citigroup, Weill consigned to history the Glass-Steagall Act — the Depression-era separation of commercial and investment banking.

"For a very long time, this column has argued that the 1999 repeal of Glass-Steagall was the single most important cause of the sub-prime crisis and its related economic fall-out. Sanford Weill, the man who did more than anyone to remove this crucial safeguard, is now admitting he was wrong."

For Weill to call for splitting the banks, is like "Colonel Sanders calling for chicken-free diets."

Why Weill's conversion? "As shown by the Citigroup share price, now just a tenth of its 1999 level, most of the banking behemoths are now probably worth more broken up. And having made his massive fortune and now approaching his 80s, Weill is tidying up his memoirs. But still, both Weill and John Reed, the two Citigroup founders, now both back a new Glass-Steagall. I wonder if Robert Rubin does, too.... Rubin's memoirs, written in 2003, barely mention Glass-Steagall. Perhaps they're in need of an update."

A few weeks earlier, on July 21, Halligan also stressed the need for the kind of all-out assault on banking corruption which Franklin Roosevelt and Ferdinand Pecora had waged. There are "two stark lessons from the 1929 Wall Street crash, and the Great Depression which followed, that we all seem determined to ignore," Halligan wrote. "In the early and mid-1930s, Franklin D. Roosevelt got hold of the 'Wall Street titans' and showed them who was boss. Banks were forced, under threat of criminal prosecution, to disclose their full balance sheets. Those beyond repair were broken up. Famously, retail and investment banking were separated, root-and-branch, by the Glass-Steagall Act.

"Compare that with today. In the US, Britain and elsewhere, the policy response to sub-prime has been infantile. Our political leaders are cowed by the money-men, caught between awe and financial dependence. Many Western banks remain beyond full audit. Those guilty of serious white collar crime have sailed away, their riches intact, leaving nothing in their wake but financial and human destruction.

"Where is our modern-day Pecora Commission — the Congressional hearings held in the 1930s that unearthed and demystified the frauds, scams and abuses that culminated in the Wall Street crash? Where is our truth and reconciliation commission to get to the bottom of what happened, punish the guilty and stop sub-prime happening again?

"A former assistant district attorney from New York, Ferdinand Pecora, had intellect and stamina in abundance. His relentless and expert grilling of bankers and regulators, fully open to the public, electrified Depression-era America. Pecora was the immigrant son of a Sicilian cobbler, outside the establishment, which is why his investigation was fearless and, ultimately, effective. The famous financiers and banking scions, they didn't faze Pecora. His probings exposed the murkiest corners of Wall Street, catalysing genuine reforms and restoring public trust in bankers and banking, so laying the foundations for America's post-war prosperity and financial stability.

"Back in the present, the UK's Treasury Select Committee, under-resourced and appointed by party whips, has tried and failed to lay a hand on the bankers. Now, a parliamentary committee is to more fully investigate Liborgate, but only after having been stripped of several members of the Treasury committee who have displayed a detailed knowledge of banking. With the best will in the world, it just isn't going to work. But perhaps that's the point."