In Wall Street Wars: The Epic Battles with Washington That Created the Modern Financial System (Regan Arts, 2015) Richard E. Farley takes us back to the 1930s—to the Emergency Banking Act, the Glass-Steagall Banking Act of 1933, the Securities Act of 1933, the Securities Exchange Act of 1934, and the creation of the Securities and Exchange Commission. A lively account, the book adds flesh and bones to the politicians responsible for ground-changing financial legislation.
In the early years after the Crash and Depression, the public blamed the country’s political leaders “(Hoover in particular) and renegade Wall Street pool operators and short sellers. Remarkably, the nation’s banking establishment had successfully avoided the worst of the public’s wrath.” (p. 37) But Ferdinand Pecora, the fifth lawyer in less than a year to fill the position of chief counsel to a subcommittee of the Senate Banking and Currency Committee investigating stock market practices, changed all that. Pecora questioned Charlie Mitchell, chairman of the board of directors of National City Bank, the predecessor of Citigroup (NYSE:C), and showed both that he was a monumental tax evader and that he had duped the investors in National City. After several days of questioning other National City executives and exposing their gross misconduct, Pecora became a celebrity, “the face of justice for the average man” against “the malefactors of Wall Street.” (p. 52)
Just exposing and punishing Wall Street “banksters” was not, of course, enough to get the financial system on firmer footing. Congress needed to draft sweeping legislation. Carter Glass, senator from Virginia, was the man to get the job done. He was, “to put it mildly, a difficult man. He was ill-tempered, racist, and often in poor health, physically and mentally, suffering frequent nervous breakdowns and hospitalizations. … He had never held a job in a private sector financial institution, and what limited formal education he had ended when he was fourteen. He is also the single most important lawmaker in the history of American finance. He drafted and shepherded through Congress the legislation creating the Federal Reserve System and later served as President Wilson’s secretary of the Treasury.” (p. 31)
Glass was an advocate of large banks with many branches. These banks might behave badly, “but they were smart and they were solvent. … Glass believed that too many banks that were ‘too small to save’ were a far greater risk than banks that were ‘too big to fail.’” (p. 79)
Here I’ve given but a tiny glimpse into the thinking behind, and the wrangling over, the legislation that shaped and, in some cases still shapes, our financial system. Farley’s account is illuminating and, as such, valuable reading for anyone who cares about how we got to where we are today.