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Congress Establishing Financial Crisis Inquiry Commission

Posted by Larry Doyle on May 21, 2009 5:18 PM |

The law firm of Wilmer Hale recently released the following statement:

May 7, 2009    

By Reginald J. BrownJamie GorelickAnne HarkavyRandolph D. MossWilliam R. McLucasHoward M. ShapiroMichael J. Sharp,Matthew A. Chambers 

Yesterday, the House of Representatives passed S. 386, the Fraud Enforcement and Recovery Act of 2009, by a 367-59 vote. Among other things, S. 386 establishes a Financial Crisis Inquiry Commission (the “Commission”), with broad authority to examine the domestic and global causes of the current U.S. financial and economic crisis. The Senate passed a similar bill in late April and final passage, most likely of the House version, is expected soon.

Under both versions of the bill, the Commission will have roughly 18 months to investigate the circumstances that led to the financial crisis and issue a report to Congress with its findings and recommendations. The Commission will have broad investigative authority, including subpoena power, and the ability to refer any evidence of criminal activity to the U.S. Attorney General and state attorneys general. Other key provisions, as described in the House bill, include the following:


The Commission will have ten members, who must be private citizens and may not be employed by any government entity. [§ 5(b)(2)(B)] Commission members will be appointed as follows: Three each appointed by the Speaker and Senate Majority Leader; two each appointed by the minority leaders in the House and Senate. [§ 5(b)(1)(A-D)] The Chair and Vice Chair must be from different parties and will be selected jointly by the respective leaders. [§ 5(b)(3)] Members are expected to be prominent U.S. citizens with national recognition and depth of experience in fields such as banking, regulation of markets, taxation, finance, economics, consumer protection and housing. [§ 5(b)(2)(A)]

Quorum, Subpoena Procedures, Confidentiality and Conflicts of Interest:

Six members of the Commission will constitute a quorum [§ 5(b)(4)(B)], with subpoenas issued only with the joint concurrence of the Chair and Vice Chair or with an affirmative vote by a majority of the members. [§ 5(d)(2)(B)(iii)] Effectively, this vests subpoena power in the hands of the Democrats in the event that a matter of partisan division emerges. In our view, if there is any pushback to the House bill from Senate Republicans, it will be due to their concerns regarding subpoena power. The House bill does not squarely address the issue of confidentiality of financial information provided to the Commission, except that the bill requires that information of a “confidential nature” provided to the Commission from a government entity must be maintained in a “secure manner.” [§ 5(d)(4)(A)] The House bill is also silent on the issue of conflicts of interest for members, staff, consultants and contractors, but because the Commission will be located in the legislative branch it is possible that congressional ethics rules will be used as a benchmark.


The Commission will have two primary areas of focus: (1) an examination of the role that a list of 22 distinct topics played in the current crisis; and (2) an examination of the specific causes of the collapse of each major financial institution that failed (including institutions that were acquired to prevent their failure) or was likely to have failed if not for the receipt of exceptional Government assistance from the Secretary of the Treasury during the period from August 2007 through April 2009. [§ 5(c)(1-2)] Assistance from the Federal Reserve does not appear to trigger the provision.

With respect to the Commission’s first area of focus, major topics among the 22 listed include accounting practices, fraud and abuse in the financial sector, tax treatment of financial products, credit ratings agencies, lending practices and securitization, corporate governance, compensation structures, credit default swaps and other derivatives, short-selling, and the quality of due diligence undertaken by financial institutions. [§ 5(c)(1)(A-V)] The House bill adds a specific focus on consumer protection and abuse of consumers in the mortgage sector to the list of topics to be considered. [See, e.g. § 5(c)(1)(A)] It remains unclear whether the Commission will assess the 22 listed topics purely at the policy level, or if it will determine that the topic-specific mandate also authorizes company specific inquiries. Notably, the Commission’s institution specific reporting authority—as outlined in section 5(h) of the House bill—appears to extend only to “specific findings on any financial institution examined by the Commission under subsection (c)(2),” which applies only to “failed,” “acquired” or “likely to have failed” major financial institutions.

With respect to the second area of focus, the Commission is specifically tasked with conducting an examination of “major financial institutions” that failed or were acquired to prevent their failure, or that were “likely to have failed” but for the receipt of “exceptional Government assistance.” [§ 5(c)(2)] The latter category of “likely to have failed” institutions is not defined in either the House or Senate bills, however, and may be a subject of considerable discussion once the Commission is established. The term “major financial institution” is also undefined. The scope of subsection 5(c)(2) does not appear to authorize separate or collateral investigations of healthy financial institutions that acquired entities to prevent their failure.

I am very happy to see that my call for an “Independent Investigation Required” did not fall upon deaf ears. This blog is working wonders! 🙂

In all seriousness, this commission is badly needed. That said, I hope there are regular public releases with progress reports. I would also hope that the commission investigates the incestuous nature of the Wall Street-Washington relationship. To overlook that aspect would render the results less meaningful.

If nominated, and allowed to continue navigating the economic landscape at Sense on Cents, I’d love to serve my country on The Commission!!

Just the facts!!


  • Jefferson Smith

    Run, Larry, Run! Your professional background, independence, and national voice make you an ideal candidate. From (Wall Street) Pit to the pinnacle of power, it’s time to bring Sense on Cents to Washington, DC.

  • fiscalliberal

    The key to theis commission will be the chairs selected by the Majority and Minority. Both are critical and should be curious in nature and be afraid of no one. The good news is that a lot of financial blogs are now out there to monitor any shennigans. Recall how they tried to nominate Kissinger in the 9/11 commission and that was scuttled by the wives of the people who died. That said, it was well known that the 9/11 commission ducked some issues and kind of have a mediaocure record. Some of the minority members on 9/11 were also Washington political hacks and had some conflict issues.

    Elizabeth Warren is a good example of what should happen, however she is kind of hampered by kind of adversarial tone from the miniority. That said, the minority is making a lot of good points

    We shall see how fast they work. Results probably will start to show around the next election in Nov 2010

    If nothing else I would like to see some heat applied to all of the people who committed fraud that can be prosecuted

    • Frank Skeffington

      I echo the sentiments of my esteemed colleague, Mr. Jefferson Smith, and call upon the loyal readers of Sense on Cents to rally around our own on-line community organizer, Larry Doyle, to speak truth to power. Run Larry, Run!

    • Fiscal,

      You are correct. Heat MUST be applied to unearth all of the sordid and sundry details. Subpoenas, prosecutions, and hard jail time must be meted out as necessary.

  • matinah salaam

    its time to do something. i support larry. the models we’ve been using since the s&l days make us an ongoing and ripe target for takeover and that’s what we get when we’re talking money and we’re talking money.

    this country is a gold mine and those wishing to enrich themselves know how to do that.

    i support participatory government, wherein all voting age citizens serve in all elective, appointive, political civil service positions for a maximum of two years-chosen at random and moving into another position after the two year term. keep the salaries in place, just move all citizens through the process. end corruption, politics for hire and advance the concept of democracy for the people of these republican states.

    thank you

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