Mitchell had been correct at the hearing on Tuesday; he was the largest buyer of City Bank stock in 1929. But it wasn’t a bold move to “protect” City Bank’s shareholders; it was a desperate bid to save a tottering merger, a reckless attempt to preserve Mitchell’s ambition to rule the world’s largest financial institution. It was the same kind of bold strategy he had tried with the Cuban sugar loans and it, too, had failed. But failure here was not simply a matter of raising new capital from the shareholders. Failure ultimately left Mitchell on the verge of financial ruin. The morale loans apparently covered at least some of the executives’ losses, but not those of the lower-level employees. They were saddled with staggering obligations they could barely shoulder as the country sank into depression.
By four o’clock, day two of the hearings was over, and Pecora was off to his next task.
The Hoover administration had, to this point, not been very helpful to the City Bank investigation. Most of the relevant information in its possession—national bank examiner reports and inspection records—were in the hands of the Treasury Department, then under the control of Ogden Mills. Mills was a wealthy New Yorker, a Republican who ran in the same social circles as Mitchell and the other New York bankers. Because of his personal wealth, Mills received the same letters asking for assistance as Couzens. Nothing could more underscore the difference between the two men than their respective responses. Despite his surface gruffness, Couzens gave away millions to charity and had his staff courteously reply to each letter; Mills dismissed the requests as “begging.” Many went unanswered or received the curtest of replies.
Since replacing Andrew Mellon as Treasury secretary, Mills had become one of Hoover’s most trusted allies, and, in an administration overflowing with Wall Street supporters, he was one of the most zealous. Treasury was, to be sure, stretched to the limit as it tried to contain the mounting banking crisis, but it certainly looked like it was trying to obstruct the investigation. Mills, who was extremely close to Mitchell’s lawyer, Garrard Winston, originally opposed Pecora’s request for Mitchell’s income tax returns, and he released them only after much pestering from the committee. It had been twenty days since Norbeck and Pecora had first asked for copies of the comptroller of the currency’s reports on City Bank. After the end of testimony on Tuesday, the committee passed a resolution again calling for Mills to turn over those documents. Despite the damning testimony coming out of the hearings, Pecora had still gotten nothing.22
So Pecora went to see Mills in person. The two knew each other from New York. In fact, Mills had vehemently criticized Pecora’s handling of a graft case involving milk sales in New York City when Mills unsuccessfully challenged Al Smith in the 1926 gubernatorial election. Now Pecora wanted to force a showdown with Treasury, but he did it smoothly, without histrionics. He told Mills that he wanted access to the bank examiners’ reports. Mills remained reluctant. He brought into the office his undersecretary, Arthur Ballantine, a stuffy and shrewd Wall Street lawyer just back from trying to rescue the Detroit banks, and the two had a whispered conference. Contemporaries said that Mills often acted like an arrogant “spoiled child” and that he was a “natural bully.” With this investigator, he now decided that he wouldn’t budge.
“Well, Mr. Pecora,” he said, “the law, as it has been interpreted, and as I have been advised by Mr. Ballantine, would not compel us to produce those reports.” Mills’s resistance was surprising; in the last throes of the Hoover administration, as the president was trying to save whatever remained of his legacy, it should have already been clear that it was politically foolhardy to stonewall Pecora. Still, it wasn’t totally out of character—Mills fancied himself a shrewd political operator, but, in truth, his machinations were consistently unsuccessful, and he displayed, according to one observer, not “a glimmer” of “political sense.”
Pecora knew the law, but he also knew that legal duty was not the only lever he could use on Mills.
“If you would prefer to have me do it, I will have a subpoena signed by the chairman of the committee served upon you for the production of these reports at a hearing before the committee tomorrow, if you feel you can’t let me have a look at them now,” he told Mills. “Perhaps this would give us a nice opportunity to raise the question again in a form and manner that might bring about a clarification of the law on that subject by the Supreme Court.”
Pecora, of course, didn’t actually want a showdown between Congress and the Treasury. That would take years to wend through the courts, and he had only a few days. It was Pecora’s threat to go to the committee for the subpoena that caught Mills’s attention. Mills smiled.
“Well, I suppose, Mr. Pecora, we’ll be damned if we do and we’ll be damned if we don’t,” he said appreciatively. “If you report to the committee that we have denied you access to these reports, it’ll be in the headlines of papers all over the country.”
Now it was Pecora’s turn to smile.
“Well,” he admitted, “that conceivably might follow, Mr. Mills. We don’t control the newspapers.”
“No, of course not,” Mills replied. “But the newspapers are following everything that’s going on before your committee.” Mills smiled again and turned to Ballantine: “Arthur, I think we might just as well let him look at them right here and now.”23
Pecora’s friends had warned him, “Ferd, you’re making enemies of powerful people by this investigation. Don’t you think that might hurt you in the future?” If Pecora was afraid he wasn’t showing it. It was the same thing he had done when he was an assistant district attorney. As Mitchell’s treatment of Jimmy Walker in New York’s fiscal crisis showed, the Wall Street banks were hardly bit players in New York politics, and neither was Mills, despite his political clumsiness. Within a year of leaving office his caustic criticisms of the New Deal were widely reported in the press. Pecora’s fearless and conscientious prosecution of this investigation ran the risk of killing off any realistic hopes he had of ever successfully running for elected office.
Pecora’s willingness to attack Wall Street and Treasury without quarter made him appear incorruptible, precisely the kind of counsel that Norbeck had hoped to get to run his stock exchange investigation. And the general view in New York political circles was that Pecora was as honest a man as Tammany Hall had ever spawned. Not everyone, however, saw it that way. Years later some of his political rivals claimed that Pecora was far from the model of rectitude that he appeared to be. Pecora, one claimed, “has been at the public trough for a great many years.” Others said Pecora was “a real spender,” with one rumor claiming “he was making $15,000 a year as an assistant district attorney and spending $50,000.” Was it true? Was the moralistic Pecora who was so busy demonstrating the greed and cupidity of the City Bank executives no different? Was he just another Tammany grafter?24
It is difficult to say with any degree of certainty, but the available evidence suggests that, at least in 1933 and before, Pecora was financially honest. The allegations of corruption were made by rivals in the midst of New York’s bitter mayoral campaign in 1950 (Pecora was a candidate in that election) and so may well be no more than the usual political mudslinging. There is certainly no documentary evidence of graft, although this is hardly the sort of thing that anyone would write down. Judge Seabury’s investigation of Tammany corruption was completed just before Pecora was appointed counsel to the committee and it never implicated Pecora in any wrongdoing. Indeed, almost two decades later, in that same bitter mayoral campaign, Seabury endorsed Pecora. Police graft was a big issue that year, and Seabury said that Pecora was the kind of man of “integrity and character” who could tackle it. It is hard to imagine that the stalwart good government advocate would make that statement if he knew Pecora had taken graft in his district attorney days. And, of course, Tammany’s decision not to nominate Pecora for district attorney in 1929 is perhaps the best evidence that Pecora was fairly resistant to this kind of corruption. Even Pecora’s political riv
als acknowledged that Pecora “knows party ‘loyalty’ and its rewards. He learned the hard way. He knows that the way of the party ‘ingrate’ is political death or very hard.”25
Pecora was not a paragon of virtue; his string of extramarital affairs is evidence of that. He was a man who was confident in his abilities, politically ambitious, but ultimately insecure about his place in society and about his background and heritage. That last trait made him occasionally fawning, even unctuous, with those in positions of power, a trait that was amplified in some ears by his overly formal speaking style and dignified mien. When Roosevelt sent him a signed photograph, Pecora wrote to the president that it would “occupy the place of honor in my house, just as you do in my esteem and affection.” On another occasion, Pecora offered Roosevelt his opinion on the local political scene in New York with the qualification that “my views may lack an intrinsic value worthy of your attention. It may be that I am guilty of a presumption in even thinking you might care to know what they are, in which event I would tender my apologies.”26
But none of his obsequiousness made Pecora economically corrupt; he craved public acclaim, not material wealth. He took the counsel job even though it paid him only $255 per month, far less than he was earning in private practice. And, at least by his own account, he turned down a number of bribes in the course of the investigation. Sometime in 1933 a “prominent figure in the financial world” offered Pecora $250,000 in cash if Pecora refrained from putting him on the stand. Pecora never revealed the man’s name, but he turned down the bribe and the banker appeared at the hearings. Which one of the many bankers who traipsed before the committee was it? There were easily a dozen men who had the financial wherewithal to afford such a generous bribe, but without any other evidence it would be pure speculation to identify the culprit. In any event, whoever offered that bribe was not alone in trying to buy his way out of having to face the tenacious investigator in the glare of that Washington hearing room.
Pecora recorded another attempted bribe a few months later. An unnamed “important financial figure” approached a friend of Pecora’s and asked, “What is Pecora’s price?” At first Pecora’s friend didn’t understand, but the banker explained, “All through my lifetime I have learned that every man has his price. The difficult thing, sometimes, is to find out what it is, and that is why I am asking you. What is Pecora’s price for not putting me on the stand?”
The friend obviously knew Pecora well, because he replied, “You don’t own all the gold in the world, but if you did, that wouldn’t be enough.”
“Let’s talk realities,” the financier persisted. “Would a million dollars do the trick?” Pecora’s friend didn’t report any of this to Ferdinand until after the man had already been put on the stand, explaining, “I didn’t want to tell you beforehand. I knew you were going to put him on the stand and I didn’t want you to kill him.”27
As the hearings wound down in 1934, the senators on the committee began to regret the tiny salary they were paying Pecora, and they were embarrassed when they thought of what the lawyers he was regularly facing were paid. Senator Glass, who would butt heads with Pecora throughout the investigation, proposed that the Senate appropriate a “special allowance” in recognition of the great work the lawyer performed. The other senators enthusiastically agreed, but Pecora urged them not to do it. The thing that had given him “great compensation, although not in the coin of the realm” was the letters of appreciation he received from the public, many of which applauded him for taking on the job while being paid so little.
“If this resolution were to be adopted,” he told the senators, “I feel that a lot of those persons who honored me with their letters of commendation might feel that I let them down. . . . The comfort that I’ve derived from those letters . . . [has] been of more value to me than could any special compensation the Senate might see fit to award me.”
Senator Couzens and others urged him to reconsider, but the Hellhound of Wall Street would not be dissuaded.28
Chapter 10
DAY THREE: MANIPULATION
Next on the stand for Pecora was Hugh Baker, the president of the securities affiliate. Bald and severe in appearance, Baker was fifty-one, the same age as Pecora. He had worked for City Bank for nearly two decades, starting with the bank in 1914 and then becoming a salesman for the affiliate in 1916. Baker became National City Company’s president in 1929 when Mitchell was named chairman. Baker was one of the recipients of the City Bank morale loans, although his financial crisis couldn’t have seemed very acute, at least not to investors who had just been wiped out in the crash. Just a month before Black Tuesday, he purchased the top two floors of a new apartment building going up on Fifth Avenue. At the time, it was the largest cooperative apartment ever sold in New York City.1
Baker had been sitting in Room 301 for two days watching Pecora dismantle Mitchell and Rentschler. Both were still there. Mitchell had temporarily retired to the spectator’s row directly behind Baker. The “personification of American rugged individualism,” one reporter noted, now stayed close to his attorneys, all of them sitting politely and quietly with their hands folded in their laps. It would, the reporter noted, “unquestionably take a steamshovel to get [Mitchell] away from the enclosure of those high-priced, wise looking lawyers.” With the committee room still jammed with spectators, many loitering around the door because they had nowhere to sit, the soft-spoken Baker seemed afraid to answer even the simplest question for fear that Pecora would do to him what he had just done to Mitchell and Rentschler. Within the first few minutes of his testimony, Baker consulted a memorandum handed to him by his lawyers, and Pecora asked an innocuous question about whether the banker had a good or poor memory.
“Well, I would not boast about it,” Baker replied.
Pecora tried again and this time Baker said his memory was “probably about the average.” From there, the interchange between the two men quickly descended to the absurd.
“I do not know what the average is,” the lawyer explained, trying to get Baker to just answer his simple question.
“Neither do I,” Baker responded.
“I merely want to know the state of your recollection,” Pecora persisted. “Is it generally good or is it generally bad?”
“I do not know how to answer that question, Mr. Pecora.”
“You can not tell us whether you think you have a poor memory or a good one, is that it?”
“No; I can not answer that question.”2
It was a fitting start to a laborious day. Baker constantly battled Pecora on every point. Getting nowhere with him, the lawyer brought the company’s corporate secretary, Harry Law, to the stand. He was no more helpful. Law couldn’t answer a question without long pauses and whispered conversations with lawyers and the other executives from the bank. He incessantly twirled company documents in his hands as the whole room waited for his answer. Pecora was sure that Baker in particular was not being candid with him, and the lawyer wanted the record to reflect how long both men were taking to answer his questions. At one point he admonished Baker for the constant coaching he was getting: “Mr. Baker, do you consider yourself qualified, as the president of the company, to answer these questions, or do you think that someone else can answer them more accurately?”
As he was about everything else that day, Baker was unsure. “Well, probably there are others who can answer better—”
Pecora interrupted impatiently: “Is there anyone who knows more about the company’s transactions than you?”
“I don’t think so.”
“Then suppose you answer these questions and not have Mr. Law whisper the answer in your ear. Will you?”3
What Pecora was trying to pull out of Baker and Law was the story of how the National City Company ceaselessly flogged City Bank’s stock. The sales push during the crash, it turned out, was not an anomaly. Starting in 1928, the company intensely marketed City Bank stock to the public, not only to raise the price of the sto
ck, but because broad stock ownership benefited the bank. Stockholders became just another group to whom the bank could cross-sell its other financial products. Rentschler put it somewhat more diplomatically, testifying that there were “a great many collateral conditions flowing to the bank because of it” so that “it was a very desirable thing for [the bank] to broaden our contacts [and] to make it possible for more people to become stockholders in our bank.” Broad ownership was an integral part of the bank’s financial supermarket strategy, and the number of City Bank shareholders mushroomed from 15,000 in 1927 to 86,000 at the time of the hearing.4
The National Banking Act, the federal law governing nationally chartered banks, prohibited City Bank from directly trading in its own securities, but Mitchell and the other executives saw no reason why the company could not trade the bank’s shares. It was not, after all, a national bank. As Pecora had begun to show late the previous afternoon with Rentschler, however, the bank was walking a fine line. In bank branches without employees of the affiliate, bank employees would take orders for stock. The affiliate benefited enormously from the bank’s large capital base. It could borrow up to 10 percent of the bank’s capital to finance its activities in the securities markets. In 1928, as City Bank’s stock price skyrocketed, Mitchell split the stock five for one, decreasing its price by 80 percent, so that more middle-class buyers could afford it. National City salesmen were constantly pushed to sell the bank’s stock, and even received premium commissions when they did so, giving them even greater incentives to urge the stock on their customers. Because the trustees who ran the company were City Bank officers and directors, the line prohibiting national banks from securities trading was, at the very least, decidedly smudged, if not entirely obliterated.5
The Hellhound of Wall Street Page 21
