In the spring of 1933, many Americans blamed Wall Street for the financial havoc caused by the Great Depression. Millions had lost investments through industrial bankruptcies, foreclosures, bank failures, bond defaults and collapsing stock prices.
That sentiment intensified in May as the Senate probed the crash and its aftermath. Emerging documentation of insider favoritism and fraud "created a cyclone of outrage" and generated broad public support for President Franklin D. Roosevelt's financial agenda.
Democratic Senator Duncan Fletcher, chairman of the Banking and Currency Committee, denounced an investment-banker telegram campaign against legislation intended to protect investors against worthless securities.
It was little surprise, Fletcher said, that the measure, called the Securities Act, aroused "the most determined opposition on the part of that profession which has mulcted the people of some $50,000,000 during the past ten years."
Unsettling evidence had been surfacing for months, dredged up by the research team of the committee's chief counsel, Ferdinand Pecora. Based on the findings, National City Bank's chairman, Charles Mitchell, resigned in disgrace, only to face federal charges for evading income-tax payments.
Pecora, a Sicilian immigrant and former New York prosecutor, earned $255 ($4,463 today) a month for exposing the machinations of multimillionaires. His interrogation strategy was to “proceed in a friendly fashion, as if he were simply exercising an intelligent curiosity,” the New York Times reported.
His questioning flummoxed high-profile Wall Street figures such as Richard Whitney of the New York Stock Exchange and his brother, George Whitney, of J.P. Morgan & Co. J.P. Morgan, Jr. trained in advance for his day in the witness chair.
On May 24, George Whitney revealed that in 1929, as J.P. Morgan & Co. planned to take Alleghany Corp. public, 1.25 million shares were privately offered to a select group at $20 per share, $4 below the public-offering price. Morgan had also offered pre-market stock in Standard Brands at $32 per share, $8 below the public-offering price.
The "preferred list" for these deals consisted of people in prominent government and corporate positions. They included John Raskob, financier and Democratic National Committee chairman; New Jersey Senator Hamilton Kean; Edgar Rickard, a business associate of President Herbert Hoover; Charles Francis Adams III, Hoover’s secretary of the Navy; and William Woodin, Roosevelt's secretary of the Treasury.
J.P. Morgan, Jr. acknowledged another list of more than 80 corporate officers to whom his company had made personal loans from 1927 to 1932, a third of which were still outstanding. Though figures weren't published, two of the unpaid loans belonged to the presidents of Standard Brands and Johns-Manville, both J.P. Morgan & Co. initial public offerings.
As more illicit practices of high finance and big industry were revealed in the coming years, American antagonism toward Wall Street would only intensify.
(Philip Scranton is a Board of Governors professor of the history of industry and technology at Rutgers University, Camden, and the editor-in-chief of Enterprise and Society. He writes "This Week in the Great Depression" for the Echoes blog. The opinions expressed are his own.)
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