Congress Should Keep its Cotton-Pickin' Hands Off the 'Pecora' Commission

House Speaker Nancy Pelosi's idea for a Pecora-style commission has been generating a great deal of attention, and for a very good reason: we need a thorough accounting of what got us in to the current mess, how it was handled, and what can be done to prevent future meltdowns.

I suggested pretty much the same thing in my article on preventing the next Bernie Madoff in the March issue. However, my idea was for an independent commision, modelled on the 9-11 Commission, not a congressional panel as she seems to be advocating. (The Pecora commission was a Senate investigation.)

The reason is that Congress is up to its armpits in culpability for the meltdown, and shares just as much blame as the lax regulators who let the investment banks spin out of control.

Not only did Congress do an absolutely abysmal job overseeing the Fed and the SEC, but it failed to adequately supervise Fannie Mae and Freddie Mac, and that was a direct, proximite cause of the meltdown.

Just a few weeks ago Judicial Watch released documents from the Federal Housing Finance Agency showing that Congress ignored problems at Fannie and Freddie.

Among them:   

* [An] FHFA letter, dated March 26, 2007, from the director of the Office of Housing Enterprise Oversight (OHFEO), James B. Lockhart, to U.S. Senators Elizabeth Dole, Chuck Hagel, Mel Martinez and John Sununu: "This is a very serious issue. Freddie Mac's inadequate systems and controls make it a significant supervisory concern. Furthermore, its lack of timely public disclosures deny market participants the essential financial information made available by all other publicly traded companies so that investors may make informed judgments." The letter also mentions, "...Fannie Mae still has not filed financial statements for 2005 and 2006 and thus, they are not timely filers either."

    * FHFA letter, dated December 3, 2004, to Congressman Barney Frank: "On November 15, 2004 Fannie Mae filed a Form 12b-25 with the Securities and Exchange Commission (SEC). Fannie Mae indicated that its external auditors could not complete their reviews of its financial statements and noted the possibility of up to a $9 billion loss dating back to 2001. As a result, OHFEO has determined it will not provide a monthly capital classification at this time."

    * Letter dated June 16, 2006, from OHFEO Director Lockhart to Senator Chuck Hagel: "...In January 1999, Chairman and CEO Franklin Raines approved a recommendation made by the Chief Financial Officer (CFO) (Tom Howard) and the Controller (Leanne Spencer) to defer recognition of $200 million in amortization expense. This deferral, along with other accounting decisions made at that time relating to provisions for loan losses and the recognition of low-income housing tax credits, allowed management to meet the EPS threshold for maximum bonuses."

Judicial Watch is a right-wing group with an axe to grind, of course, but this is the kind of thing that can't be ignored. Congress's own actions need to be probed, and Congress is not the one to do it.

Indeed, Congress is so deeply involved in the meltdown that any congressional investigation is likely to be tainted, no matter how thorough it may or may not be. An independent, untainted commission is needed to take on the job.

.