The Hellhound of Wall Street

by Michael Perino

  In the abstract, it didn’t seem like much of an opportunity. Lawyers like Untermyer had certainly made names for themselves conducting governmental investigations. Instead of conducting his own investigation, however, Pecora’s job would be simply to summarize what had already occurred. Still, Pecora jumped at the chance. It may have been a sign of his boredom in private practice, or perhaps he hoped that this small assignment might lead to real investigative work for the committee. He hastily called his partners, who said they would cover his cases during the next few weeks, and he was on a train that evening to meet Norbeck in Washington the next day.2

  Pecora was in Norbeck’s office on the third floor of the Senate Office Building at ten o’clock the next morning, and the burly senator led the lawyer to a steel filing cabinet “jammed full” of testimony and exhibits. To summarize it by March 4, Pecora told Norbeck, would require him to work “day and night.” Pecora, however, was already angling to be more than simply a scribe. He asked Norbeck if he could see the Senate resolution authorizing the hearing. Although Norbeck confirmed that the committee had largely confined itself to short selling, a quick perusal of the resolution showed the lawyer that the committee could in fact investigate much more. Pecora latched onto language authorizing the committee to investigate the sale of securities. It was, he told Norbeck, “very broad authority” that would allow the committee to investigate not only short selling and trading on the exchanges, but also the initial issuance of securities by the investment banks to the public. Norbeck, Pecora said, was surprised. “We’ve got some might[y] fine lawyers on the committee,” he told Pecora. “I’m surprised they didn’t note that language.”

  “Under this language,” Norbeck continued, “would it have been possible for my committee to inquire into the ways by which the people throughout my state were high-pressured into buying millions and millions and millions of dollars worth of securities that were sour?”

  “Senator,” Pecora replied, “it seems to me that under the broad language of this resolution, your committee has the power and was, in fact, authorized to do that very thing.”3

  There is no record of Norbeck’s version of this first meeting, and it is, quite frankly, hard to know what to make of Pecora’s account. Norbeck was unsophisticated about finance and not well-educated, but it’s difficult to imagine that he had no idea how broad his investigatory powers were. Given the fight over the initial resolution, Norbeck must have known that the authorization that emerged from committee was broader than just short selling, although he never really exploited those powers. Other than its brief foray into the match company, Kreuger & Toll, the committee had focused its efforts almost entirely on ways to manipulate securities already trading on the organized exchanges. Pecora was suggesting a radically different focus—forget about the securities already out there and look at how they got there in the first place.

  Pecora never revealed his suspicions, and he never explained what led him to suggest this change in focus. It’s quite possible that he didn’t have any tangible rationale; after all, but for his investigations of seamy boiler rooms, he knew little about the securities markets. He could have been doing nothing more than toeing the Democratic party line. In a speech in Columbus, Ohio, in August 1932, Roosevelt had called for greater disclosures in connection with public sales of securities, a reform that was repeated in the Democrats’ 1932 party platform. Pecora may have seen the opportunity to create a factual record to demonstrate the need for precisely such reforms. There is simply no way to know for sure today. But whether it was through luck or the finely honed instincts of a seasoned prosecutor, Pecora had just made the proposal that would save the investigation.

  For all his lack of sophistication, Norbeck was smart enough to follow Pecora’s lead. Why he did so is just as unclear as why Pecora made the proposal in the first place. After years of deferring to Glass and with his keen awareness of his own limitations, perhaps it was his natural response to banking committee matters. Still, Norbeck was nothing if not a savvy politician, and he may well have realized that this change in focus would take the investigation directly into the heart of Wall Street’s operations. Stock and bond underwriting wasn’t the province of the shady market operators who had made up the bulk of the witnesses parading before the committee the previous spring. This was the exclusive club of patrician bankers who, from their offices around Wall and Broad and from the lofty confines of the Bankers’ Club, ran America’s markets. Later that spring, the most mysterious and, to the general public, most powerful of them all, J. P. Morgan Jr., pointedly told this same committee that he and his brethren were “a national asset and not a national danger.” For Morgan, the power of the investment banker came not from his wealth, “but from the confidence of the people in his character.” By attacking these bankers head on, perhaps Norbeck and Pecora saw the opportunity to discredit the entire enterprise, to break their stranglehold on financial policy, and to finally pave the way for federal regulation.4

  Pecora’s appointment was announced the next day. After the Irving Ben Cooper fiasco, Norbeck emphasized both Pecora’s qualifications and the free hand he would have in running the investigation. Norbeck told the press that Pecora “has figured prominently in many important criminal and civil actions and he has been strongly recommended by outstanding members of the bar of New York.” One of those was Pecora’s old boss at the district attorney’s office, Joab Banton, who called Pecora, in what must have seemed to reporters like more than a little bit of hyperbole, “the best qualified lawyer in the country” to lead a stock market investigation. To be sure, Pecora had handled securities cases before, but it was mostly low-level fraud. In none of his previous cases had he ever needed to dig deep into the everyday functioning of the stock market or of investment banking practices. He was facing a steep learning curve.

  Norbeck assured reporters that Pecora “would have all the authority necessary to make a comprehensive investigation.” In addition to the previously announced Insull hearings, Norbeck also signaled a shift in focus for the investigation. Following Pecora’s lead, the committee would now turn its attention to “the issue and distribution of securities.” Pecora announced no specific plans for the inquiry, although privately he wrote Norbeck that he was honored by the appointment and assured the senator that “in accepting this trust I shall give to its discharge my utmost ability and service.” Pecora also struck a much more conciliatory tone than Cooper. “I shall be pleased,” he wrote Norbeck, “to receive such instructions and suggestions as your Committee may desire to give me at any time, and shall endeavor to keep you currently posted as to our activities by written communication and otherwise.”5

  Pecora was back in New York later that same Monday, January 23. He set up shop in a small suite on the eleventh floor of 285 Madison Avenue, in the same building as his law office. It was “shabby-looking” with a decidedly slapdash and transient feel. The floors and walls were bare and the office furniture was a battered rental set from a secondhand dealer.

  Pecora quickly assembled a handful of assistants. The first two were lawyers Pecora had known for years, Julius Silver from New York and David Saperstein from Union City, New Jersey. His “boys,” as he called them, “were bright and industrious, and [he] felt quite certain they would welcome an opportunity to render this kind of service.” He added an accountant, Ivan Lashins, and two other young lawyers Norbeck had already retained for the committee, James McDonough and J. F. O’Hanlon. Pecora knew a statistician then working for the New York attorney general’s office named Frank Meehan. He had a “quick mind” and was experienced in bucket shop prosecutions, so Pecora added him to the staff as well. Rounding out the group in New York were John Marrinan, the ex-journalist who had so incensed Irving Ben Cooper, and Max Winkler, a former City College economics professor and expert on foreign bonds whom Norbeck had hired as a consultant to the committee a year earlier. It was, Pecora knew, a small staff to take on Wall Street, but he hoped it would “pr
ove to be efficient.”6

  As Pecora began his investigation, Senator Glass’s banking reform bill was undergoing a painful and very public death in the Senate. Its executioner was Louisiana’s bellowing demagogue, Huey Long.

  Debate on the fast-tracked Glass banking bill had opened on January 5, with Glass exhorting his colleagues to adopt his plan to take commercial banks out of the investment banking business but to permit them more leeway to add branches. There was a good deal of opposition to the former provision, with organized lobbying efforts arguing that investment banking was “a legitimate function of the banks and a necessary service to the industries and municipalities of the country.” Liberal Democrats and progressive Republicans, however, were particularly opposed to the latter reform because they thought expanded branch banking would make it impossible for smaller banks to compete with larger ones, leading to greater concentrations of capital.

  Norbeck still deferred to Glass, but he was growing tired of Glass’s arrogance and condescension. Norbeck complained that Glass, who had been ill for about a year, was “not strong anymore and quite given to being irritable.” The banking bill was more than just another piece of legislation to Glass—it was the capstone on his legacy as a banking reformer. Glass, Norbeck wrote, “seems determined to work out a ‘perfect banking system’ before he leaves the stage. He may know what that means, but I am sure that neither you nor I do.”7

  Glass’s condescending attitude was on full display as the Virginia senator tried to impress on his colleagues the urgency of reform. As debate began, Glass, who had an odd habit of speaking only out of the left side of his mouth, argued that many small banks were on the verge of collapse, “choked with immobile, and in many cases, worthless securities.” They were, he claimed, in even worse shape than they appeared, because many had failed to write off the losses they had suffered from the sharp declines in securities prices. Glass said he understood what motivated the plea for small rural banks, but he expressed little sympathy for their plight. “There have been 10,000 banks failed in the last few years,” Glass argued, “of which 80 percent were banks whose capital did not exceed $25,000. They were merely pawn shops that were toppled over like ten-pins at every disturbance of business.” Without his branch banking reforms, Glass warned his colleagues, a colossal wave of bank failures would crash down on the already weakened financial system. The big New York banks signaled that if Glass dropped the provisions on securities affiliates they would not oppose branch banking. It was hardly a concession, since expanded branch banking was a reform they desperately wanted, and Glass refused to dicker.8

  Huey Long, then just a thirty-nine-year-old freshman senator, rose to oppose the bill, principally, he said, because of his bitter opposition to expanded branch banking. In just a few short minutes, the brusque Long managed both to enrage Glass and to leave the remaining senators dumbfounded. Glass had studied banks for three decades, and it was an open secret that Roosevelt had offered him the job as Treasury secretary, a post he had occupied in the Wilson administration. There was no one in Congress more expert than Glass when it came to the financial system. Long, however, blithely announced that Glass was simply a stooge for J. P. Morgan; he claimed he knew “a good deal more about branch banking than does the Senator from Virginia.”

  The Kingfish (a name he took from a character in the wildly popular Amos ’n’ Andy radio show) was no ordinary freshman senator. Although he often appeared buffoonish in his brightly colored shirts and garish ties, he was in reality a coldly calculating and ruthless politician who almost single-handedly ruled Louisiana. Ostensibly a voice for the downtrodden poor and lower working class, Long was preternaturally adept at using half-truths and bald-faced lies to whip up public anger as a means of cementing and enhancing his own power. To Roosevelt, the ambitious Long was “one of the two most dangerous men in the United States today.” (The other was Douglas MacArthur, the general who had just rousted the bonus marchers out of Washington.) Roosevelt worried that Depression-weary Americans pushed to the limit and abandoned by government might, in desperation, succumb to Long’s radical solutions.

  Long was always ready for a fight. “Always take the offensive,” was his constant refrain. “The defensive ain’t worth a damn.” Taking the offensive meant going after the “big man” first, and the big man on banking was Glass. In truth Huey, who could hold a personal grudge as well as anyone, needed little prodding to attack the aristocratic Virginian. The two men loathed each other. There were two opposing sets of Louisiana delegates at the 1932 Democratic convention, and Long had not forgiven Glass for his opposition to seating Long’s slate. Glass never smoked or drank, two of Long’s favorite pastimes, and he derided Long in his thick Virginia drawl as a “demagogic screech owl from the swamps of Louisiana.” Long was a “creature who seems to have bought and stolen his way into the United States Senate.” Glass would “vote to expel that scalawag without raising a finger to find out what the charges were against him.”

  Glass was hardly alone in his contempt for Long. Huey had arrived in the Senate only a year earlier, but in that short time he had managed to become a pariah. Long flouted the Senate’s traditions with “wild antics” and “loud outbursts,” all aimed at garnering publicity for himself rather than trying to push through the radical redistributive measures he claimed to champion. There were no holds barred when Long debated. With his unruly auburn hair falling across his forehead and sweat staining his suits, he pelted his opponents with savage personal attacks, often stooping to the role of high school bully by mimicking their mannerisms or mocking their appearance. Reporters loved him and crowds flocked to the gallery to see him perform, but the other senators disdained him. “I don’t believe,” one senator said, “he could get the Lord’s Prayer endorsed in this body.”9

  Long wasn’t pushing any legislation now; he just wanted to kill Glass’s bill, and on January 10, when the bill came up for debate again, he began what would become a legendary filibuster in Senate lore. A tactic later made famous by Jimmy Stewart in Mr. Smith Goes to Washington, the filibuster allows a senator to use his or her privilege of unlimited debate to hold the floor indefinitely, bringing legislative business to a standstill. Long began with a four-hour sermon, quoting from two bibles he had on his desk in the back row of the Senate chamber (“two bibles is never too many,” he said) and asserting that “the Lord himself” opposed branch banking. With help from only a few other senators and with lines of spectators queued outside the gallery doors to watch his performance, Long did everything he could to stall. He gave long-winded speeches about nothing, not even branch banking. He made numerous quorum calls. He asked the clerk to read lengthy documents into the record. Although Senate rules required Long to stay on the floor, rules meant little to the Kingfish, and as the documents were laboriously read, he would stroll out of the chamber to gossip with reporters.

  Glass was the smallest member of the Senate, but he may have had its biggest temper. He was furious at Long, and a few weeks later only the intervention of another senator stopped the frail Glass from punching Long, thirty-five years his junior and half a foot taller. Glass dubbed the filibuster a “circus performance” filled with “oratorical rubbish.” Slamming his fist against his desk he railed against Long’s tactics: “Is the Senate reduced to that level of legislative depravity that it may be told by any member or group of members that it shall not legislate upon grave problems, that it should not pass a bill that the bankers know would prevent a repetition of this frightful crash and debacle?” Glass tried a slew of parliamentary tricks to thwart Long, but Long, who seemed immune to embarrassment, easily turned the tables on Glass. At one point, Glass demanded that Long, rather than the clerk, read documents into the record, arguing that the Senate would prefer to hear the senator from Louisiana’s “mellifluous voice.” Long was only too happy to oblige. He read the documents at a glacial pace, pausing every so often to ask Glass, “Am I going too fast?” As the filibuster dragged on, Glass sat
slumped at his desk, despondent.

  The only way to end debate was with a cloture vote, but at the time cloture required a two-thirds majority. The senators ended up just one vote shy, thwarted by a coalition of liberal Democrats, who wanted to kill branch banking, and conservative Republicans, who either opposed the requirement that national banks eliminate their securities affiliates or who were simply enjoying the public spectacle of internecine warfare among the Democrats. President Hoover, although he would in a few weeks urge passage of banking reform legislation, was thrilled with the outcome and, indeed, may have had a hand in it. “Now the Senate can keep wasting time, so far as I am concerned,” he said after cloture was defeated. “I don’t want them to do anything now. Whatever they might do would be bad legislation from our point of view.” At times reduced to a hoarse whisper, Long warned his colleagues that he would wage this fight until the end of the congressional session: “You’ve got until March 4 to pass this bill . . . And you are not going to pass it by March 4. Put that in your pipe and smoke it.”10

  Long emerged victorious on January 25, when the Senate passed a watered-down bill that effectively emasculated Glass’s branch banking reforms. Banking reform, at least for the lame duck session, would end there. With so little time left in the congressional session, the House announced that it would not act on the bill. Long was gleeful, confidently proclaiming that the Glass bill was “dead as a hammer.”

  In some ways, it was an unsurprising outcome. Delay and inaction are hardwired into the Senate’s DNA, but in a time of unprecedented economic turmoil, editorial writers were appalled at the entire spectacle. They excoriated Long for his “unprincipled and tyrannical use” of the Senate rules and were equally harsh with the Senate as a whole. The “complete paralysis” of the Senate, the New York Times commented, was a “national disgrace.” When an “impudent upstart . . . with a front of brass and lungs of leather” could hold the Senate hostage for days on end, it was no wonder that the Senate’s prestige was shattered. “If the Senators feel themselves humiliated,” the editors asked, “how do they suppose the country feels?” Even legislators were embarrassed by their own impotence in the face of this national calamity. “We’re milling around here,” Hiram Johnson wrote, “utterly unable to accomplish anything of real consequence.”11