“Hoovervilles,” creating the shameful images that would define his presidency. Millions of Americans had lost their jobs, and one in four Americans lost their life savings. Farmers were in ruin, 40 percent of the country’s banks had failed, and industrial stocks had lost 80 percent of their value.
With unemployment hovering at nearly 25 percent in 1932, Hoover was
swept out of office in a landslide, and the newly elected president,
Franklin Delano Roosevelt, promised Americans relief. Roosevelt had
decried “the ruthless manipulation of professional gamblers and the
corporate system” that allowed “a few powerful interests to make
industrial cannon fodder of the lives of half the population.” He made
it plain that he would go after the “economic nobles,” and a bank panic
on the day of his inauguration, in March 1933, gave him just the mandate
he sought to attack the economic crisis in his “First 100 Days”
campaign. “There must be an end to a conduct in banking and in
business which too often has given to a sacred trust the likeness of
callous and wrongdoing,” he said.
Ferdinand Pecora was an an unlikely answer to what ailed America at
the time. He was a slight, soft-spoken son of Italian immigrants, and he
wore a wide-brimmed fedora and often had a cigar dangling from his
lips. Forced to drop out of school in his teens because his father was
injured in a work-related accident, Pecora ultimately landed a job as a
law clerk and attended New York Law School, passed the New York bar and
became one of just a handful of first-generation Italian lawyers in the
city. In 1918, he became an assistant district attorney. Over the next
decade, he built a reputation as an honest and tenacious prosecutor,
shutting down more than 100 “bucket shops”—illegal brokerage houses
where bets were made on the rise and fall prices of stocks and commodity
futures outside of the regulated market. His introduction to the world
of fraudulent financial dealings would serve him well.
Just months before Hoover left office, Pecora was appointed chief
counsel to the U.S. Senate’s Committee on Banking and Currency. Assigned
to probe the causes of the 1929 crash, he led what became known as the
“Pecora commission,” making front-page news when he called Charles Mitchell,
the head of the largest bank in America, National City Bank (now
Citibank), as his first witness. “Sunshine Charley” strode into the
hearings with a good deal of contempt for both Pecora and his
commission. Though shareholders had taken staggering losses on bank
stocks, Mitchell admitted that he and his top officers had set aside
millions of dollars from the bank in interest-free loans to themselves.
Mitchell also revealed that despite making more than $1 million in
bonuses in 1929, he had paid no taxes due to losses incurred from the
sale of diminished National City stock—to his wife. Pecora revealed that
National City had hidden bad loans by packaging them into securities
and pawning them off to unwitting investors. By the time Mitchell’s
testimony made the newspapers, he had been disgraced, his career had
been ruined, and he would soon be forced into a million-dollar
settlement of civil charges of tax evasion. “Mitchell,” said Senator Carter Glass of Virginia, “more than any 50 men is responsible for this stock crash.”
The public was just beginning to get a taste for the retribution that
Pecora was dishing out. In June 1933, his image appeared on the cover of Time
magazine, seated at a Senate table, a cigar in his mouth. Pecora’s
hearings had coined a new phrase, “banksters” for the finance
“gangsters” who had imperiled the nation’s economy, and while the
bankers and financiers complained that the theatrics of the Pecora
commission would destroy confidence in the U.S. banking system, Senator
Burton Wheeler of Montana said, “The best way to restore confidence in
our banks is to take these crooked presidents out of the banks and treat
them the same as [we] treated Al Capone.”
President Roosevelt urged Pecora to keep the heat on. If banks were
worried about the hearings destroying confidence, Roosevelt said, they
“should have thought of that when they did the things that are being
exposed now.” Roosevelt even suggested that Pecora call none other than
the financier J.P. Morgan Jr.
to testify. When Morgan arrived at the Senate Caucus Room, surrounded
by hot lights, microphones and dozens of reporters, Senator Glass
described the atmosphere as a “circus, and the only things lacking now
are peanuts and colored lemonade.”
Morgan’s testimony lacked the drama of Mitchell’s, but Pecora was
able to reveal that Morgan maintained a “preferred list” of friends of
the bank (among them, former president Calvin Coolidge and Supreme Court
justice Owen J. Roberts) who were offered stock at highly discounted
rates. Morgan also admitted that he had paid no taxes from 1930-32
because of losses following the crash of 1929. Though he had done
nothing illegal, the headlines damaged him. He privately referred to
Pecora as a “dirty little wop” and said he bore “the manners of a
prosecuting attorney who is trying to convict a horse thief.”
At a break in the hearings, a Ringling Bros. press agent barged into the room, accompanied by a performer named Lya Graf,
just 21 inches tall. “Gangway,” the agent shouted, “the smallest lady
in the world wants to meet the richest man in the world.” Before Morgan
knew what was happening, the diminutive lass was perched on the tycoon’s
lap, and dozens of flash bulbs popped.
“Where do you live?” Morgan asked the girl.
“In a tent, sir,” she answered.
Senator Glass’s description of the hearings proved prophetic; the
atmosphere had become truly circus-like. And although Morgan’s
appearance marked the height of the drama, the hearings continued for
nearly another year, as public outrage over the conduct and practices of
the nation’s bankers smoldered. Roosevelt took advantage of the public
sentiment, arousing broad support for regulation and oversight of the
financial markets, as the Pecora Commission had recommended. After
passing the Securities Act of 1933, Congress established the Securities
and Exchange Commission to regulate the stock market and to protect the
public from fraud. The Pecora commission’s report also endorsed the
separation of investment and commercial banking and the adoption of bank
deposit insurance, as required by Glass-Steagall, which Roosevelt signed into law in 1933.
By investigating Wall Street business practices and calling bankers
in to testify, Ferdinand Pecora exposed Americans to a world they had no
clue existed. And once he did, public outrage led to the reforms that
the lords of finance had, until his hearings, been able to stave off.
His work on the commission complete, Pecora had hoped to be appointed
chair of the SEC. Instead, Roosevelt surprised the nation by naming Joseph P. Kennedy to
the position—a reward, many assumed, for Kennedy’s loyalty during FDR’s
campaign. When asked why he’d chosen such a manipulator as Kennedy,
FDR famously replied, “Takes one to catch one.” Pecora was nominated as
commissioner of the SEC, where he worked under Kennedy.
In 1939, Pecora published Wall Street Under Oath, which
offered a dire warning. “Under the surface of the governmental
regulation, the same forces that produced the riotous speculative
excesses of the ‘wild bull market’ of 1929 still give evidences of their
existence and influence.… It cannot be doubted that, given a suitable
opportunity, they would spring back into pernicious activity.”
Ferdinand Pecora would be appointed as a justice on the New York
State Supreme Court in 1935 and run unsuccessfully for mayor of New York
City in 1950. But he had already left his legacy: his investigation
into the financial abuses behind the crash of 1929 led to the passage of
the Securities Act, the Glass-Steagall Act and the Securities Exchange
Act. The protections he advocated are still being debated today.
Books: Michael Perino, The Hellhound of Wall Street: How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance, Penguin Press, 2010. Charles D. Ellis with James R. Vertin, Wall Street People: True Stories of the Great Barons of Finance, Volume 2, John Wiley & Sons, Inc, 2003.
Articles: “Mitchell Paid No Tax in 1929,” Daily Boston Globe, Feb. 22, 1933, “Clients ‘Sold Out’ As National City Saves Officers,” The Atlanta Constitution, Feb. 23, 1933. ”Pecora Denounces Stock Manipulation,” New York Times, Feb 19, 1933. ”Pecora to Question Private Bankers,” New York Times, March 16, 1933. “Where is Our Ferdinand Pecora?” by Ron Chernow, New York Times, Jan. 5, 2009. “Ferdinand Pecora, ‘The Hellhound of Wall Street’” All Things Considered, NPR,
Oct. 6, 2010.
“Ferdinand Pecora, An American Hero,” by Jackie Corr, Counterpunch,
“Ferdinand Pecora Ushered In Wall Street Regulation After 1929 Crash”
by Brady Dennis, Washington Post, Sept. 16, 2009. “Where Have You Gone, Ferdinand Pecora?” by Michael Winship, Bill Moyers Journal,
April 24, 2009.
“A Midget, Banker Hearings and Populism Circa 1933″ by Michael Corkery,
Deal Journal, Wall Street Journal, Jan. 12, 2010.
“When Washington Took on Wall Street” by Alan Brinkley, Vanity Fair, June 2010.
Posted By: Gilbert King http://blogs.smithsonianmag.com