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Why a 9/11-style panel should examine the financial crisis

Congress should appoint a commission to investigate what went wrong in the capital markets and how to prevent it from happening again.

By William Cohan, contributor
February 17, 2009: 12:58 PM ET

NEW YORK (Fortune) -- After yet another -- but not-undeserved -- public flogging of Wall Street's remaining CEOs before Congress last week, it has become more than a little obvious that such hearings have lost their ability to be either shocking, entertaining or informative, and are accomplishing little of substance.

Instead of political theater, what is desperately needed now is a 9/11-style commission that will investigate how Wall Street's highly paid executives brought the capitalist system to its knees. This commission needs to be both armed with subpoena power and fronted by individuals of integrity. While such a massive project is both costly and time-consuming -- the 9/11 commission took 20 months to fulfill its mission and spent $9 million doing so -- the need to shine the light on the truth of what happened and why is every bit as essential to our national security and national fabric as the study undertaken by former New Jersey Governor Tom Kean and former Congressman Lee Hamilton after the tragic events of September 2001.

"It is a good idea," J.P. Morgan Chase (JPM, Fortune 500) CEO Jamie Dimon wrote of the commission approach, in an e-mail exchange with FORTUNE, "...and if done soon enough it can help guide good regulatory changes -- changes based on a good analysis of what happened and why."

Some of the big questions the commission might delve into are: What role did the incentive and compensation structures of investment banks play in the demise of Wall Street? What about the use of short-term, overnight financing secured by risky, long-term assets? Or the ineffectual, rubber-stamping boards of directors?

There is, of course, precedent for such a blue-ribbon study of a market meltdown, when following the 1987 stock market crash, President Reagan asked former investment banker Nicholas Brady to chair the Presidential Task Force on Market Mechanisms. Later, Brady became the Secretary of the Treasury under Reagan and the first President Bush

What makes the need for such a commission all the more acute is how busy the heads of the banks, the ratings agencies, the current and former executives of AIG (AIG, Fortune 500) and a bunch of billionaire hedge-fund executives have been at spinning myths about what they would like us all to think happened or didn't happen. Richard Fuld, the former CEO of Lehman Brothers, is typical. "I wake up every single night thinking, 'What could I have done differently?' " he testified on October 6 before Congress.

Alan Schwartz, the unlucky CEO of Bear Stearns at the time of its demise, was also unable to answer the basic question: What would you have done differently? To Schwartz's credit he took Truman-like responsibility in front of the Senate Banking Committee last April 3 for the failure of Bear Stearns, but he also said, "I just simply have not been able to come up with anything, even with the benefit of hindsight, that would have made a difference to the situation that we faced."

Perhaps the best rejoinder to Wall Street's penitent act came last week from Massachusetts' congressman Michael Capuano, who now holds the seat that once belonged to former Speaker of the House Tip O'Neill and President John F. Kennedy. "You come to us today on your bicycles, after buying Girl Scout cookies and helping out Mother Teresa, telling us: 'We're sorry. We won't do it again,' " he sarcastically told the eight men sitting before him. "America doesn't trust you anymore."

In other words, the innocent victim routine doesn't fly, not when your paychecks, year after year, were consistently in the mid-eight-figure range. The fact that both Fuld and Schwartz were the among the most senior executives of two of the largest Wall Street firms that chose to lard their balance sheets with what became hard-to-sell mortgage-related securities is just one of many explanations that the two men might have mentioned in their Congressional testimony.

Instead, the lingering impression Wall Street's captains courageous have left the American public with is that they were diligent mariners who were merely overtaken by a perfect storm in the capital markets. If you doubt me, merely Google "Wall Street and tsunami" to see how often this briny simile has been invoked recently. Myths such as this must be dispelled at once if any real healing and reform is to occur.

At least one member of the 9/11 commission believes getting straight answers is crucial. "There is absolutely a need to find out what happened in this financial crisis and why," said Richard Ben-Veniste, a partner at the law firm Mayer Brown, in Washington. While he is not yet prepared to endorse the idea of a 9/11-style commission for the current financial mess -- he prefers to allow "the existing institutions of government being given the opportunity to function before turning to more extraordinary alternatives" -- he is not the slightest bit ambivalent about discovering the root cause of the crisis in a deliberate way. "The question is what is the best vehicle for getting answers," he continued, "but I have always been an advocate for openness and accountability."

--Cohan is author of "The Last Tycoons: The Secret History of Lazard Freres & Co" and the upcoming "House of Cards: A Tale of Hubris and Wretched Excess on Wall Street." To top of page

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