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Ferdinand Pecora (National Archives)<\/p><\/div>\n
By Gilbert King
\nSMITHSONIANMAG.COM<\/p>\n
Three years removed from the stock market crash of 1929, America was in the throes of the Great Depression, with no recovery on the horizon.\u00a0 As President Herbert Hoover reluctantly campaigned for a second term, his motorcades and trains were pelted with rotten vegetables and eggs as he toured a hostile land where shanty towns erected by the homeless had sprung up. They were called \u201cHoovervilles,\u201d<\/a>\u00a0creating the shameful images that would define his presidency. Millions of Americans had lost their jobs, and one in four Americans lost their life savings. Farmers were in ruin, 40 percent of the country\u2019s banks had failed, and industrial stocks had lost 80 percent of their value.<\/p>\n With unemployment hovering at nearly 25 percent in 1932, Hoover was swept out of office in a landslide, and the newly elected president, Franklin Delano Roosevelt, promised Americans relief. Roosevelt had decried \u201cthe ruthless manipulation of professional gamblers and the corporate system\u201d that allowed \u201ca few powerful interests to make industrial cannon fodder of the lives of half the population.\u201d\u00a0 He made it plain that he would go after the \u201ceconomic nobles,\u201d and a bank panic on the day of his inauguration, in March 1933, gave him just the mandate he sought to attack the economic crisis in his\u00a0\u201cFirst 100 Days\u201d<\/a>\u00a0campaign. \u00a0\u201cThere must be an end to a conduct in banking and in business which too often has given to a sacred trust the likeness of callous and wrongdoing,\u201d he said.<\/p>\n Ferdinand Pecora was an an unlikely answer to what ailed America at the time. He was a slight, soft-spoken son of Italian immigrants, and he wore a wide-brimmed fedora and often had a cigar dangling from his lips. Forced to drop out of school in his teens because his father was injured in a work-related accident, Pecora ultimately landed a job as a law clerk and attended New York Law School, passed the New York bar and became one of just a handful of first-generation Italian lawyers in the city. In 1918, he became an assistant district attorney. Over the next decade, he built a reputation as an honest and tenacious prosecutor, shutting down more than 100 \u201cbucket shops\u201d\u2014illegal brokerage houses where bets were made on the rise and fall prices of stocks and commodity futures outside of the regulated market. His introduction to the world of fraudulent financial dealings would serve him well.<\/p>\n Just months before Hoover left office, Pecora was appointed chief counsel to the U.S. Senate\u2019s Committee on Banking and Currency. Assigned to probe the causes of the 1929 crash, he led what became known as the \u201cPecora commission,\u201d making front-page news when he called\u00a0Charles Mitchell<\/a>, the head of the largest bank in America, National City Bank (now Citibank), as his first witness. \u201cSunshine Charley\u201d strode into the hearings with a good deal of contempt for both Pecora and his commission. Though shareholders had taken staggering losses on bank stocks, Mitchell admitted that he and his top officers had set aside millions of dollars from the bank in interest-free loans to themselves. Mitchell also revealed that despite making more than $1 million in bonuses in 1929, he had paid no taxes due to losses incurred from the sale of diminished National City stock\u2014to his wife. Pecora revealed that National City had hidden bad loans by packaging them into securities and pawning them off to unwitting investors. By the time Mitchell\u2019s testimony made the newspapers, he had been disgraced, his career had been ruined, and he would soon be forced into a million-dollar settlement of civil charges of tax evasion. \u201cMitchell,\u201d said\u00a0Senator Carter Glass<\/a>\u00a0of Virginia, \u201cmore than any 50 men is responsible for this stock crash.\u201d<\/p>\n The public was just beginning to get a taste for the retribution that Pecora was dishing out. In June 1933, his image appeared on the\u00a0cover of\u00a0Time<\/em><\/a>\u00a0magazine, seated at a Senate table, a cigar in his mouth. Pecora\u2019s hearings had coined a new phrase, \u201cbanksters\u201d for the finance \u201cgangsters\u201d who had imperiled the nation\u2019s economy, and while the bankers and financiers complained that the theatrics of the Pecora commission would destroy confidence in the U.S. banking system, Senator Burton Wheeler of Montana said, \u201cThe best way to restore confidence in our banks is to take these crooked presidents out of the banks and treat them the same as treated Al Capone.\u201d<\/p>\n President Roosevelt urged Pecora to keep the heat on. If banks were worried about the hearings destroying confidence, Roosevelt said, they \u201cshould have thought of that when they did the things that are being exposed now.\u201d \u00a0Roosevelt even suggested that Pecora call none other than the financier\u00a0J.P. Morgan Jr<\/a>. to testify. When Morgan arrived at the Senate Caucus Room, surrounded by hot lights, microphones and dozens of reporters, Senator Glass described the atmosphere as a \u201ccircus, and the only things lacking now are peanuts and colored lemonade.\u201d<\/p>\n Morgan\u2019s testimony lacked the drama of Mitchell\u2019s, but Pecora was able to reveal that Morgan maintained a \u201cpreferred list\u201d of friends of the bank (among them, former president Calvin Coolidge and Supreme Court justice Owen J. Roberts) who were offered stock at highly discounted rates. Morgan also admitted that he had paid no taxes from 1930-32 because of losses following the crash of 1929. Though he had done nothing illegal, the headlines damaged him. He privately referred to Pecora as a \u201cdirty little wop\u201d and said he bore \u201cthe manners of a prosecuting attorney who is trying to convict a horse thief.\u201d<\/p>\n At a break in the hearings, a Ringling Bros. press agent barged into the room, accompanied by a performer named\u00a0Lya Graf<\/a>, just 21 inches tall.\u00a0\u201cGangway,\u201d the agent shouted, \u201cthe smallest lady in the world wants to meet the richest man in the world.\u201d Before Morgan knew what was happening, the diminutive lass was perched on the tycoon\u2019s lap, and dozens of flash bulbs popped.<\/p>\n \u201cWhere do you live?\u201d Morgan asked the girl.<\/p>\n \u201cIn a tent, sir,\u201d she answered.<\/p>\n Senator Glass\u2019s description of the hearings proved prophetic; the atmosphere had become truly circus-like. And although Morgan\u2019s appearance marked the height of the drama, the hearings continued for nearly another year, as public outrage over the conduct and practices of the nation\u2019s bankers smoldered. Roosevelt took advantage of the public sentiment, arousing broad support for regulation and oversight of the financial markets, as the Pecora Commission had recommended. After passing the Securities Act of 1933, Congress established the Securities and Exchange Commission to regulate the stock market and to protect the public from fraud. The Pecora commission\u2019s report also endorsed the separation of investment and commercial banking and the adoption of bank deposit insurance, as required by\u00a0Glass-Steagall<\/a>, which Roosevelt signed into law in 1933.<\/p>\n By investigating Wall Street business practices and calling bankers in to testify, Ferdinand Pecora exposed Americans to a world they had no clue existed. And once he did, public outrage led to the reforms that the lords of finance had, until his hearings, been able to stave off.\u00a0 His work on the commission complete, Pecora had hoped to be appointed chair of the SEC. Instead, Roosevelt surprised the nation by naming\u00a0Joseph P. Kennedy\u00a0<\/a>to the position\u2014a reward, many assumed, for Kennedy\u2019s loyalty during FDR\u2019s campaign. \u00a0When asked why he\u2019d chosen such a manipulator as Kennedy, FDR famously replied, \u201cTakes one to catch one.\u201d Pecora was nominated as commissioner of the SEC, where he worked under Kennedy.<\/p>\n In 1939, Pecora published\u00a0Wall Street Under Oath<\/em>, which offered a dire warning. \u201cUnder the surface of the governmental regulation, the same forces that produced the riotous speculative excesses of the \u2018wild bull market\u2019 of 1929 still give evidences of their existence and influence.\u2026 It cannot be doubted that, given a suitable opportunity, they would spring back into pernicious activity.\u201d<\/p>\n Ferdinand Pecora would be appointed as a justice on the New York State Supreme Court in 1935 and run unsuccessfully for mayor of New York City in 1950. But he had already left his legacy: his investigation into the financial abuses behind the crash of 1929 led to the passage of the Securities Act, the Glass-Steagall Act and the Securities Exchange Act. The protections he advocated are still being debated today.<\/p>\n Sources<\/strong><\/p>\n Books:<\/strong>\u00a0Michael Perino,\u00a0The Hellhound of Wall Street: How Ferdinand Pecora\u2019s Investigation of the Great Crash Forever Changed American Finance<\/em>, Penguin Press, 2010. \u00a0Charles D. Ellis with James R. Vertin,\u00a0Wall Street People: True Stories of the Great Barons of Finance<\/em>, Volume 2, John Wiley & Sons, Inc, 2003.<\/p>\n Articles:<\/strong>\u00a0\u201cMitchell Paid No Tax in 1929,\u201d\u00a0Daily Boston Globe<\/em>, Feb. 22, 1933, \u201cClients \u2018Sold Out\u2019 As National City Saves Officers,\u201d\u00a0The Atlanta Constitution<\/em>, Feb. 23, 1933. \u00a0\u201dPecora Denounces Stock Manipulation,\u201d\u00a0New York Times<\/em>, Feb 19, 1933. \u00a0\u201dPecora to Question Private Bankers,\u201d\u00a0New York Times<\/em>, March 16, 1933. \u201cWhere is Our Ferdinand Pecora?\u201d by Ron Chernow,\u00a0New York Times<\/em>, Jan. 5, 2009. \u201cFerdinand Pecora, \u2018The Hellhound of Wall Street\u2019\u201d\u00a0All Things Considered, NPR<\/em>, Oct. 6, 2010. http:\/\/www.npr.org\/templates\/story\/story.php?storyId=130384189 \u201cFerdinand Pecora, An American Hero,\u201d by Jackie Corr,\u00a0Counterpunch<\/em>, Jan. 11-13, 2003.\u00a0http:\/\/www.counterpunch.org\/2003\/01\/11\/ferdinand-pecora-an-american-hero\/ \u201cFerdinand Pecora Ushered In Wall Street Regulation After 1929 Crash\u201d by Brady Dennis,\u00a0Washington Post<\/em>, Sept. 16, 2009. \u201cWhere Have You Gone, Ferdinand Pecora?\u201d by Michael Winship,\u00a0Bill Moyers Journal<\/em>, April 24, 2009. \u00a0http:\/\/www.pbs.org\/moyers\/journal\/blog\/2009\/04\/michael_winship_where_have_you.html \u201cA Midget, Banker Hearings and Populism Circa 1933\u2033 by Michael Corkery,\u00a0Deal Journal, Wall Street Journal<\/em>, Jan. 12, 2010. \u00a0http:\/\/blogs.wsj.com\/deals\/2010\/01\/12\/a-midget-banker-hearings-and-populism-circa-1933\/ \u201cWhen Washington Took on Wall Street\u201d by Alan Brinkley,\u00a0Vanity Fair<\/em>, June 2010.<\/p>\n
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