BARACK OBAMA has assigned a top priority to financial reform when the new Congress assembles today. If history is any guide, legislators can perform a signal service by moving beyond the myriad details of the rescue plans to provide a coherent account of the origins of the current crisis. The moment calls for nothing less than a sweeping inquest into the twin housing and stock market crashes to create both the intellectual context and the political constituency for change.
For inspiration, Congress should turn to the electrifying
hearings of the Senate Banking and Currency Committee, held in the waning
months of the
The riveting
confrontation between Pecora and the Wall Street grandees was so theatrically apt
it might have been concocted by
With crinkly black hair and flashing eyes, Pecora was an earthy populist who appealed to Depression audiences. He was fond of playing pinochle and was often portrayed with a thick cigar clamped between his teeth. When he was hired for $255 per month by the Senate committee, Pecora was earning less money than most Wall Street mandarins disbursed weekly in pocket change.
Pecora was meticulous in preparation and legendary in stamina, mastering reams of material and staying up half the night before interrogations, aided by John T. Flynn, a journalist, and Max Lowenthal, a lawyer. As Flynn wrote, I looked with astonishment at this man who, through the intricate mazes of banking, syndicates, market deals, chicanery of all sorts, and in a field new to him, never forgot a name, never made an error in a figure, and never lost his temper.
As Pecora relentlessly grilled the most famous names in finance, the nation relived the 1920s boom in a collective act of national remembrance. The hearings started in a modest committee room, but as the public was swept up in the drama, they shifted to a stately caucus room, illuminated by chandeliers and flashbulbs. As it gained momentum, the inquiry expanded until it shined a searchlight into every murky corner of Wall Street. Pecora exposed a stock market manipulated by speculators to the detriment of small investors who could suddenly attach names and faces to their losses.
Bankers had been demigods in the 1920s, their doings followed avidly, their market commentary quoted with reverence. They had inhabited a clubby world of chauffeured limousines and wood-paneled rooms, insulated from ordinary Americans. Now Pecora defrocked these high priests, making them seem small and shabby.
On Black
Thursday of 1929, the nation had applauded a seemingly heroic attempt by major
bankers, including
Albert Wiggin of Chase and Charles Mitchell of
With a public aching for retribution, Pecora was playing with combustible chemicals, and Wall Street complained that he was destroying confidence. President Franklin Roosevelt retorted that the bankers should have thought of that when they did the things that are being exposed now. It was hard for Wall Street to mount a legitimate defense as Pecora pilloried them daily.
His prosecutorial methods grew questionable when he turned to the mysterious world of private banking, exemplified by the House of Morgan. In implacable style, Pecora badgered Morgan partners into admitting that they had paid no taxes for 1931 and 1932 an incendiary revelation when the country was undertaking huge public works projects to combat unemployment. That the Morgan men had avoided taxes because of stock market losses was lost amid the hubbub.
No less inflammatory was exposure of Morgans preferred list by which the banks influential friends participated in stock offerings at steeply discounted rates. The renowned names on the list, including Calvin Coolidge, the former president, and Owen J. Roberts, a Supreme Court justice, shocked the nation with its unseemly association of money and power.
One Morgan partner, George Whitney, lamely explained that the intent was to safeguard small investors by preventing them from assuming such risk. To which Pecora responded tartly in his best-selling book, Wall Street Under Oath, Many there were who would gladly have helped them share that appalling peril!
Such was the
furor over the Morgan testimony that Senator Carter Glass of
The photo of Morgan with a circus midget planted on his lap became the signature shot of the hearings, emblematic of Wall Streets fallen state. An embittered J. P. Morgan Jr. said Pecora had the manners of a prosecuting attorney who is trying to convict a horse thief.
...The Pecora hearings laid the groundwork for financial reform legislation. By the time they ended in May 1934, they had generated 12,000 printed pages of testimony, collected in several thick volumes. These documents have served generations of historians. Our national narrative of stock market mayhem in the 1920s is largely composed of characters and anecdotes gleaned from their pages.
Pecora not
only documented a litany of abuses, but also paved the way for remedial
legislation. The Securities Act of 1933, the Glass-Steagall Act of 1933 and the
Securities Exchange Act of 1934 all addressed abuses exposed by Pecora. It was only poetic
justice when
Our current stock market slump and housing bust can seem like natural calamities without identifiable culprits, creating free-floating anger in the land. A public deeply disenchanted with our financial leadership is desperately searching for answers. The new Congress has a chance to lead the nation, step by step, through all the machinations that led to the present debacle and to shape wise legislation to prevent a recurrence.