The New Untouchables: The Pecora Files
Episode 1 – The Vaccine for Systemic Corruption
February 14, 2021

[00:00:01.600] – Steve Grumbine

My name is Steve Gumbine, and I’m with Real Progressives. Today, folks, we are going to be going over something so important to the American story, so important to the here and now. For nearly 50 years, we had financial systems that worked.  It was the glory of the world. It did not work because we were lucky, but because skilled, courageous people worked hard to find the facts and make them public in a way that everyone could understand.

The phrase “elections have consequences” is now common.  Revealing and documenting evil has immense consequences. Today we have come together to make clear in a series of podcasts the importance of the docuseries, The Con. One of the Con’s key messages is a central theme of these podcasts. It is an age-old message. John 3: 20 from the new international version warns us everyone who does evil hates the light and will not come into the light for fear that their deeds will be exposed.

John 8: 30 then tells us what we must do to counter evil. We know the truth and the truth will set you free. Today, you will hear directly the words of the real untouchables.  The Con took a simple but revolutionary approach to explaining the epidemics of elite fraud and predation that drove the great financial crisis. It interviewed scores of people that got the global financial crisis right and sought to prevent it and hold the elite predators accountable.

The Con blows up the inevitability, self-serving excuses of those who fail. The Con shines its light on those who exposed the elite and evil that drove the global financial crisis. With that, we have four guests today, we have Eric Vaughan, who is the writer of The Con series. We have Patrick Lovell, who was the star of the show that told the story.

We have William K. Black who exposed the savings and loan crisis. And we also have Art Wilmarth, who is the author of a new book, Taming the Mega Banks: Why We Need a New Glass-Steagall Act. And he is also a member that was on the FCIC during the crisis that was supposed to expose causes and conditions. Without further ado, let me bring on my guests. Welcome, gentlemen.

[00:02:32.590] – Patrick Lovell

Thank you, Steve.

[00:02:34.060] – Grumbine

Absolutely. So, Patrick, let’s start with you for a moment. Tell us a little bit about what got you to do The Con.

[00:02:43.060] – Lovell

Like millions of other people, I got buried in the aftermath of the 2008 great financial crisis. At that time, nothing made sense to me, Steve. I looked around, I was listening to what was taking shape in the White House, what was happening in the mainstream media, particularly as it related to Wall Street in the plans that were at that time, in the transition, of course, between the Bush presidency and the incoming Obama presidency.

And I just had no understanding based on the experience that I was experiencing at that time, what actually took place to create the great financial crisis and why it was destroying the world that I actually had spent decades building.  And so, just basically, a miraculous moment happened when I was channel surfing on a Sunday morning and I happened to catch William K. Black on a television show by Bill Moyers.

And at that moment, suddenly everything started to make sense. Not long afterwards, Eric and I connected. We went on a trip to start to unpack all the questions that I had, and it led us on this multi- year, multi-state journey that crisscrossed this country, basically pulling the thread on every question that we had based on Professor Black, William K. Black’s direction, methodology.

And the next thing I know, we’re meeting the likes of Art Wilmarth. And in this incredible story and I have to thank you and your team, really the dream always became for me to present this truth to the American people in a way that I wanted, which was just simply the facts. And if you could build the facts of what actually took place, suddenly the light in which you speak, that would make people run for the hills could be explored and understood by all of us. And that’s the purpose of what we’re doing here today.

This is called The New Untouchables, of course, because in government we do have the people who have the professionalism, who have the courage who have the dignity and the integrity to function in service of the American people. Unfortunately, we live in an age where a lot of these things have been perverted, turned inside out. And today we’re going to explore through this series of podcasts all of the elements that make that so. And so, I thank you and your team, and we are blessed to be here with incredible dignity and integrity of the people who are going to participate.

[00:05:17.390] – Grumbine

Thanks so much. Eric Vaughan, you wrote this thing. Tell me a little bit about the experience of what drew you to writing this to begin with.

[00:05:25.840] – Eric Vaughan

Well, I mean, the journey that Patrick started with me and Adam Bronfman, I should say, really, it became very apparent just how critical telling this story and getting the story right was. And creating The Con was a multi-year task, and a lot of the reasons for that was because we had to build up, build it up and then tear it back down when we knew that we got something wrong. And then I remember that, too.

I mean, it seems like yesterday that we were just about finished with episode three and we had it built in a way that this story was like really solid and it made a lot of sense. And then I had a conversation with Bill, Bill Black about something. And it occurred to me that as tight as the story was, it was completely wrong just because of a couple misplaced facts. And so we had to completely reconstruct it because it was the most important thing that we could do in producing the series was to get the story right.

Ultimately, my job is quite simple. You went around and you listened to the people who knew what happened, who understood, who were on the right side of this. Who got it right. And it was just my job to listen and to somehow get it in an order that told the story accurately in a way that people could understand. So in writing it and directing The Con, that was, that was the basic mission – was that I know nothing. All these people do. Let’s get their stories right and let’s make it and tell them in a way that the average person sitting at home who needs to understand these things can.

[00:07:23.710] – Grumbine

Yeah, it’s interesting. When you guys brought this to me and I was able to finally see this thing through, I literally wept at the end because I was pinched during this. This really affected me personally. And I didn’t understand. I was blamed. I felt bad. I felt like it was all my fault. And I still carry the scars from that time period. And so for me personally, being able to have all of you involved in this. I was ready to move heaven and earth to get the story out there, because I don’t want it to happen again.

Here we are in the middle of a pandemic and we’re watching financial abuse occur even as we speak. We’re watching the same predation that you guys exposed in this. And I want to make sure we bring the right people here to make sure that we can bring this thing down. Without further ado, we bring us to Bill Black. Bill, thank you so much for all the work that you’ve done on this. Let me, tell us a little bit about what brought you into The Con and why you feel this is the most important thing going right now.

[00:08:36.030] – William “Bill” Black

1. So, I was sitting peacefully in Quito, Ecuador, helping the government of Ecuador in fight fraud and procurement and such, and I got this weird phone call and it was from Patrick and it was this person saying they’d seen me, as you heard, on Bill Moyers, who is fantastic, by the way. And could I come and talk? And I think we talked for at least two hours, maybe four hours that first time. And this is what I do for decades, is spend time with people who actually try to get it right. Right?

So if I work with a reporter and that reporter really, really wants to understand that’s someone I’ll invest my time on. And it became apparent that every other documentary about the great financial crisis was not simply incorrect, but affirmatively wrong that they were time after time going to the people who got it wrong. Well, what are they going to do? They’re going to do apologies for what happened. They’re going to reinvent history.

And what you’ve heard in the introduction is that, if I would summarize it, it would be listen and learn. Right? What your . . . Everybody told you, “If you shut up a bit and listen to people, you can learn a lot.” And my great advantage, as I’m sure is true of many people listening to this and participating, is marrying well,  over 41 years ago to June Carbone and I listened to her and she told me decades ago the person I needed to be reading and working with was Art Wilmarth.

And Art is considered a scholar’s scholar, but while he is infamous for the degree of research he does, he’s also interested in policy. He really wants the world to be a better place and he knows how parallel the fraud schemes, the predation schemes, the misuse of political power have been that we’re talking about, Art’s, we’re only going to take it back into the 20s and 30s probably today, but it goes far longer in US history and before that in international history.

And he worked closely with the Financial Crisis Inquiry Commission to try to get them to understand how critical a particular part of legislation was and how the destruction of it, first by Alan Greenspan, the death of a thousand cuts by interpretation, and then the final coup de grâce by some people who were fundamentally corrupt with a small C.  You know they’ll never go to prison for it, but it’s absolutely corrupt as absolute corruption existed prior, as in these prior crises as well.

And so I first on my list, to Patrick and to Eric was get Art on camera. We had already emphasized the other people before I even got involved in the project, emphasized Pecora, a name that you may not have heard. My spouse’s name again, June Carbone, Pecorino Romano, same route. So this is a lamb, a sheep that became a lion. And with that, I’ll basically I’m here just to introduce Art at the beginning, and we can talk a bit about the enormous implications of how we violated the most brilliant rule of conservative thought, which is if it ain’t broke, don’t fix it.

We had something that worked incredibly well and both parties came together with a single-minded resolution to destroy it. And for bonus points, Art can even tell the story of how the city manager kept a trophy in his office, but then years later admitted that what he had done was a disaster for America. So that’s why Art and let’s get to him as quickly as we can.

[00:13:42.900] – Grumbine

Absolutely. And with that Art, thank you so much for joining us. Please tell us, how did you get involved in this? Talk about your part in it.

[00:13:53.170] – Art Wilmarth

Well, I became a young banking lawyer back in the late 1970s. I practiced a few years in commercial litigation, but I had decided to shift firms and shift practice and was going into the corporate securities practice. But as I came to this new firm, they asked me to work on a banking case. And I as soon as I worked on it, I realized, “Oh, my gosh!” This is . . . Now I understand why banks and politics have always been intertwined.

As Willie Sutton said when they asked him why he robbed banks, he said, “Because that’s where the money is.” And the politicians figured that out, too, that banks are where the money is. And so as I was, as I was working on this banking case and it was sort of a case of the big banks versus the small banks and the federal government trying to preempt state law so the states would have to let the big banks do what they wanted to do. I began to recognize that big banks, that’s where the power was and that’s where the arrogance was.

And that’s really where this inherent dynamism of More, More, More. You could see it working in them. And just about that same time around 1980, 81, the banks began to launch a campaign against, they said, repeal Glass-Steagall. And I didn’t know a lot about banking at that time. So what’s Glass-Steagall? If they’re against it, I’d better look into this. And so I looked into Glass-Steagall. And of course, as many of our listeners would know, Glass-Steagall was a statute passed in 1933 during the early days of FDR’s administration.

It was a direct response to the Great Depression. And Glass-Steagall did a number of things, but it did two very big things. One was that it created a system of federal deposit insurance so that people’s money would be safe inside banks. But secondly, and more to our point, it separated banks from the securities markets and the capital markets. It basically said banks, “You may not underwrite or trade in any securities except for government bonds,” because banks have always dealt in government bonds.

That again shows the link between governments and banks. And it said “Capital markets, you may not take deposits,” which I think were understood to be short term debt claims that were payable at par on demand. So we don’t want securities firms doing what banks do and we don’t want banks doing what securities firms do. So I read this famous Supreme Court case Investment Company Institute versus Camp decided in 1971, back in the days when the courts actually thought they should uphold what statutes said.

And this was a case where Citibank was trying to basically set up a mutual fund and the court said, “You can’t do this.” I mean, the mutual fund is an offering of securities and Citibank, you can’t do this. And no matter what you call it, no matter what packaging you use. Stripped to its essentials, this is a mutual fund, you can’t do it, and the court explained what Congress thought they were doing back in the Glass-Steagall Act and we can get into this.

But obviously there had been this enormous boom and bust during the 1920s and early 1930s. It was driven in large part by the big banks that got into securities activities and basically passed off a lot of really bad securities on unsuspecting investors. And the economy blew up and Congress said, “We don’t want this ever to happen again. So we’re going to separate them.” And as I read this case, I thought this makes absolute sense to me. Why would we want banks to be involved in securities speculation?

And the court talked about the conflicts of interest created when banks get into securities underwriting and trading. And we can talk about that, too. But the court said that the members of Congress were very clear: they didn’t want banks serving two masters; they wanted banks serving their depositors, serving their trust customers; they didn’t want banks serving the interests of securities speculators and other corporate entrepreneurs who were trying to sell or market securities to depositors and trust customers.

They wanted the banks to be objective and independent in lending, as well as in investment advice. And I thought that makes perfect sense. Why are the big banks trying to break this down? Well, of course, it became more and more clear that the big banks thought they could make a lot of money doing this. And of course, you know, what we find is that many of the things that Congress was talking about in 1933 and the Supreme Court was talking about in 1971, many of those things absolutely became true for a second time after we first undermined Glass-Steagall, as Bill says, through a series of regulatory so-called interpretations that were really opening loopholes.

And then ultimately when Congress repealed it in less than 10 years, we had another enormous boom and bust comparable to what happened in the 1920s, early 1930s. So. You know, as Santa Anna said, “Those who refuse to learn the lessons of history are condemned to repeat them,” and that’s exactly what happened to us. And unfortunately, the Dodd-Frank Act, unlike Glass-Steagall, the Dodd-Frank Act did not break up what we would, what I call universal banks.

Universal banks are basically banks that can engage in securities, capital markets activities, now included things like derivatives. Dodd-Frank didn’t break them up, nor did Dodd-Frank break up this parallel system of so-called shadow banks, which are basically non-banks doing bank-like things, including taking quasi-deposits. So money market mutual funds are simply deposits in disguise, short-term commercial paper, short-term repurchase agreements are simply deposits in disguise. And this is how the shadow banking system got built up. They didn’t break that up either.

So we’re, you know, isn’t one definition of insanity doing the same thing over and over and thinking you’re going to get a different result? So Dodd-Frank changed nothing about the basic structure of our financial system, but thought they could fix it without changing it. And I think, as you say, the pandemic crisis and we can perhaps discuss that toward the end.

The pandemic crisis simply reiterates that the system that got us into the global financial crisis of 2007-09 is just as unstable, just as dangerous and just as reliant on government bailouts now as it was in 2007. What we’ve seen this year is simply another enormous, maybe even larger bailouts of universal banks and shadow banks than we saw in 2008, which to me is very distressing.

[00:21:15.830] – Lovell

And Mr. Wilmarth and to Bill Black, too, I want to just happen from this perspective, as just a citizen, somebody who didn’t go through my educational process, spending my life understanding all of the details of history that would inform policy or in fact, deregulation through different time periods. But you get to the most prescient point for somebody such as myself. Isn’t insanity doing the same thing and expecting a different result? And here we are.

And so over and over, the people of the United States, I have seen over the course of the last 12 years, tend to come to this epiphany that the system is rigged, it’s working against them, it’s working for a specific class of people, but yet they don’t understand who did what, when and how and why and ultimately who allowed it to happen and why. And so in this incredible process and I’m going to direct this first to you, William Bill Black, and then into the next phase of this conversation.

What can we glean from the historical setting of Ferdinand Pecora and what took place during that investigation that righted the wrongs that created the Great Depression? And what then can we take away from that and put that into our calculus now to what an enlightened public might be able to inform our elected officials if that’s a potential solution?

[00:22:38.470] – Black

Sure. So my primary appointment is in economics, so if I put my econ hat on, there’s an obvious thing that’s similar in the run-up to the Great Depression and the run-up to the great financial crisis, and that is finance, which if you ask it, claims it’s a middleman function. Right? That it exists solely as a middleman function to take aggregate deposits and make loans for the most productive uses. Well, that efficiency condition for a middleman is really clear, lean and mean, really small.

Just before the Great Depression, just before the great financial crisis, the profit share of finance of all industries became approximately 40 percent. That’s insane. Right? You can see why they would love it to game the system to do that. Right? This thing that was supposed to be a middle man, productive thing became a giant parasite in many ways. It was creating a bubble that made the credulous think and the credulous, of course, was politicians who claim credit for these marvelous years, the Gilded Age type of thing.

And just like to this day, President Clinton claims that he had this fabulous time period. Yes. Inflated by the two largest bubbles in the history of the world, the dotcom bubble and the housing bubble. So, that’s the economics of it. But why such a different response, Art? In one, as you said, we created relatively simple rule. A bright line in our, if I put my law hat on, and talk to you, rule that where we didn’t try to get it perfect, just close enough, in a way that was really enforceable. And worked brilliantly for 50 years.

Whereas 70 years later, with all the knowledge we should have had as to how to get things right, we got things horribly wrong and we killed a bazillion trees in the process of doing it. Instead of a short, simple Glass-Steagall rule, we ended up with first a law that stretches forever and then regulations that stretch beyond ever that everybody knew would fail. I think from my view and from what I’ve learned from you that getting the facts right through the Pecora hearings was a big part of it, but also the response of FDR to those facts as opposed to the Obama administration’s non-fact based response was critical. Do you agree and can you explain . . .

[00:25:52.160] – Wilmarth

I mean, I think that . . . So, we had key people in key positions in 1933 who, I think, saw what had gone wrong during the 1920’s and were determined to make it different. And so certainly Pecora and FDR were two of those people. Carter Glass was a third person because Carter Glass even way back as far as sort of one of the fathers of the Federal Reserve wanted a decentralized system. New York wanted to create a central bank focused on New York and focused on Wall Street and controlled by Wall Street.

And Carter Glass was determined that that would not happen. And so what we ended up with was a decentralized Federal Reserve system with a government-appointed board running it. And Glass, although he wasn’t, you know, he wasn’t perhaps as determined an enemy of Wall Street as some others. He was incredibly skeptical of Wall Street and didn’t and certainly didn’t think Wall Street should control the nation’s finance and economy.

And he certainly thought that it was a horror for banks to be involved in speculative activities like commodities and securities and indeed real estate. He didn’t think banks should be involved in heavy real estate activities either, because he thought banks should be essentially financing business commercial operations with relatively short term loans so that banks wouldn’t have this terrible maturity mismatch between long term assets and short term liabilities.

Then you have Pecora, who is hired in January 1933 as the chief investigator for the Senate committee that was looking at Wall Street. Interestingly, Herbert Hoover set up, you know, encouraged that committee. Hoover didn’t get the answer right, but Hoover himself was not a fan of Wall Street and was very distrustful of it. But the committee had started in 1932, but hadn’t gotten anywhere, partly because Wall Street did its normal tap dance and they had a lot of fancy high priced counsel and they gummed up the gears and not much progress was made.

Pecora came in in January 1933. He was a very experienced prosecutor in New York and a progressive who focused on financial crime, corruption, financial fraud. He wasn’t really focused on banking, but he knew what financial fraud was and he knew how to sort of deconstruct it, how to do a forensic investigation. He was also a masterful cross-examiner. One big difference between the Pecora Commission in 1933 and the Financial Crisis Inquiry Commission in 2010 was that the committee in 1933 allowed Pecora to do most of the questioning.

So he directed all the opening questions and then some of the committee members would come in later on. But he was driving the investigation. He wouldn’t allow the witnesses to equivocate, to bar, to sort of filibuster. He just kept driving right at them and he basically progressively undressed them, essentially. We can talk about some of the examples of that.

But he revealed these, the scandals that had occurred, the terrible securities that had been sold by the big banks during the 1920s, and the corruption and self-dealing by some of these big bankers and in ways that everyone could see. And if you go back and, you know, the newspapers were covering it. So if you go back when the Pecora hearings were on the front page of The New York Times or the front page of the New York Herald Tribune, they would have front page articles every day on the latest revelations by Ferdinand Pecora so everyone could see them in big banner headlines.

When the Financial Crisis Inquiry Commission came along, you had nine commissioners sorry, seven, and they were divided four, three by partisan appointment. And the questioning was done seriatim so each commissioner would have maybe 10 or 15 minutes at most with a key witness. And if a witness filibustered a congressional committee hearing. The witness can filibuster and try to talk their way around it. And it was hard to pin the people down as opposed to having one questioner who just went at them and wouldn’t let up.

And again, Pecora was a truly gifted cross-examiner. And even to read the dry transcripts today, they sort of . . . the pages crackle with energy and with tension and with shame. I mean, that when he finally gets these people to admit what they had done, you know, one newspaper said that even some of the revelations were such that even Pecora and his colleagues were gasping at some of what the witnesses would finally admit to. So this was . . .  the industry was essentially taken apart for everyone to see.

The other thing that, of course, was happening was that, as he began his investigation, the entire banking system was collapsing in the spring of 1933. By the time FDR comes in, he declares a national bank holiday and all the banks are shut for a full week. So people basically saw . . . . experienced what had happened: that the entire banking system collapsed. They couldn’t get their money. They weren’t sure they’d ever get their money back.

There was no doubt as to how catastrophic the crisis was. In 2008 and 9, basically, the government rushed in and bailed everybody out and propped everybody up. I mean, Lehman Brothers was the one great exception that they allowed to fail. And the results were so disastrous that they quickly made the decision that no other big institutions would be allowed to fail. So by propping everybody up, bailing everybody out, it didn’t bring the full pain and significance of the crisis home to everyone.

Yeah, certainly people like Patrick who lost their homes, you know, they understood how bad things were. But a lot of the people who were in the middle and upper class didn’t experience that. They knew things were bad, but they didn’t know how catastrophic things really were. They didn’t understand how dramatic the bailouts actually were, how much we mortgaged our future.

[00:32:43.660] – Lovell

If I might just add there. You touched upon something that I think that we all can respond to from the perspective of what drove me to have to find these . . .  I have this insatiable curiosity because what was happening to me was so life-changing and so catastrophic. And it didn’t add up what we were . . .  what I was experiencing that was taking place in the mainstream press, for example. And I read The New York Times every day.

So when you were saying that The New York Times during the Pecora hearing was reviewing everything that was going on, and so therefore the people could respond to their own experience, that’s what started to galvanize, I would imagine, the critical mass necessary to be able to elevate the crimes of the financial system so that we could actually move the needle on getting to the solutions. Can you make it, both you and Mr. Black?

[00:33:39.760] – Vaughan

Patrick, I just want to add to what you’re about to ask, if you don’t mind, because I think that you’re hitting the exact right spot, because in what you were just talking about, there are the three biggest differences that I saw between 1933 and 2007 was what Patrick’s talking about as far as the media’s concerned:  how the bankers were questioned and the healthy skepticism from Washington politicians. So I think that along with what Patrick’s saying, can you do like a bit of a compare and contrast on those three main issues?

[00:34:19.630] – Wilmarth

 FDR was called an enemy to his class, right? FDR did not like Wall Street. He was convinced that Wall Street was corrupt. And a couple of times when Glass kind of wavers a little bit, FDR says, “You can’t trust Wall Street. I know them better than you. If you allow them an inch, they’ll go right back to their old ways.” So FDR was a very committed believer in sort of the corruption that existed on Wall Street. So certainly that gave a lot of power.

And the banks themselves had been so seriously hurt that they weren’t as strong and able to fight back. Although it’s interesting, we can get into this, too. Even after the banks fought hard against Glass-Steagall and even after the Securities Act of 1933 gets passed, the banks kind of get a second wind and fight back.

And there’s another year that goes on when Pecora is still investigating because the banks are determined to stop the Securities Exchange Act from being passed in 1934 because that act gives the federal government direct control over securities, broker dealers and the stock exchanges which they were determined not to allow. The broker dealers and the stock exchanges had never been regulated before, and there’s a tremendous fight.

Without Pecora’s continuing revelations of what’s going on, it’s very unlikely that the 1934 act would have been passed, and in fact,  Wall Street was trying very hard to undo the 1933 act. So, what you see, even in even in the depths of the Great Depression, with all that had happened, the political power that still existed on Wall Street was determined and fought hard and was only defeated with great effort. And Dodd-Frank.

I still remember the day Dodd-Frank was passed and they quoted one of the key financial executives who sort of said, “Well, this is the end of the first half.” He said, “We couldn’t stop Dodd-Frank, but now we get to work on the rulemaking. And we can slow this thing down or weaken it through the rulemaking, which is exactly what’s happened. The other thing I would say is that for some reason, I think people thought in simpler terms back in 1933 and as Bill said, they agreed on some very clear, bright structural lines that everyone could understand.

Banks over here and securities firms and markets over here and ne’er the twain shall meet. There’s a big wall between them. Everybody understood that. Dodd-Frank, Glass-Steagall was less than 40 pages long in the statutes at large. Dodd-Frank was over 830 pages in length in the statute at large. And it’s full of technical technocratic rule fixes like, oh, well, we’ll set up all these agencies to adopt these rules. And it was just faith that somehow we can fine-tune everything, right?

It sort of said to me, the universal banks are like nuclear reactors and they’re prone to melt down. So you could decide that we don’t want anymore nuclear reactors. They’re too prone to meltdown, they’re too dangerous. But Dodd-Frank was like, “No, if we would just put better controls on them. Right? We don’t have to actually change what nuclear reactors are or what they do or how dangerous they are. Just put better controls on them.” But that, you know, if the basic structure is unstable and inherently dangerous, that’s a very bad response.

[00:38:02.910] – Black

Yeah. So to pick up in 1936, Roosevelt gave his famous speech announcing the start of the second New Deal. He said, “We know now that government by organized money is just as dangerous as government by organized mob. Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me and I welcome their hatred.” Can anyone imagine a modern president of the United States saying this?

[00:38:45.290] – Grumbine

This is exactly what I was going to ask. Bill and Art,  what makes that time period so different? Because I’ll be perfectly honest with you, as I watch the elections and I watched Hillary Clinton laughing at Glass-Steagall saying, “You don’t need to reinstate Glass-Steagall. We need a modern Glass-Steagall” and so forth. And she was talking about shadow banking, which is all valid points as we’ve just gone through.

Speaking with Robert Hockett about the shadow banks not too long ago, these things are obviously very, very nuanced and so forth, but what Art said was very powerful there. They were very simple. You do this, you do that, and ne’er the two shall meet. What is it about today that is different from then? Because quite frankly, I don’t see any political will whatsoever from any of these candidates on either side of the aisle to bring this thing to a head and stop it dead in its tracks.

As we’re watching people . . . huge out of work, they’re losing their homes, mortgages about to be called in. There’s no action whatsoever to take care of the people right now. And you look back then and it was quite clear that at least FDR was willing to put this Ferdinand Pecora in place to take care of the stuff. What will we need to do now?

[00:40:08.120] – Wilmarth

And there’s so much . . . just the sheer amount of money. I mean, I think that as strong as Wall Street was in the 1920s and 30s, I think it’s even stronger now. I mean, Wall Street has been the biggest political contributor to campaigns at least since 1998, possibly before then. But that’s as far as records go back that I can find. In terms of lobbying has been the biggest expenditure of lobbying money again since 1998. Now that’s what we would call finance insurance and real estate – FIRE, which should tell you something – So it is fire.

We ought to be worried about it. Right? For the FIRE sector is the biggest one. Now, unfortunately, big tech is catching up. And I think one of my great fears is now we see moves to actually put big tech and banking together. I think they would each, for different reasons, like to get together if they could be in control of each other or have some kind of modus vivendi. But can you imagine big tech and banking together?

And we’re not so far away from it. But the money, the sheer money is unbelievable. And that, you know, that the big Wall Street banks literally have hundreds of lobbyists, many of whom are former members of Congress, former senior financial regulators. The revolving door spins faster now than it’s ever spun. So there are so many people who really have vested interests in not letting things change. Right? It’s a good deal for them.

[00:41:44.900] – Black

So let me pick up and take it from a different lens, because what Art has said is all true, but to start out with your question. Again, FDR did not appoint Pecora. A incredibly conservative president of the other party appointed him and the only reason he was available for appointment is because he was so honest. Even though he had been the superbly effective deputy, lead prosecutor in New York, the Tammany Hall bosses would never make him the top prosecutor.

And this is, if again, we can situate it. This was literally the era of the untouchables. This is 1930 to 1932. Eliot Ness takes on a mob boss that nobody could take down. And in a really homage to what will become the future, they take them down with accountants. And they take him down with the tax laws. And with basically, they flip an insider as well. The mob under Al Capone, there really was such a person, does offer not just Ness, but many of his special agents, as they were called, huge bribes for the time.

So we’ve been talking about political contributions that act like legal bribes, but these were just straight out illegal to people who were making a pittance. And every one of them said, “No! Hell no!” There are good people. There are people who are untouchable. You can offer them limitless amounts of money from their standpoint, and they will refuse it. Pecora was an untouchable. Nobody called him that then, but he is of that age, and he had proved – again, think Tammany Hall, he was working in some ways in a government completely controlled by Tammany Hall.

And everyone knew he was completely incorruptible. If you’ve ever seen A Man for All Seasons. Right? This is Thomas Moore, who will not accept any bribe in an era when it was absolutely normal. The point is, I think, how . . . yes, political contributions were smaller then, even if we discount inflation, but they were enormous. They were incredibly powerful and we had just gone through 30 years of immense dominance by industry in which there was a particular banker, Morgan, for example, who had power like nobody in the modern era in banking has.

So while banking power was in some way smaller, in other ways, it was even more concentrated. This someone who literally ran much of the American economy and almost all of finance if he chose to do so. Pecora created the political space in which Glass and FDR could successfully get legislation. Now, yes, the Great Depression also created that political space, as Art explained. But to pick up where Art is saying I was the deputy staff director of a similar national investigation into causes of the savings and loan crisis.

Art played a consultant role, the Financial Crisis Inquiry Commission. We were very small, and so I was every you know, I was sort of the substantive person on everything. We were not allowed as staff to ask a single question. Now we knew, we being me, right, knew, vastly more than any of the commissioners. And they would not give up their 15 minutes of non-fame because these things were not being covered on the front pages, the way Art correctly emphasizes.

Flash forward to the Financial Crisis Inquiry Commission. The lead co-commissioner, but this one is sort of more equal than others because the staff reports to him, wanted to make me his head of investigation. But he told me there’s no way I can get you past the Republicans. Precisely because I had a reputation of competence, complete lack of care about party, and willingness and ability to ask those really difficult, embarrassing questions.

So they structure the commission to fail. And it was different party-wise: the Republicans appointed people to ensure that there could not be any unanimity in the report. That was absolutely happened. It was absolutely deliberate. So they from the beginning made sure it could not have the impact of the Pecora hearings. So again, we know how to succeed, but part of the things we need to do to succeed is get the real facts and then, as Art says, to put them on the front page of every major paper, not for a day, but day after day after day where even the . . . and Art hinted at this.

It isn’t just that Pecora was aghast and the people present, it was A- that it was clear that even the huge bankers were finally embarrassed to have it made public. And that before that date, they had not . . . there was nothing that would embarrass them. They would literally target widows. Indeed, one of the huge things in that era was the influx of women into the stock market.

[00:49:00.340] – Wilmarth

The people back then still understood that there were basic moral rules that ought to be observed or at least recognized. And so it’s interesting, you know, on the floor of Congress, you know, when one member of Congress makes this point: you cannot serve two masters. And of course, universal banking creates this terrible conflict of interest where now you have securities to sell and now you can no longer advise your depositors and trust customers independently.

You’re trying to sell them your stuff. Oh, and no, your lending is no longer independent because now you’re going to make loans to support your securities sales. So now you’re going to corrupt your lending process. But no one can serve two masters. And he said if we would just enact this bill, he said banking could return to be an honest moral enterprise. His name was Representative Koppelman, I think, from Connecticut.

And in the Congressional Record, it says, “applause.” You know, they applauded his remarks for taking such a strong moral position. And, you know, you come forward to today and Bill will understand this, too, when you when we talk about lawyers’ ethics and bankers’ ethics, it’s all about how we can manage these conflicts of interest. We can manage them. And my view is really fundamental, structural conflicts of interest cannot be managed. Incentives matter.

When incentives are corrupt and pointed in the wrong direction, you cannot expect people to be saints and not to follow those incentives. As Bill says, you can get a few people, Pecora being a good example, but you cannot expect, by and large, the mass of people to say, “Oh, I’m not going to be driven by that conflict of interest or that incentive.” And they understood that in 1933. I think we’ve forgotten that in this day and age.

[00:51:06.520] – Lovell

I have to insert one thing right here, because this is an intersection of why The Con came to be and what The Con actually demonstrates. And so, for example, none of this stuff again made sense to me. Right? And, so I had to compartmentalize this, but I had intuition and I understand power. I’ve been around for a while.

So in my own life, I’ve seen how people can act if someone’s not being held to account. So you said previously, Art, there was an appetite by the general public once Pecora was able to introduce the details of some of the heavy hitters on Wall Street. Can you address that and potentially compare that to now in the context of what Bill had introduced, in terms of how he was able to orchestrate the SNL investigation?

[00:51:51.730] – Wilmarth

Well, I think, you know, Keating would be a good example. I think when Keating’s skullduggery was exposed, I think that that mobilized quite a few people in the SNL. What you had in Pecora was multiple similar exposures. So they exposed that  Charles Mitchell, who was the head of National Citibank, basically cheated on his taxes by making a structured sale of stock to his wife, claiming a loss that sort of completely wiped out his profits for 1929, when it was the last year he made a big profit.

And then bought the stock back, you know, the next year. So the wife suffered no loss, but it was a, it was a tax evasion. Albert Wiggan, who was the president of Chase, even went further. He sold the stock of Chase short after the crash of 1929 at a time when he knew because he was the president and chairman of Chase, that Chase was trying to buy a stock back in the market to hold the stock price up. So he knows his bank is buying stock back in the market to hold the price up, and at the same time he sells his own personal holdings of Chase short to make money.

And that was revealed. J.P. Morgan. They reveal that J.P. Morgan had what were called preferred lists. Every major retired politician, including Calvin Coolidge, the chairman of both the Democratic and Republican National Committees, up and down the line . . . several former cabinet members. They would give them stock at favorable prices to make immediate profits. It was like the old spinning game that you had with IPOs back in the early late 1990s, early 2000s. So it guaranteed profits quick.

And these were the preferred lists. And again, people could understand. Wait a minute. They’re bribing these leading politicians or influential people. They also major corporate executives by giving them guaranteed stock profits right away. And I think that people realize, wait a minute, the whole system is crooked. If you think the whole system is crooked, you’re going to support a proposal to basically change the system completely.

I don’t think that that was ever brought home to the American people in such a dramatic way in 2007, eight and nine, that the whole system is crooked, that these big guys, the big banks, are right in the center of it because they kept saying, “Oh, it wasn’t us, you know, it wasn’t us. It was a perfect storm. We didn’t see it coming.” I mean, and as Bill said, there wasn’t enough done to sort of expose those lies.

[00:54:38.660] – Black

It was even more obscene than that. They said, “It wasn’t us. It was those poor black and brown guys.

[00:54:45.980] – Wilmarth

They shouldn’t have taken on those mortgages. Right. They should have known those mortgages were no good when they signed up for them. Right?

[00:54:51.680] – Black

And yeah, let me give two examples that build on Art’s point. One, in the savings and loan debacle, again, political contributions, lobbyists, immense power. Political scientists called the Trade Association for Savings and Loans the third most powerful political force in America. Right? And I still have lots of scar tissue from being run over by them in any attempt to get a legislative fix.  What worked eventually?

As I said when Patrick called and I spent four hours with him. That’s four of probably literally 8,000 hours I’ve spent not here in the great financial crisis, but in the savings and loan debacle. Because we realized the only chance we had, the correlation of forces, as they would say in the military, was everybody against us and we were really weak. We had no political power at all, but we had the facts. We made them public.

So when we would do a complaint, we would put it in plain English. And we would really explain the fraud scheme. And we would and then I would work with reporters for hours and hours and hours explaining the importance of it and how it worked and such. Eventually, this became because we made criminal referrals as well and got over a thousand felony convictions, hyper prioritized cases against the most elite, the CEOs, the chairmen of the board, right?

Completely didn’t happen at all in the great financial crisis. And people started to figure out it’s the same scam – minor iterations a thousand times. And so once we hit about conviction 300, which is to say, years and years of effort, politicians, as soon as we announced our complaint or the indictment, began to rush to return the political contributions or donate them to poverty. One particularly sleazy member of Congress who was literally working with Keating started wearing a button that was six inches in diameter that said, “Jail the SNL crooks.” 

It was completely cynical, but we knew we had won. We had jujitsu-like taken their greatest strength, this immense political power, and turned it into a liability. Through getting the facts and through publicizing the facts, this is a bit wonky, I’ll do it super short. The Australian Royal Commission, a couple of years ago, had skilled barristers do virtually all the questioning. A single appointee in charge, not these seven to nine type folks, all who want their 10 minutes of limelight.

And so they have a team of like eight of these excellent, excellent people at cross-examination.  The other seven are working, developing their case, and one is doing a hearing. So it’s blow after blow after blow, if you think in boxing terms to the stomach, you know, the ones that show up in round six where they can no longer move. And brilliant because they both did the substantive investigation correctly and they realize what we try to teach people in law school – narrative, narrative, narrative. We are humans. We respond to human stories.

Pecora told stories through the testimony and the stories were depraved. Right? And that’s what they did in Australia. So they gave the statistics, but then they also brought out the insurance company that not only knew it was pursuing and hounding somebody with down syndrome, but didn’t sell them once, sold them three times – huge policies that they clearly did not understand – where they were trying not to do it, where they were trying to say, “I need my father,” and with the salesperson’s pummeling them not to do it.

And then the father called in. And by the way, this was established by the commission. The people who handled complaints were called retention staff because your bonus was for never saying yes to the complaint. And so they tape recorded this in which they mocked not only the son that they victimized, but the father, as in Aussie parlance, a winger. You know, a snowflake, a complainer. What you so scared and upset about that we got, you know.

Went and attacked deliberately, three times successfully, someone with down syndrome. You hear that, it’s all over. Right? Pecora understood that. He understood that when he was bringing out, “they paid no taxes” in the Great Depression where people were on death’s door. And these people who are the most powerful, richest folks in the world responded to it by saying, “How can I make sure I suffer not even a trifle?” You tell that story. We told the story about Keating.

That he put for the first time, the problem with deposit insurance is there’s no identifiable human victim. None of us get a bill on our taxes that says you’re going to pay $2,000 for Charles Keating’s fraud. Right? So Keating did us the advantage of selling uninsured, worthless junk bonds out of the branches to make it look like insured and targeted widows, communities, retirement communities. And we could choose between 3,000 victims’ stories.

So we put on the one in which the nice young man, because these were sold by 18-year-olds, knew nothing deliberately. She told her that nice young man she was trying to save because she was the sole support for her adult quadriplegic daughter and her quadriplegic daughter, only joy in life, that remained was she loved, the smell of the Pacific Ocean. So she was going to save, the mom was going to save, to get a wheelchair van so that she could take her daughter.

And the nice young man advised her to put her entire life savings in these worthless junk bonds. Now, when we told that story, it was over for Charles Keating because finally there was a human face on the victim of the savings and loan debacle. And that face was your grandmother. And on top of that, they would go after somebody who was doing everything in her very limited ability to help her quadriplegic daughter. And to the bankers, that was an opportunity to deceive her.

[01:03:21.940] – Grumbine

That’s just awful, awful, awful, awful. Bill, I want to bring this back. You and Art both said something very important. Art in particular spoke about the fact that we needed to get this stuff on the front pages every single day. One of the most important infographics that was in The Con was the showing of all the banks as the consolidation occurred, as the state banks became national banks and it went down. That same infographics could be done for the media.

The media is consolidated. It is programmed. If you flip the channels, you’re going to get the same story, the same talking points, the same exact gaslighting, the same lie, same propaganda. As a member of the alternative media and one of the key reasons why I wanted to be a part of this is the very concept of getting out the information to the world to bring about the conditions, have a modern-day Pecora to have a Pecora hearing where most people have no idea even who Ferdinand Pecora is, save for this show.

This is an opportunity for people to really get serious because the very things that we’re fighting for, a Green New Deal, Medicare for All, all these things that they claim we have no money for. As we watch the fraud, as we watch them bail these banks out, as we watch them take on all kinds of issues within the financial sector to bail them out, we watch the people suffer and suffer more.

This right here is the blocker, if you will, to a new world, to a world of non-predation, of people thriving once again. And I want to get your take, the final, to take us out of here. This right here is the core element:  that without exposure, without that massive push from the bottom to force this into the limelight, it will never, ever come to be. And these people will continue to get away with murder because people are dying as a direct result of their fraud.

[01:05:40.120] – Black

So, my lesson, and it’s why so much I wanted Art, you know, The Con, to talk to him at length and to be part of this presentation, is we know how to succeed. We have succeeded. Why do we stop doing the things that work and continue to do the things we know fail? And again, they don’t just not work, they actually create such perverse incentives, that we guarantee there will be many more and many far worse crises. Why not do the right thing? Why not? Why is The Con not famous, not just in the United States, but across the world?

It is in terms of any other document, documentary treatment, about the great financial crisis, there is no comparison. There are many levels in between The Con and anything else. And again, why? Because The Con actually talked to the Art Wilmarths of the world. It talked to the Michael Winstons. It talked to folks like Richard that you’ll meet, Richard Bowen. These are the people who prove to be untouchable; who kept on telling the truth. We could listen to them. We can learn, and  Art’s point is we can do something!  We can do something effective! I’ll turn it to Art.

[01:07:31.720] – Wilmarth

The audience needs to understand, too, that non-prime, subprime scurrilous lending is still going on. I mean, look at the payday lenders, the auto title lenders, some of the bad student lenders. These folks are all financed out of Wall Street. Wall Street is the money behind these so-called fringe alternative lenders. And if you look at the terms of the lending, it’s truly shocking.

And so we have to understand that Wall Street is, in my view, where the beast lives and we need to get the beast out of the cave and close up the cave, and I think break up Wall Street so that actually, you know, people working in financial services on Wall Street could be once again, honest purveyors of financial services. But the system we have now creates every incentive for predation and we have to stop it.

[01:08:33.070] – Grumbine

I want to thank you all very much for your time. Art, it was a pleasure to meet you. A pleasure to have you on.

[01:08:38.440] – Wilmarth

Thank you.

[01:08:39.370] – Grumbine

Bill, thank you, as always, for joining us. You are just an amazing person. Both of you brought so much information to the table. This just sets the stage for the series. I really, really appreciate it. Eric and Patrick, as always, thank you so much. My name is Steve Grumbine with Real Progressives. This concludes part one of our series on The New Untouchables. Thank you so much, everybody.

Bill Black

Art Willmarth

The Con docuseries

‘A failure of our system’: inside a damning take on the Great Recession from The  Guardian

Glass-Steagall, Gramm-Leach-Bliley, Dodd-Frank

Ferdinand Pecora

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