The Hellhound of Wall Street

by Michael Perino

  “No, I hope you’ll admit I had nothing to do with that,” Schoepperle replied.

  Schoepperle went on to explain: “The state of prosperity of any Indian population is always rather low, because, as you know, they do not hang onto anything very long.”

  It was some evidence of the ethnic undercurrents in the hearing room—the clash between the olive-skinned Italian American prosecutor and the Anglo-Saxon bankers—that Pecora got a huge laugh when he replied: “Why do you say I know? I am not an Indian.”

  After the laughter subsided, Schoepperle continued to explain the “notorious” consumption habits of the indigenous Peruvians. Although, he said, there “were some very fine elements” in Peru, he concluded that “a population of that sort is not an especially good moral risk, looking at it from a broad point of view.”15

  The ease with which the two men casually dismissed an entire population is jarring to modern ears, just as jarring in fact as the reporters’ comments about Pecora possessing the dramatic instincts of his race or having an unusually good brain for an Italian. Equally shocking are pictures of Pecora from the same time period in black face, performing in minstrel shows. He appeared in his first minstrel performance as a child at St. Peter’s and he continued those performances well into the 1930s.

  But Pecora was not a racist, at least not by the conventions of the day. Amos ’n’ Andy (in which two white performers played stereotypical black characters) remained among the most popular radio shows on the air in the 1930s and white performers like Eddie Cantor, Fred Astaire, Judy Garland, and Bing Crosby appeared in blackface into the early 1940s. The truth was that Pecora’s own upbringing and his own struggles to overcome Italian American stereotypes had made him unusually sensitive to racial injustices. During World War II, he was chairman of the Legion for American Unity, an organization of naturalized and first-generation Americans who spoke out against racial discrimination and mistrust. “The social snob,” he said at that time, “amuses me; the intellectual snob bores me; the racial snob enrages me.” His denunciations of racism in the 1940s were hardly novel; he had been publicly denouncing racial prejudice for a decade. Throughout his legal career, he seemed to exhibit little personal prejudice. As a neophyte prosecutor he had gone out of his way to undo the wrongful prosecution of the young Malcolm Wright. The staff he hired for the Senate hearings was a cross-section of many of New York’s immigrant communities.16

  To some, Monday’s testimony was anticlimactic, but Pecora professed to be more shocked by these disclosures than anything else in the City Bank testimony. “There was a callous disregard,” he recalled some thirty years later, “of the truth when they offered these bonds to the American investor, a complete and callous disregard of it, that even as I reflect on it now continues to shock me.”

  The senators were mostly quiet on Monday; they seemed to have realized that it was better to simply stay out of the way and let Pecora handle the hearings. The committee members, however, shared his shock and made frequent off-the-record comments that this behavior had to be stopped. In fact, one committee member confided that his own bank had “been misled into buying these Peruvian bonds.” If Pecora was trying to create a climate in which reform legislation could pass, he certainly seemed to have succeeded. “I venture to say,” Pecora went on, “that without being confronted with this record, you never dreamt that such low ethics, to use a charitable term, would be displayed by important investment banking houses in their dealings with the American investment public.”17

  Former customers of the company echoed those conclusions. Chauncey Overfield of Salt Lake City purchased some of the Peruvian bonds and he praised Pecora’s “skilled examination.” Overfield bought the bonds because he had “confidence in the integrity of the once high standing National City Bank.” He thanked Pecora for all that he had done and was sure that his own expression of gratitude would be “voiced by thousands of others who have been duped in the same manner as I have been duped.”18

  The liberal media shared Pecora’s outrage, which of course only increased the pressure for reform legislation. “As a journalist of twenty-six years’ experience,” Oswald Garrison Villard wrote in the Nation, “I have never recorded any wrongdoing of the representatives of banks, insurance companies and other large corporations that has seemed to me more outrageous than the facts revealed . . . on the witness stand.” Villard, not surprisingly, bought wholeheartedly into the need for federal legislation. “In England corresponding misrepresentations would mean jail for the banking sponsors. But in this country the investor will have to content himself with their expressions of regret and confessions of ‘honest error’—after exposure.” Even the conservative press was disturbed. They never quite called for legislation, but they concluded that the disclosures required condemnation and punishment “if bankers as a class are to avoid designation by a bitterly cynical word occasionally heard last week, ‘banksters.’”19

  It didn’t seem possible, but by the end of the day on Monday, the banking system had grown even more precarious. Pennsylvania and Indiana authorized banks to restrict withdrawals. Banks in nearly twenty Indiana cities and towns immediately did so; now depositors could withdraw only 5 percent of their deposits. With the limitations imposed over the weekend in Ohio, depositors rushed to the banks to get what little money they could. “All day in the Union National Bank bedlam reigned, with hundreds in line clamoring for money,” a lawyer watching the scene in Youngstown wrote. “There was no violence but I saw one woman faint.” As in any economic calamity, some people sensed a profit-making opportunity and swooped in to take advantage of it. With the onset of the banking crisis, a lively secondary market developed for savings account passbooks. Speculators bought the passbooks from desperate account holders for seventy-five, or fifty, or even twenty-five cents on the dollar—the price contingent on how desperate the depositor was and how unlikely it was that the bank would ever reopen. Ohio newspapers listed passbook quotations right next to the ever falling stock and bond prices.

  The week before, Treasury officials were alarmed when tens of millions in aggregate flowed out of the banks each day. On Monday, nearly $200 million came out of circulation, a figure that was matched or exceeded each day over the next three days. Some banks were so beleaguered that they demanded that Washington send money by airplane to prevent their imminent collapse.20

  In that first week of hearings William Woodin told Roosevelt that the bankers were “hysterical.” On Monday, the incoming president saw it for himself. He received a panicky letter from Morgan partner Thomas Lamont, urging him to cooperate with Hoover to quell the banking crisis, which was “far more critical than I had dreamed. I believe in all seriousness that the emergency could not be greater.” Lamont begged Roosevelt to consider the human cost of the crisis and he hinted that American civilization and American government might not survive the strain. “It is impossible to contemplate the extent of human suffering, and the social consequences of a denial of currency and credit to our urban populations. Urban populations cannot do without money. It would be like cutting off a city’s water supply. Pestilence and famine would follow; with what consequences who can tell?”

  It was not enough; even with the leaders of Wall Street predicting the imminent collapse of society, Roosevelt refused to act until he actually held the reins of power. Besides, Roosevelt saw Lamont’s missive not as an urgent request to save society, but as a thinly veiled appeal to bail out the bankers, a job Roosevelt had no desire to undertake. Roosevelt didn’t see any reason to rescue the bankers; he wanted, he told his aides, “to save the folks.”21

  And the folks, he probably reasoned, could manage for a few more days. Some would panic; the long lines outside banks showed that better than almost anything else. There were tales of hysteria—one family thought it was safer to tape cash to their child’s chest than to keep it in the bank. But in the short term most people would do what they had always done in times of crisis—they would adapt. In Minn
esota, ministers agreed that they would not pass the collection plate on Sunday. Mary Eloise Green, a young teacher in West Liberty, Ohio, wasn’t getting paid because the local school board couldn’t access its money. But at least in the short term she neither froze nor starved. The landlord, the coal man, and the grocer all extended her credit. She was grateful, but she knew that “none of those people could have gone on indefinitely.”

  Bartering, which had taken hold in many places as the Depression worsened, flourished during the banking crisis. A man in Salt Lake City paid for a trolley ride with a pair of pants, fortunately not the pair he was wearing. Ten bushels of wheat were good for a year’s subscription to a Montana newspaper. The promoter of the Golden Gloves boxing matches in New York announced that fifty cents, or anything worth fifty cents, would buy a seat in the balcony. Patrons brought neckties and hams, spark plugs and hot dogs, and even a Bible. In Bronx Traffic Court, twenty-eight people bartered their time—they chose to serve a one-day sentence instead of paying fines, some as low as $2.

  Banks that were still open kept a great deal more cash in their vaults to meet the expected crush of withdrawals, and extra police were dispatched throughout the country to prevent robberies. The legendary bank robber John Dillinger managed to steal over $50,000 from an Iowa bank during the crisis, but another would-be robber in Arkansas was thwarted. The bank was so crowded with depositors trying to withdraw their money that the robber could not keep track of everyone. One customer slipped away and warned the sheriff, who promptly arrested the holdup man. “I never got a break in my life,” the frustrated robber complained. While some of the stories are amusing, at the time it could not have been pleasant. Those late winter days were fraught with worry, uncertainty, and fear. But it was hardly the doomsday Lamont predicted, at least not yet.22

  With most Americans muddling through, Roosevelt could wait a few more days to act. On Monday night, however, while three hundred miles to the south Pecora sat in his modest room at the Hotel Continental poring over briefing memos and exhibits, Roosevelt set to work on his Inaugural Address. Raymond Moley had been working on a draft for weeks, and at nine o’clock the two men closeted themselves in the library at Springwood, Roosevelt’s Hyde Park home, to revise it. It was a cold night, and the wind rattled the bare branches against the windows, but a roaring fire warmed the room where the two men worked. Moley sprawled on the long couch in front of the fire while Roosevelt sat in a favorite chair at a card table. Spread before him were Moley’s draft, a yellow legal pad, and Lamont’s letter. The two men sipped whiskey as they revised the draft, shaping and crafting the phrases, sometimes debating each word, trying to pick just the right ones for the new president to offer on that momentous occasion, now less than a week away. As they spoke, Roosevelt wrote out in longhand the now reworked speech, at one point asking Moley, “How do you spell ‘foreclose’?” At around eleven, Moley took a moment to scribble a note to himself: “A strong man F.D.R.”

  Moley’s draft had included a biblical reference. “As the money changers were driven from the temple,” he wrote, “so it behooves us to restore moral values by driving out—material standards.” It was a call to reshape the very fabric of American society, and Roosevelt was unhappy with it. He decided to replace it with the line that had come to him the day before in church. After the shocking practices Pecora uncovered, the weekend’s overtures from City Bank about Mitchell’s resignation, and Lamont’s plea, Roosevelt wanted to sharpen that reference considerably. He didn’t want a general reference to long-ago money changers; he wanted a specific reference to current ones, although he was unwilling in the address that would set the tone for his presidency to name names. “The philosophy of the money changers,” he wrote, “stands indicted in the court of public opinion, rejected by the hearts and minds of men.”

  Roosevelt signed his name to the draft speech at one thirty Tuesday morning. Moley, who understood the historical significance that hung over their work that evening, had been trying to choreograph the perfect ending, and his moment had now come. Picking his draft up off the card table, he walked to the fireplace and tossed the sheets into the still hot embers, where they curled and blackened. “This,” he told the man who most everyone fervently prayed would lead the country out of depression, “is your speech now.”23

  Chapter 14

  DAY EIGHT: SHORN LAMB

  Louis Howe, Roosevelt’s closest political adviser, was so small and homely that he sometimes called himself the Medieval Gnome. He was a frail and sickly man with such severe asthma and bronchitis that his spasmodic and uncontrollable coughing often left him nearly unable to breathe. After years of these violent episodes, he was forced to constantly wear a brace to prevent further damage to his ravaged body. His face was pockmarked and scarred from a childhood bicycle accident that had permanently ground gravel into it. He weighed under a hundred pounds, and his baggy clothes hung loosely from his scrawny body, no doubt dusted with ashes from the Sweet Caporal cigarettes he incessantly smoked, doing nothing to improve his ragged cough. All in all, it would be hard to identify a more unprepossessing or fragile man, or one who had such unswerving loyalty to Franklin Roosevelt. It was Howe who, in 1912 as a reporter covering Albany for the New York Herald, first identified a young state senator with a famous last name as a man who could be president, and for the next two decades he unrelentingly worked to make that dream a reality.

  Howe’s devotion, however, could make him jealous of newcomers to the Roosevelt camp, and compared with him, everyone was a newcomer. After Roosevelt won his party’s nomination in Chicago the previous July, Howe, who had been prostrate for days in his sweltering hotel room, spent the night feverishly rewriting the acceptance speech that Moley and his fellow Brain Trusters had been polishing for weeks. Howe could talk to Roosevelt like no one else, and when the candidate arrived in Chicago he insisted that his speech be used instead: “It is much better than the speech you’ve got right now. You can familiarize yourself with it while you ride to the convention hall.”

  Roosevelt was uncharacteristically angry: “But dammit Louis, I’m the candidate.” Realizing immediately that he had wounded his most loyal aide, Roosevelt rectified the situation in classic fashion—he seamlessly substituted Howe’s first page for the first page of the previous draft.

  Unlike Moley, Howe wasn’t quite ready to turn possession of the Inaugural draft over to Roosevelt. On Tuesday morning, February 28, just hours after Roosevelt and Moley had finished their work, Howe began to edit the speech. But this wasn’t just the intermeddling of a needy underling. Howe had spent over forty years as a writer, editor, and political operative, and he could turn a memorable phrase. Howe was an inveterate newspaper reader, and so he was no doubt closely following Pecora’s handiwork in Washington. As Howe dictated the entire handwritten draft to a stenographer, he added a slew of new sentences and provided additional bite to existing ones. He apparently, for example, thought the reference to the “philosophy of the money changers” was too soft and he changed it to the “practices of the unscrupulous money changers.”

  Howe focused most of his energy on the initial paragraphs of the Inaugural Address. Roosevelt, Howe thought, should start with a direct declaration of how he intended to speak to Americans that morning—with candor and without condescension. “This is preeminently the time,” Howe dictated, “to speak the truth, the whole truth, frankly and boldly.” Lamont was hardly alone in predicting the potential imminent demise of American civilization, so Howe thought Roosevelt needed to make a bold and confident prediction about the future: “This great Nation will endure as it has endured, will revive and will prosper.” Howe then gave the speech its most memorable line, one that Americans could believe coming from the man who had faced Zangara’s assassination attempt with such aplomb. “So first of all let me assert my firm belief,” Howe dictated to the stenographer that morning, “that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyz
es the needed effort to bring about prosperity once again.”

  Roosevelt kept most of Howe’s changes, but he balked at the conclusion of Howe’s warning to resist the “paralyzing” effects of fear. It was a line that hit close to home for the incoming president, and he changed it, both to make it broader and to project the vision of mobility and progress that was so important to him. Fear, Roosevelt wrote on his typewritten copy of the speech, paralyzed “needed efforts to convert retreat into advance.” The call to arms to wage war against the Great Depression, the promise of “action, and action now,” and the indictment of Wall Street’s elite leaders that would so arouse the Inaugural crowd in Washington on Saturday morning was now largely complete.1

  As the eighth day of testimony began, Pecora was not quite ready to leave his Latin American excursion. He moved from Peru to Brazil, specifically the state of Minas Gerais (spelled Geraes at the time), a state in the south-east of the country where a good deal of Brazil’s major export crop, coffee, was grown. The two Minas Geraes bond offerings, which collectively totaled $16.5 million, had been one of Mitchell’s pet projects. They were the Brazilian state’s first bond offerings in the United States and they looked as though they were going to be the last. They were currently in default and selling for about twenty cents on the dollar.2

  In the witness chair to discuss those offerings was Ronald Byrnes, the former head of the foreign bond department at National City. Byrnes was one of the country’s many unemployed; he had been out of work for almost two years. Pecora diplomatically asked if he was retired, to which the sardonic Byrnes replied, “You may call it that.”3

  As he did with the Peruvian bonds, Pecora quickly homed in on the language of the prospectus. The document was brief, but one of the things it seemed to be quite clear on was what Minas Geraes was planning to do with the money it raised. “The proceeds of this loan,” the summary on the first page of the prospectus read, “will be utilized for purposes designed to increase the economic productivity of the State.” It was just what a bond buyer would want to hear. If the state were more productive, it would be that much easier for it to pay back the loan it was getting.