The Hellhound of Wall Street

by Michael Perino

Agnes Meyer could see that Hoover was growing despondent, and she thought the dénouement appropriate for Hoover’s failed presidency. “Hard on H to go out of office to the sound of crashing banks,” she wrote in her diary that Saturday. “Like the tragic end of a tragic story. . . . Looking back it seems like nothing but blunder after blunder. He has been perversely and stubbornly wrong and short-sighted from start to finish.”4

  In the midst of the banking crisis—what Roosevelt had already called an “inferno”—some argued that the committee’s decision to continue hearings was more than just pointless. Showing this kind of deep-seated wrongdoing at one of the nation’s largest banks at a time when the banking system was in free fall amounted to pouring gasoline on the flames. The conservative New York Evening Post said that Congress had “done nothing to restore public confidence” and had “chosen the worst of all possible times to throw further doubt upon banks.” Pecora and the committee had broken “the faith of the people in their financial leaders”; but even the Post concluded that the revelations “could not be ignored.”5

  The Evening Post wasn’t alone in urging the committee to proceed with more caution than it had demonstrated in the first week; business leaders were also worried. The president of the Chicago and North Western Railway warned Norbeck that the investigation was leading to panic: “The disclosures to date are causing the rank and file out through this country to distrust all banks, the good along with the bad; hoarding is starting in again; withdrawals are becoming very heavy; the whole financial structure seems to be sitting on dynamite.” Perhaps, he wrote Norbeck, it might be better to adjourn the hearings for a short time “to give people an opportunity to quiet down, and possibly relieve the situation.”

  It was not terribly surprising that business leaders were upset by what Pecora was doing in Washington, but less august citizens also urged restraint. A New Yorker named William Purnell told Norbeck that the disclosures were frightening the people, and would soon create outright panic. Purnell thought that the country had its hand “in the lion’s mouth, we should be very cautious and not stick him or make him bite us before we get our hand out of his mouth.” There would be, he thought, plenty of time later to “convict the criminals.”6

  Many agreed that the disclosures heightened public fear about the solidity of the banking sector, but thought it was better to reveal those problems than to cover them up. “Only with knowledge of what is being done,” the Washington Herald editorialized, “can it be hoped that legislation will be devised which will lift the tone of prevailing business methods and make impossible the continuance or recurrence of such practices as are now being unfolded to us. Indeed, it is a period of tragic disillusionment through which we are now passing!” The disclosures, an editorial in another paper claimed, were “highly salutary. . . . The small depositor will get over his apprehension and cheer up—[a] better order and greater safety for depositors can come only through a wholesome purging.” Norbeck heard that same view directly from his constituents as well. “Feel that your exposure of malpractice by banks is doing great good,” one person wired him. “Must come sooner or later. Keep it up. To discontinue now would be unfair to public.”7

  To the extent that there were Mitchell defenders—and they were getting harder and harder to find—they took pains to point out that however unseemly the disclosures might appear to be, they were common, if not accepted, practices in the 1920s. James Paul Warburg, a member of the Warburg banking dynasty who worked closely with Roosevelt early in his administration, said that Mitchell and other bankers “made money hand over fist for themselves and did things which are now considered immoral, but which, in the days when they did them, were not uncommon. We were still living in pretty much the jungle rule in Wall Street.”8

  It was more than just a change in standards, however; the truth was that none of the acts that were causing so much anger were illegal. That was certainly true as far as City Bank’s banking and securities-selling practices were concerned. Affiliates were permissible under federal law, no federal laws required disclosures in securities offerings or prohibited participation in pools, and the bank had broken no laws in paying bonuses. Financing the affiliate’s trading in the bank’s stock skirted the line, but it too was probably technically permissible. Even Mitchell’s tax sale may have been lawful. This kind of wash sale was apparently quite common at the time and, if it was shown that Mitchell acted in good faith, relying on the advice of his lawyer in structuring the transaction, he would not be criminally liable for tax evasion. Trying “to inflate such a charge to the heights of dastardliness,” one financial newspaper noted, “is overdoing things in a fanatical sense.”9

  That defense, however, was really no defense at all. “The reason there are no laws against such things,” Business Week explained, “is that no lawmaker ever imagined such laws might be necessary.” Indeed, the magazine wondered “if the imagination of Congress ever can anticipate all of the queer things certain types of bankers can think of during the infection of a boom.” From day one, Pecora said he was trying to provide a sound framework for necessary federal legislation. Doing that required the investigator to show just where current law was inadequate. “If some of the practices disclosed are not in violation of the law,” the editors at the Baltimore Sun wrote, “then so much the worse for the respect in which law should be held. The country would like the practices and the law to be examined jointly. . . . The Senate’s committee should plug away until the whole story is unfolded.”10

  The continuing furor over the City Bank testimony was fueled in part by Senator Burton Wheeler, who took his scathing attack on bankers from the Senate floor to the national radio waves. Mitchell and his colleagues, he said, “shocked the moral conscience of the entire nation.” The investigation wasn’t destroying public confidence, he argued, not for the long haul anyway. “[N]othing will restore confidence in our banking structure,” Wheeler told his audience, “more promptly than demonstrated proof that we have a government that has the courage and integrity to prosecute with equal vigor these malefactors of great wealth as well as the humbler offenders.” After the crash, Mitchell had been derided for his foolish optimism, but the week’s revelations were more than simply an attack on his judgment. “An adventurous American people,” Wheeler explained, “will not criticize too harshly mistakes of judgment, or even unwise speculation, but they will not condone the violation of a fiduciary trust. These men, trusted by their depositors, stockholders and investment clients, traded on that sacred confidence to their own profit and to the ruin of those who trusted them.”11

  The attention the City Bank hearings garnered was hardly surprising, what with Wheeler’s continuing attacks and the week’s dramatic revelations unfolding as they did against the backdrop of that ever worsening banking crisis. Room 301 had become the crucible in which the American economic system was being tested. “Capitalism,” the editors at the St. Louis Star-Times wrote on Friday, “is on trial for its life.” As compelling as that story line was, there was more to the media’s fascination with the hearings. It was the man who was prosecuting capitalism. Reporters already were captivated by Pecora, who they viewed as simply “splendid.” The first week of hearings, Newsweek wrote, was “four packed days of crackling testimony on the boom-time practices . . . pieced together by the Committee’s sharp-witted counsel, Ferdinand Pecora.” With a nod to the ongoing Japanese invasion of China, the Washington Herald remarked that “Mr. Ferdinand Pecora goes through the National City Bank like a Japanese tank through the Great Wall of China. How vulnerable the famous ‘Wonders of the World’ are, after all!”12

  Americans have always loved a good underdog story, and reporters knew that this had the potential to be a great one. It was a story about class and ethnicity in the United States, a story about who wielded power in American society in the 1920s and about how that power was shifting right before everyone’s eyes.

  Part of the fascination was simple novelty. An Anglo-Saxon Protestant
lawyer conducting the same examination as Pecora would not have been nearly so compelling. Nor would there be anything particularly unusual about a stellar performance by a Jewish lawyer. Although anti-Semitic views were likely far more durable at the time than anti-Italian ones, Jewish stereotypes tended to coincide with legal aptitude. There were plenty of precedents for outstanding Jewish lawyers. Samuel Untermyer, after all, had cross-examined Morgan twenty years earlier and remarkably, given Pecora’s commanding performance, Untermyer continued to lobby to take over as committee counsel. On Saturday, he wired Norbeck claiming (inaccurately) that in those earlier hearings he had “uncovered” City Bank’s affiliate and that he “repeatedly denounced [affiliates] as unlawful and dangerous and vainly sought to suppress them in their infancy.” In a national radio speech, Untermyer delivered a “scathing indictment” of the Stock Exchange and the House of Morgan. It seems amazing to think that after that first week, Untermyer could have seriously believed he still had a shot at becoming counsel once the new Congress was in session, but Pecora was in fact far from assured of keeping his job. One Democratic member of the committee reportedly reached out to the incoming administration to tell them that if Roosevelt requested it, the committee would retain Untermyer.13

  Other Jewish lawyers, like Max Steuer, had established nationwide reputations as courtroom magicians. Steuer was considered the greatest trial lawyer of the day, the man to call when you were really in trouble. He had just obtained convictions as a special prosecutor in the Bank of United States scandal, and that victory led Norbeck’s staff to float his name as a potential replacement for Gray. Some columnists, in fact, were still spreading rumors that Steuer, who was looking to take on more public-oriented work now that he was near the end of his career, was interested in the job and would take it once the new Congress convened. A blockbuster performance by Steuer would have surprised almost no one, although there is little doubt that his appointment would have engendered a fair number of anti-Semitic letters to the committee. But who had ever heard of an Italian lawyer?14

  Pecora’s performance was surprising not only because there were so few Italian lawyers but because it played so strongly against the prevailing stereotype of Italian Americans as lazy, unintelligent, and ungovernable criminals. There was no shortage of irony in the public spectacle of a theoretically lawless Sicilian demonstrating the pervasive lawlessness and chicanery of the Anglo-Saxons who ruled the banks and investment houses. It was an irony that reporters were not shy about discussing explicitly. One called the lawyer a “Sicilian immigrant boy.” Another remarked on the “primitive faunlike quality in this native of the Italian soil, brought face to face with many scions of the Anglo-Saxon socially [sic] elite.” And when politicians as diverse as Montana’s progressive senator Burton Wheeler and President Hoover searched for an analogy to explain their outrage over Mitchell’s behavior, they almost invariably invoked the symbol of Southern Italian lawlessness—Al Capone.

  However ironic in the context of the Pecora-led hearings, the analogy was natural at the time. Capone was the criminal archetype of the day; for many he was the representative Italian American, and he was a rhetorical favorite of politicians and writers everywhere. One magazine said that Capone was a “bungler by comparison” to Mitchell. When, later that year, Hugh Johnson was promoting the National Recovery Act, he derided the businessmen who opposed it. “Al Capone,” he told his audience, “was a poor ignorant Sicilian piker next to these rugged individualists who wanted to prolong the dark ages of human relationships.” In reality, Capone was born in Brooklyn, the son of Neapolitan parents, but those facts hardly mattered. Johnson, no doubt, assumed Capone was from Sicily, just one more indication of the durability of the stereotype of Sicilian lawlessness.15

  The ethnic role reversal brought glee to some, but engendered anger in quite a few others. An outraged citizen wrote to the committee: “In ‘his country’ that he brags so much about, this Sicilian peasant would be clapped in jail for the part he has played in undermining the price of peoples [sic] stocks. Why such scum is allowed among decent men shows the low hirelings who are paying him.” When J. P. Morgan Jr. famously came before the committee in May and June 1933 he was publicly polite, but in private he excoriated Pecora as a “dirty little wop” and “2nd-rate criminal lawyer.” Thomas Lamont, Morgan’s partner and the real leader of the firm, complained that the hearings were just a “Spanish Inquisition” run by a “young native Sicilian counsel, Ferdinand Pecora.” Even the senators weren’t immune. Two of Carter Glass’s former assistants at Treasury were Morgan partners, and Glass and Pecora had a very public and very heated row over the lawyer’s tactics during those hearings. “Glass is a Virginia aristocrat,” Business Week wrote about the spat, “though he lacks the tolerance and urbanity supposed to go with it. And this young Italian immigrant heckling the loved and revered partners of two of his best friends does not sit at all well with him.”16

  Ultimately, Pecora’s masterful performance did little to purge those lingering stereotypes. While much of the press coverage of his work as counsel was complimentary, it remained laced with the stereotypes of the day. A Barron’s profile of Pecora opened with the line “Ferdinand Pecora is a Sicilian who brought to American citizenship that dramatic instinct characteristic of the Latin race; but added to it in a somewhat larger measure than is frequent—a good brain.” Untold articles described him as “swarthy.” The Boston Globe noted that he had “all the vivacity of his race,” and many others wrote about his “sunny” disposition, which, according to the Christian Science Monitor, did “not have any of the Anglo-Saxon somberness or severity.” One commentator offered that his mixture of Sicilian birth and Protestant religion was “a good combination of potential vindictiveness and austerity.”

  Maybe it wasn’t surprising that newspapers traded in those stereotypes, but Pecora couldn’t even change the views of those who saw him up close. Even Pecora’s former boss and good friend, Joab Banton, in an effusive article praising Pecora’s legal abilities, treated Pecora as something of an anomaly. “Pecora,” he wrote, “is a splendid example of the salutary effect of American life upon the artistic temperament of an Italian-born person.” Norbeck never really got past his preconceptions of “Latins” as lackadaisical and unintelligent. Pecora had been putting in sixteen- to eighteen-hour days under brutal time pressures, but Norbeck still confided in a colleague that the lawyer was “a man who does not work in an orderly way in his office, but is very good in presenting things when he gets them thoroughly in his mind. . . . I knew he was phlegmatic and took life rather easy—that is apparent from his looks, considering his age.” The stereotypes were simply too hard to shake in such a short time.17

  Still, something transformational was clearly taking place in Room 301. One could almost feel the power and prestige slipping from the Anglo-Saxon financiers who dominated Wall Street.

  Many in the Financial District were quite naturally angry, not at Mitchell and Baker, but at their accusers. Quite a few Wall Street denizens thought that the men had been handled too roughly and there was more than a little empathy for the fallen bankers. Many said, at least off the record, that they thought the Washington investigators made Mitchell the scapegoat for the crash and the Great Depression. It was a claim that would get repeated over the years by a host of Pecora’s critics. But it wasn’t Pecora who drew that causal link; the media had been critical of Mitchell’s unalloyed optimism for years. And if anyone in Washington was scapegoating Mitchell, it wasn’t Pecora. Senator Carter Glass, the man who took such pains to keep personal accusations out of his own hearings on banking reform, was the first to hurl that charge against Mitchell. “That man more than forty others,” Glass charged shortly after the crash, “is responsible for the present situation.”18

  Pecora was certainly not shy about showing all the reckless, inappropriate, and imprudent actions that Mitchell and others at City Bank had taken, but he always treated Mitchell and his ilk as prime examp
les of what was wrong in commercial and investment banking, not as the single cause for the dire state of the economy. That was certainly the way that most commentators at the time understood the testimony. No one seemed to view the City Bank disclosures as isolated incidents that in and of themselves caused the crash or the Depression. Mitchell was not an aberration; he was representative of bankers as a class.

  “This is a sample,” the Philadelphia Record opined, “of the scruples exercised by the group that whooped up the stock market boom, diverted credit from legitimate business, exercised a controlling hand at Washington, and took the American people for the greatest buggy ride in their history during the last decade.” Mitchell was emblematic, according to a St. Louis newspaper, of the “dominant type of American financial overlord. He is one of those upon whom the United States has relied for guidance, for ethical standards. He is one of the handful for whom our laws are written, by whom our institutions are moulded. He is an owner of America. What Mr. Mitchell has done, others have done.” Mitchell’s testimony condemned “the whole superstructure of American finance.”

  Pecora had shown that the problems in banking were not limited to smaller banks like the Bank of United States; they went right to the top of the banking structure. That tone at the top, some argued, was actually what caused the problems in the other financial institutions. Out in South Dakota, a paper called Public Opinion argued that Mitchell, “as the executive head of one of the greatest banks in the world, was presumed to be of that type of banker and financier in which the public might place absolute confidence. . . . When the greatest of the great was indulging in this sort of manipulation, it is small wonder that exaggerated and aggravated examples of the same scheming were undertaken by thousands of little fellows throughout the nation. The force of example is tremendous.”19