Nothing to Fear

by Adam Cohen

  Hoover was besieged by demands to take some kind of action. True to his ideology, and his experience as food administrator, he believed the private sector should solve the problem. Hoover initially proposed that the banks get together and pool their assets, so the stronger ones could rescue the weaker ones. The privately operated organization that the bankers set up at his instigation, the National Credit Corporation, quickly proved inadequate to the challenge of saving the nation’s ailing banking system. Hoover learned how difficult voluntary action would be when he tried to set up a fund to save the failing Bank of Pittsburgh and his own treasury secretary, Andrew Mellon, himself a Pittsburgh banker, refused to contribute.8

  With banks continuing to fail at an alarming rate, in 1932 Hoover yielded to congressional pressure and established the Reconstruction Finance Corporation. The RFC, which began with $3.5 billion in government funds and borrowing capacity, was authorized to lend money to troubled banks, mortgage companies, and other financial institutions that were able to provide adequate security. The RFC got off to a promising start, helping to shore up banks, particularly ones in small towns. Ultimately, though, it proved ineffective. One problem was that the RFC was required to publish the names of its borrowers. Many struggling banks did not apply for help because they feared being publicly identified. Hoover’s bad luck continued with his choice of Chicago banker Charles Dawes, who had served as vice president under Coolidge, to be the RFC’s president. When Hoover vetoed the bonus for war veterans, Dawes had called him a hero for resisting the “dole principle.” It was, as a result, embarrassing when, weeks after Dawes resigned, it came out that a bank he headed had received a $90 million RFC loan. Critics joked that RFC stood for “Relief for Charlie,” and argued that Dawes’s double standard proved that the Hoover administration cared only about helping the wealthy.9

  With the federal government flailing, states began to act on their own. In October 1932, Nevada’s governor declared a bank holiday when the state’s banks found themselves without enough funds to meet depositors’ withdrawals. Louisiana followed in early February 1933. It was Michigan’s banking crisis that same month, however, that started the nationwide panic. Like most things in Michigan, the banks were closely tied to the automobile industry. When the Depression struck, workers in the hard-hit automobile industry began depositing less and withdrawing more, straining the banks’ liquidity. At the same time, more borrowers were failing to make their mortgage payments, and the banks found themselves with property as collateral that they could not sell. With every week that passed, it became harder for the banks to remain solvent.10

  The Hoover administration asked Henry Ford to help a large, troubled Detroit bank by freezing his sizable deposits, but he refused. Ford had little sympathy for the banks, which he believed had brought on their own troubles. He had also long nursed a grudge against New York banks, which he believed were out to get him. Two top administration officials came to Dear-born to make a personal appeal, telling Ford that the state’s banks were on the verge of failing, endangering one million deposits that supported three million state residents. If Michigan’s banks failed, they warned, other states’ banks would likely follow. “Let the crash come,” Ford is said to have replied. “Everything will go down the chute. But I feel young. I can build again.”11

  When Ford did not come through, Governor William Comstock declared an eight-day bank holiday, closing 550 banks, on February 14. Michigan residents reacted calmly to “Comstock’s Valentine,” as the press dubbed it. Detroit paid city workers with the money it collected from railway fares, and other employers were equally resourceful. While Michigan adapted, bank customers in other states, who were still able to withdraw their deposits, panicked. “The news from Michigan jangled the American System from center to periphery,” historians Charles and Mary Beard observed. On February 21, New Jersey restricted payments, and two days later, Indiana declared a bank holiday. On February 25, Maryland declared a bank holiday, followed in quick succession by Arkansas, Ohio, Alabama, Kentucky, Tennessee, and Nevada. The nation’s anxiety level rose with each new declaration. “Urban populations cannot do without money,” Thomas Lamont, a partner of J. P. Morgan, warned. “It would be like cutting off a city’s water supply.” In states where the banks remained open, currency and gold were being withdrawn at such a rapid rate that the system would not be able to survive for long. Demands for the federal government to act were growing more strident. “The credit structure of the U.S. is a disgraceful failure,” William Gibbs McAdoo, Woodrow Wilson’s secretary of the treasury, who had just been elected senator from California, declared. “Our entire banking system does credit to a collection of imbeciles.”12

  Hoover, who was bitter over his electoral defeat, was not up to handling the crisis. It seemed to Eugene Meyer, the chairman of the Federal Reserve Board, that the lame-duck president had gone “into a tailspin mentally—emotionally.” The final weeks of his administration were, Meyer recalled, “a period of going along as best you could from day to day, knowing that you weren’t getting anything but black looks in the White House.” Hoover did not believe it was necessary to close the banks that remained open. He was also getting conflicting advice. His banking advisers were recommending that he declare a national bank holiday, invoking his authority under the Trading with the Enemy Act, a World War I-era law that authorized the president to regulate transfers of gold and currency. Hoover’s attorney general, William D. Mitchell, doubted that the law gave him the authority to do so. Hoover decided that if he was going to do anything with lasting impact he needed to have Roosevelt’s support. His efforts to enlist it, however, were ham-handed. He wrote a letter to Roosevelt during the Michigan bank holiday, in which he suggested that Roosevelt’s election had produced a “steadily degenerating confidence in the future.” After that insult, Hoover told the man who had defeated him that they should work together—on Hoover’s terms. To restore the nation’s confidence, he insisted, Roosevelt would have to promise to balance the budget, remain on the gold standard, and adopt an array of other conservative prescriptions. Hoover admitted he was trying to maneuver Roosevelt into accepting policies the voters had just rejected. “If these declarations be made by the President-elect,” Hoover wrote in a letter to Senator David Reed of Pennsylvania, “he will have ratified the whole major program of the Republican Administration” and that would require “abandonment of ninety per cent of the so-called new deal.”13

  Roosevelt received Hoover’s handwritten letter on the night of February 18, while he was attending the Inner Circle dinner, an annual gathering of reporters and politicians, at New York’s Astor Hotel. Roosevelt did not pull himself away from the night of drinking and humorous skits to respond, and he would not answer for eleven full days. Roosevelt called Hoover’s letter “cheeky,” but it was not just its presumptuousness that put him off. Roosevelt was wary of squandering his political capital by joining forces with his unpopular predecessor. It made more sense, Roosevelt believed, to wait until after he had taken office, and a new, more Democratic, Congress was in place. During these panic-stricken days, when the future of the banking system was in serious jeopardy, Roosevelt remained calm, and confident that everything would work out. “It was Will Woodin and I who tore our hair over the reports of the mounting gold withdrawals and the growing number of bank suspensions and who sat up night after night pondering the possible remedies,” Moley would later recall. “Roosevelt went serenely through those days on the assumptions that Hoover was perfectly capable of acting without his concurrence; that there was no remedy of which we knew that was not available to the Hoover Administration . . . and that, until noon of March 4th, the baby was Hoover’s anyhow.” Hoover tried again, in his final days as president. He was willing to overcome his reluctance and declare a national bank holiday starting on March 3, he said, if Roosevelt would agree to call Congress into special session on March 5 to ratify the decision. The state of the banks was undeniably worsening. In the previous w
eek, another $732 million had drained out of the reserves, much of it ending up under mattresses or in overseas bank accounts. Roosevelt did not oppose the bank holiday, only the idea of joint action. He suggested that Hoover declare his own holiday until Saturday noon, the end of his own term in office.14

  Hoover did not give up. He and Mrs. Hoover invited the Roosevelts to the White House the afternoon before the inauguration, as protocol dictated. When Roosevelt arrived with Eleanor and James for four o’clock tea, Hoover was waiting with his treasury secretary, Ogden Mills, and the chairman of the Federal Reserve Board, Eugene Meyer. Roosevelt felt he had been ambushed. “Father told me later that Mr. Hoover’s ringing in of Ogden Mills at this meeting was one of the damnedest bits of presumption he ever had witnessed in politics,” James later recalled. Roosevelt called in reinforcements, summoning Raymond Moley, who had been napping at the Mayflower Hotel. The discussion of the crisis, which lasted over an hour, ended in deadlock. For the last time, Roosevelt refused to be drawn in.15

  Roosevelt invited Hoover to take his leave. There was a tradition that the outgoing president return the visit of the incoming president, but Roosevelt told Hoover that he should not feel obligated to do so. It was a considerate gesture, which was shot down sharply. “Mr. Roosevelt,” Hoover said, “when you are in Washington as long as I have been, you will learn that the President of the United States calls on nobody.” James later said he had wanted to punch Hoover in the nose. Roosevelt was offended by Hoover’s manner that day, and over the previous few months. He “was not prepared to be treated like a schoolboy, or to have his own integrity thrown into question,” Roosevelt’s secretary, Grace Tully, said. With this final standoff, the matter appeared settled. Hoover would do nothing, and Roosevelt would inherit a failed banking system. “In all history there have been few such ironic coincidences,” noted journalist Ernest K. Lindley, “as this collapse of an economic order in the last minutes of its zealous guardianship by the man who thought it fundamentally perfect.”16

  The man responsible for coming up with a solution to the banking crisis for Roosevelt was William Woodin, the incoming secretary of the treasury. Woodin had not been the first choice for the job. Roosevelt had offered it to Senator Carter Glass, the courtly Virginian who had helped create the Federal Reserve System in 1913, and who was the Democrats’ leading expert on banking. But the seventy-five-year-old Glass, who had already briefly served as treasury secretary in the Wilson administration, was not eager to leave the Senate. He made clear that he would not join the Cabinet to promote an economic agenda he disagreed with. Glass told Moley, who was coordinating the search, that he would only accept if Roosevelt committed to remaining on the gold standard. Like many fiscal conservatives, Glass believed that going off gold would lead to dangerous rates of inflation and destroy business confidence. In his public statements, Roosevelt had supported the 1932 Democratic Party platform, which had called for “a sound currency to be preserved at all hazards.” But in private, his views were less firm, and he was under intense pressure from his Farm Belt supporters to adopt an inflationary monetary policy, which farmers believed would get them out from under their crushing debt loads. Roosevelt had not decided whether or not to abandon the gold standard, but he knew he did not want a Treasury secretary who would lock him into one side of the issue. Glass also told Moley he would want to be able to name his own staff, including a J. P. Morgan & Company partner as his deputy. This demand, too, was unacceptable to Roosevelt. “We simply cannot go along with Twenty-three,” Roosevelt told Moley, a reference to Morgan’s address at 23 Wall Street. “If the old boy doesn’t want to go along, I wouldn’t press it.”17

  Moley had decided back in January that if Glass did not take the job, Roosevelt should offer it to Woodin, a lifelong Republican who would be almost as reassuring to Wall Street as Glass would have been. Woodin was the president of American Car & Foundary, the largest railroad equipment company in the world, and the successor to a company his grandfather had founded. A pillar of the Eastern Establishment, he served on twenty-one corporate boards and was a member of the Republican Union Club of Philadelphia and the Union Club of New York. Woodin was widely regarded as an economic traditionalist. “Woodin is big business,” BusinessWeek declared, “holding all the orthodox views about sound money, guarantee of bank deposits, and a balanced budget.” At the same time, he was firmly in the Roosevelt camp. He had broken with his party to support Al Smith in 1928, and in 1932 he had endorsed Roosevelt early and given $35,000 to his campaign. Woodin was not only a political supporter of Roosevelt, but a personal friend who served on the board of the Warm Springs Foundation. One of his biggest selling points was that unlike Glass and other leading contenders—and despite what BusinessWeek seemed to think—Woodin did not have strong views on banking or inflation, or at least none that he would hold to if Roosevelt felt otherwise.18

  When Glass began making his demands, Moley approached Louis Howe and asked if he would help sell Roosevelt on Woodin. Howe liked the idea of appointing a Roosevelt loyalist who would also appeal to business leaders. Moley and Howe sent a coded radio message to Roosevelt, who was on a pre-inauguration sailing vacation on Vincent Astor’s yacht: “PREFER A WOODEN ROOF TO A GLASS ROOF OVER SWIMMING POOL. LUHOWRAY.” “Wooden” and “glass” referred to the two main contenders for treasury secretary, and “Luhowray” was a conglomeration of the message writers’ names. At the same time, Glass’s friends were urging him to reconsider, and it was not clear what he would do. “The Glass appointment was like King Charles’ head,” Moley complained. “It kept popping up.” In the end, Glass made clear he was not interested, and Roosevelt chose Woodin.19

  The appointment came as a shock, most of all to Woodin, who was not certain he was up to the job. The press shared his doubts. After being led to believe the position would go to the distinguished senator from Virginia, reporters seized on Woodin’s diminutive size and spritelike appearance and quickly dubbed him “Wee Willie Woodin.” The press’s references to Woodin as “elfin” and “faunlike” were so frequent that Moley would later complain that it would seem, “to read the accounts of him, that he went dancing through directors’ meetings wearing a conical hat . . . and playing on little pipes.” The profiles also made sport of the fact that Woodin, an amateur composer, had written such classics as the “Raggedy Ann’s Sunny Songs,” to be performed by children on ukuleles. Many people who knew Woodin agreed with Roosevelt’s budget director, Lewis Douglas, who considered him “a nice little man, not a particularly profound person, but very agreeable.” The press and members of the administration were particularly skeptical that Woodin was the right person to confront the banking crisis. “His real business was manufacturing railroad locomotives,” said Walter Wyatt, who would be influential in planning Roosevelt’s rescue of the banks, “and he didn’t know anything about how to handle the banking problems.”20

  Woodin was not sent to take on the bank crisis alone. Roosevelt asked Moley to work alongside him. It was an unusual arrangement, but an understandable one. Ever since he had come to Roosevelt’s attention as head of the Brain Trust, the pragmatic Moley was the person Roosevelt turned to when he was faced with a difficult policy question. In addition to his formal role, Moley filled a special place in the new president’s psyche. He was, for the moment, the occupant of a position as important as any Cabinet post: he was Roosevelt’s professional confidant and alter ego. Despite his large family and extensive circle of friends and supporters, Roosevelt was essentially a lonely man. Throughout his adult life, he always had a male subordinate close at hand whose job was to be both chief adviser and friend on call. When he began his career it had been Howe, the former journalist who plotted his early political rise. At the start of the New Deal, when Roosevelt desperately needed to develop wise policies, it was the cerebral, strategic Moley who filled the role. “Through his ear,” Time declared when it put Moley on its cover in May, “is the shortest and swiftest route to the heart of the
White House.”21

  The public was largely unaware of Moley, who was most comfortable working behind the scenes. But people in Roosevelt’s inner circle understood that he was, as one insider put it, “the second strongest man in Washington,” after Roosevelt himself. As Moley’s influence became better known, it became the subject of wry humor. Capital wits soon began replacing the word “Holy” in the name of the well-known hymn and proclaiming “Moley! Moley! Moley! Lord God Almighty!” An often-told joke had an old friend of Roosevelt calling up and pleading, “Franklin, can you do me just one favor? Can you get me an appointment with Moley?” People eventually came to realize that the looks and demeanor of this stocky, balding, forty-six-year-old academic were deceptive. He was “about as different from the timid, absent-minded professor type of fiction as could be imagined,” Collier’s noted. “There is a jut to his jaw, a steel-trap effect around the mouth, and behind his glasses are a pair of clear eyes that have the bore of gimlets.” This gimlet-eyed, behind-the-scenes operator was the person Roosevelt leaned on as he confronted one of the greatest challenges the nation had ever faced.22

  Moley’s route to the inner sanctum of the Roosevelt White House had been an improbable one. He had been born in Berea, Ohio, outside Cleveland, in 1886, the son of the owner of a struggling men’s furnishings store. His lineage was Irish-French and yellow-dog Democrat, and his childhood hero was William Jennings Bryan, the great populist orator of the Plains. In three unsuccessful campaigns for president, Bryan told spellbound farm audiences that their troubles were due to manipulations of the money supply by Eastern financial interests. In 1896, in his famous “Cross of Gold” speech to the Democratic National Convention, Bryan decried the impact of the gold standard on the common man and woman. Young Moley could not follow the monetary arguments, but he was impressed by Bryan’s oratory, and his concern for the disadvantaged. He put a picture of his hero up on his bedroom wall and, when Bryan lost, convinced his mother to let him miss three days of school so he would not have to endure his classmates’ taunts.23