The Plots Against the President

by Sally Denton

  The nation was giddy in its response to their deliverer. “Roosevelt is the greatest leader since Jesus Christ,” a prominent businessman was quoted as saying. “I hope God will forgive me for voting for Hoover.”

  Chapter Twenty-four

  A Gang of Common Criminals

  Roosevelt’s first two weeks in office seemed to herald a new America in which despondency was replaced with gusto, inertia with activity. It was as if the president’s inveterate cheeriness had rubbed off on everyone. “For the first time since we can remember we are trying to be a unified people,” said Labor Secretary Frances Perkins.

  Initially the economy recovered rapidly. By March 15, 1933, 76 percent of the country’s Federal Reserve member banks had reopened. The following day, the New York Stock Exchange, which had been dark for ten days, opened for business, marking the beginning of a new bull market in which the Dow jumped a historic 15 percent. More than a billion dollars in cash had been redeposited in the nation’s banks and the hoarding had come to a standstill—or so it appeared.

  The situation must have galled Herbert Hoover, who, embittered and disheartened, had retreated to his Palo Alto, California, home. “A bank rescue plan introduced by Roosevelt, a man he despised, drafted by Hoover’s own people on principles he had originally proposed, had in the space of a week restored confidence that had eluded poor old Hoover in three years of fighting the Depression,” said one account.

  However, the glowing relationship between Roosevelt and the “banksters” he had just saved would not last. Inevitably, their temporary sense of relief gave way to their characteristic sense of entitlement, and they began to bristle at Roosevelt’s dictatorial control of their industry. “The bankers were aware that they had put their heads into the lion’s jaws and at first tried to be friendly,” wrote Matthew Josephson, a Wall Street insider turned journalist. While at the beginning of the presidency there was “sort of a love fest between Roosevelt and the House of Morgan,” by late spring the bloom was off the rose. Recognizing the government bailout as an opening salvo in a battle that would pit government regulation against unfettered capitalism, Wall Street—the bogeyman of the Depression—jostled to return to its pre-crash supremacy.

  “White-shoe Wall street suddenly seemed no better than a gang of common criminals, skimmers, double-dealers, and confidence men,” said one historian, and Roosevelt, although a member of the same patrician class, could not ignore the populist impulse to hold them accountable. The House of Morgan, more than any other firm, emblemized the greed, chicanery, and rampant corruption of finance capitalism. Promising to restrain the oligarchy that had strangled the nation’s economy, Roosevelt threw his support behind a fiery Italian-born lawyer named Ferdinand Pecora. As chief counsel to the Senate Committee on Banking and Currency in its inquiry into the cause of the 1929 stock market crash, the diminutive Pecora was the guiding force behind the most successful congressional investigation in American history. In Pecora’s world, no one was above the law, and subpoenaed witnesses who appeared before the committee “in imposing succession,” as he later wrote in his memoir, Wall Street Under Oath, were “the demigods of Wall Street, men whose names were household words, but whose personalities and affairs were frequently shrouded in deep, aristocratic mystery … Never before in the history of the United States had so much wealth and power been required to render a public accounting.”

  That Roosevelt chose to back Pecora 100 percent—giving muscle to a probe that had foundered under the Hoover regime—signaled a seriousness of presidential purpose that the Wall Street titans had gravely underestimated. Heir to the 1913 Pujo Committee investigation into the ruling-class “money trust” believed to dominate the nation’s economy, the Pecora Committee had an even broader mandate. U.S. Supreme Court Justice Louis Brandeis had written a series of articles for Harper’s Weekly that drew from the Pujo findings and charged that a consortium of investment bankers and insurance companies were conspiring to control American industry through the use of “other people’s money.”

  In the twenty intervening years since Louisiana congressman Arsène Pujo’s investigative committee first shed light on Wall Street practices, the American economy had drastically worsened. More than half of the fifty billion dollars’ worth of stocks sold in the country during the 1920s had been “undesirable or worthless,” according to the House Commerce Committee. “Securities houses of the most reputable banks manifoldly increased their profits at the expense of their own clients,” according to an official account of the nation’s banking and securities condition. “Powerful investment bankers continued to fill key corporations’ boards of directors. Overly optimistic loan programs threatened vast banking chains with domino-like collapse. Utility holding companies teetered precariously in an intricate system of interlocking directorates with little regard for corporate efficiency or local requirements. Concurrently, the federal government remained willfully ignorant of stock exchange and private banking operations.”

  Warning that “we must break the Money Trust or the Money Trust will break us,” Brandeis’s treatise became a battle cry for political and financial activists of the early 1930s. His articles had been published in book form in 1914 under the title Other People’s Money and How the Bankers Use It, which became an instant bestseller when it was reprinted in 1933. The new edition was ubiquitous on Capitol Hill, with copies found in various committee rooms as “old and young liberals alike carried its message to Washington with the new Roosevelt Administration.”

  Although Florida senator Duncan U. Fletcher was chairman of the Banking and Currency Committee, it was the slight but indomitable Sicilian with the flashy black pompadour who would be the committee investigation’s namesake. By May 1933, every newspaper in America carried sensational front-page stories about the venality and mendacity of the nation’s most prestigious bankers, and Pecora’s fame was comparable to that of rock stars of later generations. The press was riveted by the probe, showering Pecora with publicity in his giant-slaying pursuits—the feisty immigrant taking on the dour blue-blooded tycoons. With the full support of Congress and the president himself, Pecora had stronger subpoena powers than had ever been granted in a congressional investigation. If that were not enough—if witnesses balked or stonewalled, as they were wont to do—he “marched his staff directly into the banks and brokerage houses” and gathered whatever material he needed.

  He called the financiers before the committee and elicited gripping confessions of depravity, incompetence, self-dealing, and irresponsibility. Testimony revealed how Wall Street insiders hired publicity agents, journalists, and radio announcers to hawk certain stocks, thereby manipulating the market; how National City Bank (forerunner of today’s Citigroup) sold worthless bonds; how bankers systematically abandoned their fiduciary responsibilities; and how J. P. Morgan, who wielded extreme personal and unregulated power over billions of dollars in profits, created elaborate machinations to dodge taxes. Morgan partners, in what was effectively a cozy and exclusive men’s club, held 126 directorships in eighty-nine corporations. Most infuriating to the Depression-era public were the disproportionate compensations and bonuses to those who had deceived and thieved common Americans. Dubbed the “hellhound of Wall Street” for his relentless pursuit and exposé of its underbelly, Pecora and his committee would change the relationship between Washington and Wall Street—at least for a few decades.

  When J. P. Morgan Jr. took the witness stand on May 23 in the committee’s marble-floored conference room, he became symbol and metaphor for what went wrong in America. His father, the founder of the great Anglo-Saxon banking firm J. P. Morgan and Company, commonly known as the House of Morgan, had been called before the Pujo Committee twenty years earlier and had managed to mockingly evade substantive scrutiny. Now the son appeared “less than lordly,” fidgeting, and “flushed with annoyance and embarrassment,” according to one account. Pecora had uncovered devastating documentation of Morgan’s “preferred list” of “our
close friends.” Morgan offered these well-placed men—including former president Calvin Coolidge, Herbert Hoover’s treasury secretary, Woodrow Wilson’s treasury and war secretaries, U.S. Army General John J. Pershing, the president of the U.S. Chamber of Commerce, and the chairmen of both the Democratic and Republican National Committees—common stock prices at nearly half their current market value. “It is nothing more or nothing less than bribery,” railed Republican governor Alfred M. Landon of Kansas of the windfalls that averaged fifteen thousand to twenty thousand dollars each. Republican senator James Couzens of Michigan was appalled at the bipartisan financial world that was exposed, with leaders of both parties groveling to the House of Morgan. “When it comes to money, there are no Republicans or Democrats. Rich men never fight each other seriously. There is the finest coalition of all parties when it comes to control of the Treasury of the United States.”

  The most headline-grabbing testimony by Morgan was the revelation that neither Morgan nor any of his partners had paid income tax for the past three years, and he intended to rely on loopholes to avoid paying any in 1933. At a moment when Roosevelt was determined to raise $220 million by an increase in individual income tax rates, Morgan’s haughty defiance would galvanize the nation in its disgust for the establishment regime and set the stage for authentic reform.

  Among those most vocal in pursuit of the Wall Street money changers were Father Charles Coughlin and Huey Long, who both stood ready to hijack the populist agenda away from Roosevelt. Long stridently accused Roosevelt of packing the Treasury Department with appointees from the House of Morgan. In a blistering speech on the floor of the Senate, which he called “Our Constant Rulers,” Long lamented the influence that the “bloated masters of fortune and power” enjoyed in the new administration. “Instead of being out of the temple, they not only inject themselves in the temple but they sit in the seats of the mighty and pass judgment on the balance of us who waged that fight to deliver the country back to the American people.” Long charged that Morgan owned a hundred suits—“each one stolen from the back of a workingman.” Such an allegation was especially ironic considering Long’s own sartorial extravagance.

  Like Long, Coughlin began to backtrack from his initial support of Roosevelt. He soon trotted out the timeworn conspiracy theories, first put forth by Henry Ford during World War I, that the American and British financiers connived to draw America into the war. Drawing on the anti-European isolationist trends that erupt every few decades in America, Coughlin made the leap from criticizing the debased “international bankers” to the international Jewish bankers. At first he praised Roosevelt’s New Deal as “Christ’s Deal,” but once he became convinced that Roosevelt was failing to drive the “shylock banksters”—widely believed to be primarily Jewish—“from the temple,” he began referring to it as the “Jew Deal.” To the priest from the Church of the Little Flowers, bankers were synonymous with Communists, and he used his radio pulpit—reaching as many as forty million people—to incite fear of a Judeo-Masonic led world domination plot.

  Chapter Twenty-five

  Traitor to His Class

  The attacks on Roosevelt by Huey Long and Charles Coughlin were acutely misdirected, as it was Roosevelt who had first singled out the “unscrupulous money changers” for special derision. In his inaugural address, then in the fireside chat, FDR had excoriated the bankers for their dishonesty and incompetence. It was Roosevelt who had complained that “fewer than three dozen private banking houses and stock-selling adjuncts in the commercial banks have directed the flow of capital within the country and outside it,” and who had vowed, while campaigning for the presidency, to implode the “economic oligarchy.” It was Roosevelt who had emboldened Pecora, thrown his invincible backing behind Pecora’s committee, and immensely enjoyed watching the public airing of Wall Street’s dirty laundry. It was Roosevelt who had pledged vigorous government intervention, promised to level and democratize the toxic system, and set his team of economic advisers on a course to create reform legislation.

  Senator Couzens, who, as a member of the Committee on Banking and Currency, was instrumental in bolstering Pecora, believed that Roosevelt personally urged the Wall Street inquiry to garner congressional and public support for his New Deal legislation. Throughout the probe, Roosevelt, like Pecora, accumulated powerful and vindictive enemies, and his forceful challenge to the patrician powers-that-be would inspire the charge that he was a “traitor to his class.” While much would be made of this accusation, in fact it was the other way around: His class would betray him. The “captains of Wall Street, still within the shadow of panic and depression, gave utterance to little outspoken criticism of the New Deal,” Pecora later wrote. “Their cry then was that we were all victims of a common calamity, due not to bankers’ guilt, but to human fallibility.” But as Roosevelt’s policies and reforms were manifested, these “captains” would regard Roosevelt with captiousness and turn ferociously against him and his New Deal.

  The fifty-one-year-old Pecora had officially begun his investigation in February 1933, following the first bank moratorium declared by the governor of Michigan. Once Roosevelt had been inaugurated and the Senate had begun rushing through his first hundred days of legislation, Pecora accelerated the inquiry, which paved the way for the passage of the groundbreaking Glass-Steagall banking reform bill. Amassing more than twelve thousand pages of bank documents, culling private income tax records, and subpoenaing internal data from investment firms, Pecora’s staff of attorneys and accountants pored over the material, which was stored in trunks guarded by armed Bureau of Investigation agents. Evidence was overwhelming that depositors were bilked when commercial and investment banks gambled their funds in the stock market, and that unethical manipulation and insidious conflicts of interest had triggered the 1929 crash. Pecora summarized the committee’s findings:

  The testimony had brought to light a shocking corruption in our banking system, a widespread repudiation of old fashioned standards of honesty and fair dealing in the creation and sale of securities, and a merciless exploitation of the vicious possibilities of intricate corporate chicanery. The public had been deeply aroused by the spectacle of cynical disregard of fiduciary duty on the part of many of its most respected leaders; of directors, who conveniently subordinated their official obligations to an avid pursuit of personal gain; of great banks, which combined the functions of a bank with those of a stock jobber; of supposedly impartial public markets for the sale of securities, actually operated as private clubs for the individual benefits of their members.

  On May 25, while J. P. Morgan was still testifying before Congress, the Senate passed the historic Glass-Steagall Act, requiring banks to eliminate securities operations; guaranteeing individual bank deposits up to $2,500, which provided security to the average citizen; allowing the Federal Reserve Board to set interest rates; and creating the Federal Deposit Insurance Corporation (FDIC). Roosevelt proudly pointed to that legislation and other reform measures, claiming they “had brought about the transfer of the financial capital of the United States from Wall Street to Washington.” Thanks to Roosevelt’s decree, the supply of hoarded gold had been returned to the central bank and going off the gold standard stripped international bankers of their unchecked power. Meanwhile, the stock market was recovering, the dollar was rising in the international money market, and wheat and cotton prices were climbing as a result of an emergency farm relief bill allowing the administration to subsidize the farm economy—all of which made “a happy springtime for the New Deal,” as one Wall Street historian said. Even Morgan congratulated Roosevelt for taking the country off gold, and one Morgan financier wrote the president: “Your action in going off gold saved the country from complete collapse. It was vitally necessary and the most important of all helpful things you have done.”

  But the bankers who had been so enthralled with Roosevelt when he was rescuing the banks and saving the private enterprise system now intensely opposed his experiment
al corrective measures. Wall Street critics began calling him a “demagogue” and a “fascist,” and his antagonist Al Smith referred to the new currency as the “baloney dollar.”

  By late May—barely three months after FDR took office—the “happy springtime” was over and the backlash against him was under way. When Roosevelt became president, one out of every four heads-of-household was unemployed. He had vowed to restore the country to prosperity, to put Americans back to work, and to build the nation’s infrastructure, and by May 1933 he had already taken numerous steps in that direction—a groundbreaking experiment that spurred his enemies into action.

  The nation’s reactionary fringe, on both the Left and the Right, began to mobilize to attack him personally and to undermine his presidency. In addition to his predictable Wall Street adversaries, political dissidents rose to challenge him. The Left contended that his policies were not doing enough to redistribute the nation’s wealth, with one prominent socialist claiming that Roosevelt’s efforts to fix the economy were like “trying to cure tuberculosis with cough-drops” and one of America’s top Communists writing that “Mr. Roosevelt is nothing more or less than a lightning rod for capitalism to protect it from danger.” The Right, calling him a “Socialist” or “Communist,” claimed that Roosevelt had concentrated too much power in the government rather than the individual and was interfering with free market capitalism. “Although some people mistakenly identified Roosevelt as a Communist or a Socialist,” two twentieth-century scholars wrote, “they were usually people who could not have recognized a Communist or a Socialist had they met one in the street. Communists and Socialists never mistook Roosevelt for one of their own. In fact, Roosevelt was so unconvincing a liberal … that even liberals refused to claim him.”