Fun with the Financial Crisis Inquiry Commission

The new Financial Crisis Inquiry Commission, chaired by Phil Angelides, was inspired by the Senate's Pecora Hearings on the 1929 crash. Those hearings bore the name of the Senate Banking committee’s chief counsel, a respected New York prosecutor named Ferdinand Pecora.

Pecora is also the Italian word for sheep (whence comes Pecorino cheese). Coincidentally, if sheep could talk and have jobs on Wall Street, you might expect them to say exactly what JP Morgan's (JPM) Jamie Dimon bleated last week at the FCIC’s first open meeting:

In mortgage underwriting, we somehow missed that home prices don’t go up forever.

Jamie, I actually think you deserve mucho credit for not having followed the herd a few years ago into CDOs and subprime debt. But, I mean, did you hear what you just said? I’m just saying.

Thankfully, the FCIC also heard from Denise Voigt Crawford, Texas securities commissioner and head of NASAA. Never mind what that stands for, but it’s the group representing all 50 state securities regulators. I once interviewed Crawford for an article and she seemed smart, down-homey, and dedicated. Her statement is worth reading; it makes the case for strengthening state regulation, which was gutted back in 1996 by the comically named National Securities Markets Improvement Act.

For example, Crawford notes, states can no longer regulate private placements - which the feds don’t, as a practical matter, regulate either. This has created a “regulatory black hole,” she says, attracting unsavory folks whom the states lack power to smack down. It’s a bad scene, believe me: We’re letting people buy securities from the kinds of guys who put Brylcreem on their comb-overs.

And ouch, here’s what Ms. Crawford had to say about the SEC:

Ironically, in its own enforcement activities, the SEC has not met the standard of conduct that it requires of the broker-dealer firms it regulates. On numerous occasions, the SEC has failed to detect abuses or has failed to take appropriate action despite the appearance of 'red flags,' where similar conduct by a broker-dealer firm would invite SEC disciplinary action.

Because I wish the FCIC well, and because I love cheese, I suggest we rename it the Gruyere Commission. I have some of that stuff in my fridge right now and damn, is it good.