US financial crisis probe may be too late

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A US commission appointed by Congress to probe of the financial crisis held its first hearing on Wednesday but faces doubts about its ability to help prevent future meltdowns.

The skepticism stems from the reality that the Financial Crisis Inquiry Commission is just beginning its work now, nearly three years after the start of the crisis and that lawmakers are already hashing out reforms.

"The logical thing would be to have had a commission and then based reform around what they found," said Charles Elson, the director of the Weinberg Center for Corporate Governance at the University of Delaware. "Given the fact that it is the other way around, it is hard to understand what impact this would have."

The 10-member commission has broad powers to hold hearings, call witnesses and subpoena documents. The commission publicly kicked off its year-long probe by tangling for over three hours with executives from Goldman Sachs, Bank of America, Morgan Stanley and JPMorgan.

The commission, composed of former lawmakers and policy experts, must file its report to Congress and President Barack Obama by Dec. 15.

Former Senator Robert Graham, a member of the commission, maintains the panel has teeth through its ability to stimulate Congress to take action using its analysis. "It's up to the Congress to take that diagnosis and do something with it."

But given the difficulties the Obama administration is having getting its first financial reform package through a heavily Democratic Congress, it seems doubtful that another round of reforms would make much headway after November's midterm elections, which almost certainly will see gains by the more business friendly Republicans.

DELAYED IMPACT

The commission was crafted in the image of the Pecora Commission hearings, which were held starting in 1932 to investigate the causes of the Great Depression.

Ferdinand Pecora was the fourth and final counsel to the Senate commission that investigated the 1929 Wall Street crash. The commission played a role in exposing banking industry practices that led to the Securities Act of 1933 and the Securities Exchange Act of 1934.

That legislation has largely governed the securities industry in the seven decades since.

Douglas Elliott, a former JPMorgan investment banker now with the Brookings Institution, said the commission could fuel public anger, even if they do not have an immediate impact on policy.

"These various hearings are going to refocus people's attention on the crisis," Elliott said. "It is going to be tough on Wall Street in many ways because Wall Street was very much part of the problem and the public doesn't much like bankers these days."

Bill Thomas, the vice chairman of the commission and a former congressman, said the commission will aim to try to explain the crisis "in a way that the American people can understand."

Even if the committee is unable to affect any change, it still could produce value, said Lawrence White, a professor at New York University's Stern School of Business. White said it is important to have the government's view of what happened as a record for academics or future lawmakers.

"It is worth doing, but I don't think we are going to learn much that is new," White said.

(Reporting by Steve Eder and Dan Margolies. Additional reporting by Karey Wutkowski; Editing by Tim Dobbyn)