Ferdinand Pecora Ushered In Wall Street Regulation After 1929 Crash

"Pecora's success was his ability to crystallize the anger that a lot of Americans were feeling toward Wall Street," said Michael Perino, a law professor at St. John's University and author of an upcoming book about the hearings. "He was able to create a clamor for reform."

But Pecora also realized that such clamor was fleeting.

In his 1939 book, "Wall Street Under Oath," Pecora wrote, "The public is sometimes forgetful." As memories of the stock market crash faded, he warned, Americans "may lend at least one ear to the persuasive voices of The Street subtly pleading for a return to the 'good old times.' "

Reflecting on his investigation, Pecora recalled how "the captains of Wall Street, still within the shadow of panic and depression," had seemed at first eager to submit to oversight. But it didn't last.

"The more business recovered, however, and the stronger it felt, the more openly and bitterly did Wall Street oppose any sound program of reform," he wrote.

That's what current advocates of regulatory change fear.

"We've passed the moment when there's this palpable anger directed at the financial community," Perino said of the current crisis. "When you leave the immediate vicinity of the crisis, as you get farther and farther away in time, the urgency fades." Key legislators like Rep. Barney Frank (D-Mass.), who leads the House Financial Services Committee, and Sen. Christopher J. Dodd (D-Conn.), who chairs the Senate Banking Committee, have said they plan to push aggressive reforms this fall. Obama insists that issue remains near the top of the agenda.

But both policymakers and lobbyists know that it's usually easier to block reforms than to reach consensus, that enough delay can kill any bold proposal in Washington.

Simon Johnson, professor of entrepreneurship at MIT's Sloan School of Management, says, "We have not yet met our Ferdinand Pecora," a figure who can create the momentum required for strong new regulations. But, Johnson added, "Pecoras can emerge."

One possibility is that such a character could come out of the 10-member Financial Crisis Inquiry Commission, which was set up by Congress in July to investigate various aspects of the current crisis. The panel's chairman, Phil Angelides, a former California state treasurer and longtime Democratic donor, explicitly said in a recent Bloomberg interview that he planned to use Pecora as a model and pursue "non-political hard look" at the causes of the crisis.

Making the Law Work

Yet the landscape confronting today's advocates of reform is far different from that of the 1930s.

"In the earlier period, there essentially was very limited federal regulation -- nothing in securities, nothing in commodities, nothing in insurance," said Joel Seligman, president of the University of Rochester and an expert in securities regulation. "To the extent you had economic regulation, a fair amount was at the state level."

These days, the country has an elaborate regulatory system, albeit one whose failings became obvious during the current crisis. Obama isn't advocating an entirely new system. He's mostly trying to repair the current one. His boldest proposals include a new agency that would oversee consumer financial products such as mortgages and credit cards and expanding the power of the Federal Reserve to monitor systemic risks throughout the economy.

Whatever regulatory changes ultimately emerge from Congress, they alone may not be enough. In his book, Pecora -- who went on to become an SEC commissioner under its inaugural chairman, Joseph P. Kennedy Sr., and later a New York Supreme Court judge -- warned that laws themselves "are no panacea; nor are they self-executing."

On the day that Franklin Roosevelt signed the Securities Exchange Act into law in 1934, Pecora was in attendance. At one point, the president turned to Pecora and asked, "Ferd, now that I have signed this bill and it has become law, what kind of law will it be?"

"It will be a good or bad bill, Mr. President," Pecora said, "depending upon the men who administer it."