The Hellhound of Wall Street

by Michael Perino

  Pecora finished the Insull hearings at five o’clock on Friday, February 17. The clock was still ticking. Mitchell was due on the stand at ten o’clock on Tuesday morning. Pecora’s staff had been hard at work for the last week sifting through City Bank’s records and preparing briefing memos for the “chief,” but Pecora had been completely absorbed with Insull and still had a lot of “spade work,” as he called it, to finish if he was going to conduct a meaningful examination of Mitchell or, for that matter, any of the other City Bank officers. So he boarded a train that evening and headed back to New York, to meet with his staff and get ready for the hearings that would make or break the investigation.

  Pecora took a few hours off from his preparations to give a dinner speech at the Elks Club, where he was a member. His talk reflected at least some of what he had gleaned from City Bank’s documents and foreshadowed, for anyone paying attention, what would take place in a few days in Room 301 of the Senate Office Building in Washington. He told the crowd of eight hundred at the Hotel Commodore that his recent investigation revealed “how men of might—not because of principle but because of economic power and wealth—have by the waving of a hand and the adoption of a resolution taken millions and millions of the hard-earned pennies of the people and turned them into gold for themselves.” And he signaled his desire for what he hoped the hearings would accomplish. “When the nation again comes to days of plenty and prosperity,” he concluded, “let us seek to make it impossible for water and hot air to be sold to men and women of America for gold taken from their life savings.”25

  That goal was still a long way off, and most outside prognosticators were still predicting that Pecora wasn’t going to get there. “You can expect,” one nationally syndicated columnist wrote, “National City’s forthcoming inquisition by Mr. Pecora to be mild—if it takes place at all.”26

  PART II

  TEN DAYS

  Chapter 8

  DAY ONE: UNIMPEACHABLE INTEGRITY

  Room 301 was neither the largest nor the most familiar hearing room in the Senate Office Building. That distinction belonged to the Caucus Room right down the hall, which had served as the backdrop for the headline-grabbing Senate investigation of the Teapot Dome scandal a decade earlier. In later years it would be the setting for everything from the Army- McCarthy hearings to the Watergate investigation and the Clarence Thomas confirmation. The Caucus Room, however, was reserved for the most significant events with the biggest expected turnouts, and Mitchell’s appearance before the Banking and Currency Committee apparently didn’t make the cut.

  What Room 301 lacked in size and history it made up for in classic elegance. It was, and remains, one of the most beautiful rooms on Capitol Hill. The sky-blue, barrel-vaulted ceiling rose more than thirty feet from the floor and veined Italian marble pilasters ringed the walls. High atop the east and west ends of the room were nautical murals, each fronted by a detailed model ship. Columbus and the Santa Maria discovering the New World were on one end; the War of 1812 and the U.S.S. Constitution occupied the other. In between, three ornate crystal chandeliers punctuated the ceiling. The room faced south toward the Capitol dome and on that clear Tuesday morning, late winter sunlight flooded in from a set of large French doors.1

  Pecora was already there when Mitchell, nicely tanned from his Bermuda trip, strode briskly into the room surrounded by his retinue of lawyers and bank assistants, the latter hauling the stacks of documents the committee had subpoenaed. It was a tremendous display of legal firepower. Flanking Mitchell were the two partners from Shearman & Sterling, Guy Cary and Garrard Winston. With them was James Harry Covington, a former congressman and founder of the powerhouse Washington law firm that bore his name, Covington & Burling.

  This was the first time that Pecora and Mitchell had met face-to-face and, like many before him, the New York lawyer was struck by Mitchell’s powerful appearance and brash self-assurance. Mitchell towered over the pocket-size Pecora. With his thick neck, firm jaw, and iron-gray hair he had the air, in the words of one of his salesmen, of a “commanding officer,” a man “of indomitable will . . . who would not surrender.” Pecora professed not to be intimidated by the legendary banker. He claimed that he never was “consciously overawed by being suddenly brought among persons whose names meant something,” despite his teenage attempts to glimpse J. P. Morgan. “[T]here were many persons who may have been considered great by large segments of the public, and who have turned out to be stuffed shirts. I found a number of those in the course of my investigation.” That assessment had the benefit of thirty years of hindsight. It is hard to imagine that Pecora was totally free of trepidation as he stood there that morning, and word was that many of his meals of late had gone untouched.2

  When we see congressional hearings today the legislators are invariably arrayed behind a large, curved dais. The witnesses sit at a small table set in the well and the spectators are in the chairs at the back, very much like a courtroom. Room 301, however, was configured much differently in 1933. In those days there was no dais; instead, a large, baize-covered mahogany trestle table occupied the center of the room. The senators—sometimes as many as a dozen but at other times only one or two—sat around the long table. Pecora was to Norbeck’s right, a cigar, ashtray, and matches in front of him and a glass of water within easy reach. There was nothing separating the senators from the witness; Mitchell was right there at the table, senators on either side of him and Pecora across the way. Mitchell’s lawyers were sitting just behind him. With all the reporters, assistants, and spectators crowded around the perimeter of the room, it felt less like a trial and more like theater in the round.3

  The room looked much as it did for the Insull hearings, with one glaring exception—the photographers were gone. Pecora, whom many accused of sensationalizing the hearings, had banned them, concluding that they had been disruptive and “disconcerting” to the witnesses. “There is no reason,” he later said, “why a person who takes the stand in response to a subpoena should be subjected to any of the unpleasantness beyond that which might be embodied in the examination itself.” While that ban may have protected the witness, it had another benefit as well—it was now much harder for senators to mug for the camera.4

  Although Pecora may not have been intimidated by Mitchell, it was clear that he faced a formidable task on that small stage. Bankers had certainly taken their lumps since the crash. Membership in the Investment Bankers Association was plummeting about as fast as the stock market indices as firm after firm collapsed. Those that remained found their already tattered reputations disintegrating even further for their failure to uncover the Kreuger & Toll fraud, for selling Insull securities, and in the face of the worsening banking crisis. Indeed, just that morning, Federal Reserve officials in Chicago reported that the city’s banks would have to close before the week ran out if public calm could not be restored. By the afternoon, Cleveland bankers were reporting that withdrawals were increasing at an alarming rate and they asked the state’s governor to declare a statewide holiday. New Jersey passed an emergency law authorizing state banks to require a ninety-day notice for withdrawals, and the Guarantee Trust Company of Atlantic City immediately put limitations in place. The reverberations from Michigan were spreading.5

  Still, as far as the public was concerned, the worst problems remained at regional banks. City Bank was still considered a fortress, its balance sheet “the envy of every bank in the United States.” Men like Mitchell, the leaders of the largest New York banks, and the banks themselves still retained at least some vestiges of the aura of invincibility that surrounded them at the height of the market bubble. “The prestige and reputation of these institutions,” Pecora wrote, “was enormous. They stood, in the mind of the financially unsophisticated public, for safety, strength, prudence, and high-mindedness, and they were supposed to be captained by men of unimpeachable integrity, possessing almost mythical business genius and foresight.”

  Indeed, it was that image more than an
ything else that City Bank had been selling for the past fifteen years. National City’s advertisements told investors that they could have confidence in the reliability and integrity of City Bank and its securities affiliate. From their first days in the company’s bond-selling class, neophyte salesmen “were sold good and hard, all day long on the soundness—if not infallibility—of the wonderful old institution we were going out to represent. . . . We were told to sell the Institution to people first and then it would be easy to sell them securities.” Over the next few days, Pecora had to prove to the American public that the bank’s sterling image was and always had been a mirage.6

  It was not going to be easy. Pecora still knew very little about the inner workings of Wall Street. Nonetheless, he had several distinct advantages over previous counsel. Most important, he had done his homework on City Bank; he was far more thoroughly prepared than he had been for Insull. He was also much more comfortable after his earlier trial run. Sure, he would have liked to interview Mitchell and the other witnesses at least once before the hearing. Without those interviews he would have to improvise, but that didn’t bother Pecora. He was incredibly fast on his feet from years in the courtroom and years of extemporaneous stump speeches for Tammany Hall. In fact, the prospect of jousting with Mitchell on the fly “exhilarated” him.

  The only continuing unknown was the senators. In a criminal trial, Pecora commanded the floor and he had nearly total control over the flow of testimony during his examinations. Here, the senators could jump in at any time. At their best, the senators functioned almost like a Greek chorus, commenting on the significance of the facts Pecora had just pulled out of a witness. At their worst, they just got in the way. Pecora saw it during the Insull hearings—senators like Robert Reynolds awkwardly and ineptly trying to score debating points or grandstanding for the assembled reporters. Maybe there would be less of that now that the cameras were gone, but Pecora couldn’t be sure.7

  The lawyer also had no shortage of inspiration on that late February morning. Success would mean enormous acclaim, the continuation of the hearings into the next Congress, and a good chance that the federal government would finally regulate the financial markets. There was another motivation as well. Since the committee’s announcement in late January that it would investigate City Bank, Pecora and Norbeck had received hundreds of letters from former customers and investors, all with tales of ruin from following the bank’s advice. To be sure, many of those letters hardly qualified as inspiring. Some were from obvious cranks and spun wildly implausible conspiracy theories. A fair number were angry and spiteful, urging Pecora to “go after these unscrupulous crooks with gloves off.” Many suggested that Mitchell needed to go to prison (preferably one with hard labor) and one thought that having a “few Bankers shot at Sunrise” might be in order.8

  Other letters, however, contained incredibly moving tales of personal and financial loss as well as severe economic deprivation. Years later Pecora recalled how important those letters had been to him during the course of the investigation. They came from people who had been utterly devastated by investing with City Bank and who were barely hanging on as the economy tumbled into the abyss. Many mentioned Mitchell by name, painting him as an incredibly callous man, indifferent to the losses they had suffered.

  Helen Kirst, a widow from San Francisco, told a tale that was repeated again and again in that thick file of letters. The bank’s sales force convinced her to sell her portfolio of safe government bonds in order to buy the bank’s stock, which they assured her was not only safe, but would yield her a much better return. “Naturally believing them to be honorable and a bank of highest standing and integrity I was [gullible].” The longer she held the stock the more nervous she became. She repeatedly asked the local manager to sell the City Bank stock and he repeatedly refused to do so. When the stock collapsed she was left penniless and she wrote Mitchell to complain. Mitchell wrote back a short reply. He was, he claimed, “sorry” that she had lost money, but it was really her own fault. After all, she “shouldn’t have gambled.”9

  A. H. Nicander from Douglaston, New York, also trusted the bank and its affiliate. “The fact that the National City Co. is a subsidiary of the National City Bank, one of the largest banking institutions in the country, led me to believe that any issues sponsored by them was [sic] of unimpeachable security,” he wrote. “I am one of the army of unemployed, having had that status for almost three years, have three dependents, have come to the end of my resources and am attempting to obtain relief work. I had faith in the industries of the country and invested the larger part of my savings in them, and due to this faith I have now been reduced to indigency.”10

  And then there was Christopher Lane, an elderly Brooklyn man. “I am writing this from McGrath’s Funeral Parlor [in] Brooklyn,” he told the investigator. “My wife is lying in her casket in the next division. She died of pneumonia. Had I hoarded my $10,000, I could have taken her to the South for the winter. . . . When you see Mr. Mitchell, you might ask him if it comes within your jurisdiction, why his Company or Bank, so trusted, could palm off such poor stuff on an old retiring teacher.”11

  Pecora needed to begin to tell those stories to two related audiences that day. The first was the flagging members of the committee. Other than Norbeck, most of the senators still seemed to have little enthusiasm for continuing the investigation, especially with the congressional session ending in less than two weeks. If the investigation were to continue into the next Congress, Pecora would have to convince those indifferent senators of one of two things: either that investigating Wall Street was necessary in order to implement crucial reform legislation, or, if nothing else, that it was great publicity for them amid the ever worsening economic crisis.

  The other audience was, of course, the cadre of reporters in Room 301 and, just as important, their readers across the country. As hard-bitten as many of the reporters seemed, they were, after all, not immune to the devastation around them. “I come home from the hill every night filled with gloom,” one Washington reporter wrote in his diary. “I see on streets filthy, ragged, desperate-looking men, such as I have never seen before.” After the Insull hearings, Pecora knew the way to make his case was not to dwell, at least on that first day, on the minutiae of complex securities transactions. There would be time for that kind of testimony in the coming days.

  Instead, his initial focus had to be money, favoritism, inequity, and privilege. If he was going to succeed in puncturing that aura of invincibility surrounding the bank, he would have to show that Mitchell and his fellow officers were greedy men who cared little about the consequences of their actions and thought that they were above the law. If he could tell that kind of simple morality tale, he could create the kind of outrage he needed, the kind of outrage that would enable him to plumb more arcane securities matters, to continue the investigation into the next Congress, and, perhaps, to provide a bit of vindication for Mr. Lane and the others. As Frances Murphy, another elderly widow, put it in a letter to Pecora, “I can only hope that it will be within your power to make the offenders realize the extent of their guilt and that justice, in some form, will be accorded to the innocent, and ignorant, depositors.”12

  For now, though, the investigation was hanging by a thread.

  Pecora knew he needed to make a splash that day, but he still started slowly, easing into the examination by quizzing Mitchell about the organization of the bank’s securities affiliate, the entity that allowed it to engage in the kind of investment banking functions otherwise forbidden at nationally chartered banks. The friendly, cooperative pose that Mitchell struck with Pecora in their first phone call had vanished, replaced by a tone that was both arrogant and condescending. He had the manner of a powerful man irked at wasting his time on a mundane and insignificant task. When in the first few minutes Pecora asked him when the agreement organizing the affiliate was prepared and when it became effective, Mitchell responded dismissively: “I assume that it did at the time
of the organization, Mr. Pecora. I can not conceive it as being otherwise, but I would have to look it up.”13

  Pecora was unfazed; he had handled countless hostile witnesses before. In fact, Mitchell’s arrogance and disdain were precisely what Pecora wanted to show. So he continued to ask more detailed questions about the affiliate’s organizational structure and the relationship between it and the bank. Mostly, Mitchell claimed not to know the answers; he had not “refreshed” his memory about those matters. Pecora saw it differently; he thought Mitchell was “not giving evidence of complete candor.” Perhaps that was so, but it seems more likely that Mitchell considered this just one more tedious visit to Congress, one that would require little preparation since the others had gone so well. When Pecora pressed him for answers, Mitchell would simply turn to Garrard Winston. Winston would check the assembled documents or consult with the bank employees in attendance and whisper the answer to the banker, and Mitchell would repeat it for the record.14

  As this laborious process was repeated, it became clear that the bank’s lawyers were still attempting to run out the clock. They told Pecora that due to an inadvertent “oversight,” the minute books for the securities affiliate had not been brought to Washington. That oversight claim is hard to accept. Pecora had spent hours with those books at Shearman & Sterling and they were at the core of the investigation. A few days earlier, one of Pecora’s assistants had specifically instructed the bank’s lawyers to bring them to the hearing. These were supposed to be the best lawyers in the country. They simply forgot to bring the documents to Washington?15