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FT: Finance: A wider divide

Authors: Tom Braithwaite, and Francesco Guerrera
May 25, 2010

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Tom Braithwaite and Francesco Guerrera compare the efforts to regulate the financial industry following the Great Depression to those underway today.

A devastating financial crisis triggers public anger, congressional hearings and a sweeping overhaul of regulation – all directed at Wall Street titans, who respond by warning the new rules will cause credit to contract and harm businesses across America.

Ferdinand Pecora would have found the current battles between Wall Street and Washington familiar. In 1932, with the US in the midst of the Great Depression, the Sicilian-born chief counsel to the Senate banking committee became a household name thanks to his forceful cross-examination of John Pierpont Morgan and other leading lights of finance.

"Indeed, if you now hearken to the oracles of The Street, you will hear now and then that the money-changers have been much maligned," Pecora wrote later in Wall Street Under Oath, his often acerbic memoir. "You will be assured that they were simply scapegoats."

The book is now out of print. But next time Lloyd Blankfein, chief executive of Goldman Sachs, or Jamie Dimon, head of the eponymous institution of JPMorgan, are summoned to Washington, they should drop into the Library of Congress to read it.

It might help them avoid the mistakes of their antecedents, who antagonised politicians just as successfully as today's bankers. Members of Congress investigating the financial crisis should also dig out the book. The modern hearings – while they have uncovered some information and brought some catharsis – have lacked the laser-like probe that Pecora's incisive style provided.

Next month, after a year of deliberation, President Barack Obama will sign financial reform into law – the merged product of a bill passed last year in the House of Representatives and a version passed last week by the Senate.

Unusually, the Senate bill is tougher than the House version. This was driven in large part by the president's announcement in January, after the House bill was passed, that he wanted to go further, forcing the banks out of riskier businesses – a faint echo of the punitive zeal towards Wall Street of his Depression-era predecessor, Franklin Roosevelt.

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