Bernie Madoff: Fall Guy or First of Many?

Bernard Madoff has been sentenced to 150 years in prison for one of the biggest investment frauds in Wall Street history. The punishment seems to fit the crime....

But there is no closure here. We can’t let Madoff’s sentence distract us from the underlying problems.

This isn’t just about Madoff. This is about the system in which Madoff’s scam took place. This is about systemic fraud and malpractice, the cultural trade of due diligence for easy profit. It’s about conflicts of interest where companies paid ratings agencies for their ratings. It’s about ideological blinders that let regulators and the Federal Reserve look the other way while banks turned into betting parlors.

So Madoff got 150 years for breaking into the bank. Fine.

But what about the guard who was asleep out front? What about the clerk who forgot to lock the door? What about the $300 billion that Citigroup walked out with from one vault, and the $200 billion that AIG took from another? Does anybody know where that money went or what we got for it? Don’t they get in trouble too? Did you know that, or do you know why, Goldman Sachs is paying its biggest bonus payouts in its 140 year history?

That’s why we need a Pecora Commission. We’ve been calling for a “grand inquest” in the spirit of Ferdinand Pecora, the fierce New York City prosecutor who investigated the crash of 1929 as general counsel of the Senate Banking and Currency Committee. Pecora hauled the robber barons into daylight and dismantled them on public cross examination. He subpoenaed the documents, dug behind the deals and took testimony under oath. His efforts paved the way for the regulatory reforms — the Securities Act of 1933, the Glass-Steagall Act of 1933 and the Securities Exchange Act of 1934 — that held the house together until modern conservatives took them apart in the name of efficient deregulation.

To its credit, Congress is leaning towards a do-over. It created the new Financial Crisis Inquiry Commission to investigate how fraud, regulatory lapses, monetary policy, and obscure accounting and lending practices contributed to the current financial crisis. After much opposition, the Commission even has subpoena power.

All the Commission needs now — and fast — is members. Real ones, with fire in their bellies. Members who aren’t afraid to put people in jail.

This isn't just about politics. Fundamental financial reform is essential to the future of the economy and the country. President Obama is right to warn that we can't go back to an economy where we spend more than we earn, and where finance captures 40 percent of the country’s profits. He's right to condemn the culture of "arrogance and greed" that took over Wall Street.

Now is the time. If we don't get comprehensive financial reform now, we're setting up even bigger dangers in the future — banks and financial firms officially recognized “as too big to fail,” who think they get to keep the winnings and the public will cover the losses. It’s a gigantic “moral hazard” that doesn’t just leave the vault unlocked, it posts an OPEN sign in the window.

Commission members are expected to be named soon. Will they be ghosts of Ferdinand Pecora? Will they be well-behaved bankers or fiery prosecutors? Will Congressional leaders give them the staff and the budget to dig hard, dig deep and broadcast what they find? Stay tuned. Find a way to turn up the heat. Congress is going to show us who’s in charge.