Shortly after noon on Thursday, Sept. 16, 1920, a powerful bomb hidden in a horse-drawn wagon exploded at the corner of Wall and Broad Streets in Manhattan. It was a pleasant late-summer day, and throngs of people had been out enjoying a lunchtime stroll, a brief respite from the great money machine, the center of American capitalism.

Now blood ran in the streets where the first U.S. Congress had convened and the Bill of Rights became law.

Shrapnel scarred the walls and shattered the windows of J.P. Morgan and Co., America’s most formidable bank. The bomb killed at least 38 people and injured roughly 400. It was the deadliest terrorist attack in U.S. history, a distinction it held for 75 years. Its force reverberates today.

In Washington at that hour, J. Edgar Hoover, 25 years old, was putting the finishing touches on the federal government’s first counterterrorist force, the General Intelligence Division. Hoover wrote that he intended to combat “not only the radical activities in the United States” but also those “of an international nature”; not only radical politics, but “economic and industrial disturbances” as well.

He said the government could not handle “the radical situation from a criminal prosecution standpoint.” The law was too weak a force to protect the country. He believed the U.S. needed a new weapon to fight communists, anarchists and the forces he later called “red fascism.” Only secret intelligence and countersubversion could detect and disrupt the threat from the left and protect America from attack.

Hoover had been fighting the threat since joining the Justice Department during World War I. His war never ended.

Mass Arrests

He had already led the biggest mass arrests ever seen in the U.S. In a nationwide sweep during the first weeks of 1920, his agents had jailed at least 6,000 suspected subversives. His men broke into political meetings, private homes, social clubs, dance halls, restaurants and saloons across the country, rarely bothering with search warrants. Hoover worked around the clock, answering the telephones and reading the telegrams as his squads checked in.

He had prepared a report to Congress claiming the raids had resulted in “the wrecking of the communist parties in this country” -- a premature boast. By the time the courts got through with the detainees, roughly nine out of 10 were set free. Hoover had set out to remove the radical left from the American landscape, and he had fallen short.

The Wall Street attack in late summer followed a barrage of mail and suitcase bombs that had struck fear across America. Although not one of them killed its intended victims, the hit list was breathtaking: Supreme Court Justice Oliver Wendell Holmes, Attorney General A. Mitchell Palmer and Judge Kenesaw Mountain Landis, who had overseen more than 100 Espionage Act convictions. Five members of Congress were also marked for death, as were the secretary of labor, the mayor and police commissioner of New York City, and John D. Rockefeller and J.P. Morgan, the nation’s most powerful bankers.

Hoover came to suspect that a gang of Italian anarchists was responsible for both the targeted attacks and the Wall Street bombing. But he was never able to prove it. In 1921, after he had been promoted to the No. 2 job at the FBI, his new boss, William J. Burns, proclaimed that Vladimir Lenin and the Soviet Politburo had carried out the attacks. It was an empty charge.

By the time President Warren Harding died two years later, the FBI had fallen so far into corruption and ineptitude that the chief of the Criminal Division of the Justice Department argued it should be disbanded. President Calvin Coolidge’s new attorney general, Harlan Fiske Stone, found the bureau “in exceedingly bad odor,” and noted that many of its agents had criminal records and “engaged in many practices which are brutal and tyrannical in the extreme.”

Secret Police Warning

In May 1924, Stone fired the FBI director and issued a statement whose power resounds to this day. “A secret police system may become a menace to free government and free institutions because it carries with it the possibility of abuses of power which are not always quickly comprehended or understood,” Stone wrote. “The Bureau of Investigation is not concerned with political or other opinions of individuals. It is only concerned with their conduct and then only with such conduct as is forbidden by the laws of the United States. When a police system passes beyond these limits, it is dangerous to the proper administration of justice and to human liberty, which should be our first concern to cherish. Within them it should rightly be a terror to the wrongdoer.”

The next day, Stone summoned Hoover, not yet 30 years old, his hair slicked back, neck straining at his shirt collar, and told him he would become the FBI director on one condition: The bureau was out of the spy business. Hoover looked up to the 6-foot-4 Stone and said yes, sir.

Stone remained attorney general for nine months before ascending to the Supreme Court. Hoover lasted in his job for 48 years. In that time, he never lost faith that the fate of the nation lay with him and his work. And he never stopped spying.

With the terrible patience that became his trademark, Hoover methodically built his disreputable force into an American institution. Within a decade, it was famous as the nation’s foremost pillar of the law. In secret it became America’s most powerful intelligence service.

In August 1936, President Franklin D. Roosevelt invited Hoover to the White House to talk about the threats of fascism and communism. The director was mainly concerned about the Reds. He warned the president that communists were taking over the longshoremen’s union on the West Coast, that they had designs on the United Mine Workers union and the nation’s supply of coal, and that they had great sway over the Newspaper Guild. “I told him,” Hoover recorded, “that the communists planned to get control of these three groups and by doing so they would be able to paralyze the country.”

Special Authority

Hoover then told the president that the FBI needed the power to conduct secret intelligence operations. Nothing was put in writing, but without question Roosevelt gave Hoover an open-ended order to attack America’s enemies, foreign and domestic. Hoover cited that authority until the day he died. It remains in force today.

Today millions of Americans know Hoover only as a caricature: a tyrant in a tutu, a cross-dressing crank. But his secret intelligence files, newly opened, show how, in the darkest days of the Cold War, he spied directly on the leaders of the Soviet Union and China, sent detailed intelligence warnings of suicidal airborne attacks by Moscow against New York and Washington, and controlled a coup against a democratically elected foreign leader in the Caribbean.

Hoover was not a monster, but an American Machiavelli. Astute and cunning, in 55 years he never stopped watching his enemies, and he was a masterful manipulator of public opinion.

Walk to the corner of Wall and Broad Streets today, and you can run your hands over the deep gouges left by the 1920 bombing. You will have to look harder to see the cameras that track your steps -- a 21st-century tribute to Hoover, the architect of the modern surveillance state. Every fingerprint on file, every byte of biographic and biometric data in the computer banks of the government, owes its origins to him.

Today, the bureau’s leaders are far more attuned to civil liberties and the rule of law. But as the instructors at the FBI academy told thousands of agents-in-training back in Hoover’s day, an institution is the lengthened shadow of one man. He has been dead 40 years, but he still shadows us.

(Tim Weiner, a former reporter for the New York Times, is the author of “Legacy of Ashes: The History of the CIA.” This article is adapted from his new book, “Enemies: A History of the FBI,” to be published Feb. 14 by Random House. The opinions expressed are his own.)

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To contact the writer of this article: Tim Weiner at tiwein@hotmail.com.

To contact the editor responsible for this article: Mary Duenwald at mduenwald@bloomberg.net.