Guest Post: Review of Ferdinand Pecora’s "Wall Street Under Oath"

Submitted by DoctoRx, who comments on the economic and financial scene at EconBlog Review.

In a few months during what was likely the worst financial crisis of the Great Depression- the tumultuous events of early 1933 culminating in closure of all banks in most states and then FDR’s sweeping bank “holiday”, a man who had previously been a relatively obscure assistant district attorney helped galvanize the public to support real reform of the financial system, met several times directly with Roosevelt to plot strategy, and made the cover of Time. Almost overnight, he became so famous that the ongoing and previously desultory Senate Banking and Currency Committee’s investigation of the Crash, of which Ferdinand Pecora had been named the fourth Chief Counsel, has ever since been known as the Pecora Commission (or Pecora Investigation) rather than by the name of the presiding Senator.

Pecora, an immigrant from Sicily and the son of a cobbler became a national sensation because of his brilliant interrogation of a series of Wall Street icons such as Charles Mitchell, head of National City (renamed Citicorp in later life) and J. P. Morgan (“Jack”, the son). His interrogation of Mitchell was so devastating that Mitchell was forced from office immediately after Pecora et al finished with him.

Roosevelt felt he needed an energized public to push through financial reforms, and Pecora delivered the goods. The Pecora Investigation is given a great deal of credit for creating the momentum for the signature legislation between 1933 and 1935 that helped save Wall Street from its own excesses. When the investigation wrapped up, FDR named Pecora to become a founding commissioner of the newly-formed Securities and Exchange Commission, which he soon left to serve as a Supreme Court Judge for the State of New York.

Alarmed by increasing aggressiveness of the financial community in pushing back against these laws, Pecora published “Wall Street Under Oath” in 1939 to aid the New Dealers’ push back against the push-back. This book, now out of print, is an astonishing “read” in light of the financial events of the past decade.

According to the charts on, the current broad stock averages are down exactly as much in real terms from 2000-2009 as from 1929-38. If one adjusts for different levels of dividend payouts and competing Treasury interest rates as a discount factor, as well as tax rates, it appears that the current 9-year bear market is worse this decade than it was then. Thus this review of a book written a decade after the beginning of the Great Crash is timely.

Because “Wall Street Under Oath” is out of print and because the issues involved in the financial crisis 2007-9 and the 1990’s bubble and subsequent crashes are well-known, this review shall quote liberally from Pecora’s book and editorialize little.

The Preface, which is the only part of the book available on the Web, lays out Pecora’s purpose in writing the book:

Under the surface of the governmental regulation of the securities market, the same forces that produced the riotous speculative excesses of the “wild bull market” of 1929 still give evidences of their existence and influence. Though repressed for the present, it cannot be doubted that, given a suitable opportunity, they would spring back into pernicious activity.

Frequently we are told that this regulation has been throttling the country’s prosperity. Bitterly hostile was Wall Street to the enactment of the regulatory legislation. It now looks forward to the day when it shall, as it hopes, reassume the reins of its former power.

That its leaders are eminently fitted to guide our nation, and that they would make a much better job of it than any other body of men, Wall Street does not for a moment doubt. Indeed, if you now hearken to the oracles of The Street, you will hear now and then that the money-changers have been much maligned. You will be told that a whole group of high-minded men, innocent of social or economic wrongdoing, were expelled from the temple because of the excesses of a few. You will be assured that they had nothing to do with the misfortunes that overtook the country in 1929-33; that they were simply scapegoats, sacrificed on the altar of unreasoning public opinion to satisfy the wrath of a howling mob blindly seeking victims.

These disingenuous protestations are, in the crisp legal phrase, “without merit.” The case against the money-changers does not rest upon hearsay or surmise. It is based upon a mass of evidence, given publicly and under oath before the Banking and Currency Committee of the United States Senate in 1933-1934, by The Street’s mightiest and best-informed men. . .

After five short years, we may now need to be reminded what Wall Street was like before Uncle Sam stationed a policeman at its corner, lest, in time to come, some attempt be made to abolish that post.

Pecora then walks the reader through the high points of the investigation, much of which involves then-legal abuses. Among them was the tie-in of commercial banking with the securities business, an “innovation” pioneered by the predecessor of Citibank. He shows that the Justice Department under William Howard Taft found this practice illegal, but no one enforced it, and by the time Pecora looked for that opinion, the original document had vanished (!), leaving only a carbon copy.

Echoes abound. The House of Morgan is shown floating untouchably above the fray, whereas “Citicorp” (National City Bank/National City Corp. at the time) is the low-end villain. How much did the Commission detest National City? Here is Time magazine in “Damnation of Mitchell” from March 1933:

‘Mitchell more than any 50 men is responsible for this stock crash.’ – U. S. Senator Carter Glass, November 1929.

Last week, Charles Edwin Mitchell was brought to trial. He could not see his judges-they were that inchoate multitude, the U. S. people. Verdict (uttered in a vast mumble of expletives as evening headlines followed morning): that Charles Edwin Mitchell, as chairman of the largest bank in the U. S., had been a thoroughly wicked banker.

The trial was not the kind which is explained in any handbook of civics. It took place in the headlines and in Room 304 in the U. S. Senate office building where sits the Senate Committee on Banking & Currency. Defendant Mitchell had been charged with no crime. . . There was no attorney for the defense. There was, however, a prosecution. It consisted of 1) six to a dozen Senators and 2) a man quite as remarkable as any of the Senators, Ferdinand Pecora.

One of the Senators . . . was Virginia’s patrician Carter Glass, but, bored by Senatorial exhibitionism, he never attended.” . . .
Ferdinand Pecora, most brilliant lawyer of Italian extraction in the U. S., finished public schools at 12. At 18, after loping through his brother’s law books, he was managing clerk of a law firm. Even on the most complex cases (which he, tireless, likes best) he never needs notes, never forgets a word of testimony once it is on the record. One of his most famed convictions was that of former New York State Superintendent of Banks Frank H. Warfer for his part in the failure of Manhattan’s City Trust Co. in 1929. At 47, his black eyes flash, his black hair bristles.

Last week . . . Mr. Pecora put on the show. Banker Mitchell proceeded to say enough to damn himself to the satisfaction of the Committee, Mr. Pecora and a large part of the U. S. people . . .

Ed. The hearings adjourned for the weekend; bankers went wild in the opposite direction of the public mood. The Time article continues:

. . . bankers high & low throughout the land, while not condoning the acts of 1929, loudly proclaimed that last week the greater villains were U. S. Senators who would risk the credit of the U. S. by putting scandal into the headlines when Confidence had already received body-blows at St. Louis, New Orleans, Michigan and in many another state (Ed.: the banking crisis).

But the Senate Committee had succeeded in getting its man. On Monday morning at 9 a. m. Charles Edwin Mitchell, 66, resigned . . . hours later the directors of National City Co. accepted the resignation of President Hugh Baker. Mr. Mitchell and Mr. Baker returned to Washington for further grilling.

The book is long on irony and avoids dwelling on the pathos of the era. The one personal victim described in any detail is used to lead to the larger point:

Mr. Edgar D. Brown was a resident of Pottsville,Pa. In 1927, he had $100,000 and was looking forward to a trip to California for his health. In 1933, he had nothing, and was clerking for the poor board of Pottsville. Here is his story, typical of those of a great many others, as graphically told to the Senate Committee.

What happened to Mr. Brown was that he went to National City Company, the securities affiliate of National City Bank, and trusting that the Company would have the same probity as the bank affiliate whose good name it used, was put first into speculative bonds on margin and then, having complained to the broker that these bonds were losing value, he explained to the Committee that the broker responded:

Mr. Brown: “Well, that is your fault for insisting upon bonds. Why don’t you let me sell you some stock?”. . .
Mr. Pecora: Did he buy stocks for your account?
Mr. Brown: Might I answer that facetiously? Did he buy stocks! (Great and prolonged laughter.)

Subsequently, Mr. Brown was put into stock after stock, and:

About October 4, 1929 he went into the National City bank branch in Los Angeles and ‘asked them to sell out everything.

Mr. Brown: I was placed in the category of the man who seeks to put his own mother out of his house. I was surrounded at once by all of the salesmen in the place, and made to know that that was a very, very foolish thing to do.
Mr. Pecora: That is, to sell your stocks?
Mr. Brown: Especially to sell the National City Bank Stocks. . . I then received an unsolicited wire from their agent in the East (Brown reading) “National City Bank now 525. Sit tight.”. . .

A few weeks later came the crash. Mr. Brown was naturally sold out, most of his capital irretrievably gone. His efforts to borrow money from the bank in which he had placed such confidence were met with the suave reply that a loan was impossible ‘unless the borrower has assured earning power and could pay off the loan within six months.’ But Mr. Brown then had no such earning power, he was ‘forty years of age-tubercular-almost totally deaf-my wife and family are depending on me solely and alone and because of my abiding faith in the advice of your company I am today a pauper.’

In one of his very few personal outbursts rather than lawyerly phraseology, Pecora editorializes: “Just another little man wiped out, a victim of high-pressure salesmanship!

The reader can feel the outrage of Pecora, initially a Teddy Roosevelt Progressive and later of course an ardent New Dealer.

Pecora the author does not allow his doggedness and work ethic to show, with perhaps an inadvertent exception. He describes the workings of a “pool” manipulating the stock of a small alcohol producer poised to benefit from the expected repeal of Prohibition. Of course, as soon as it became clear that Prohibition would be repealed, in mid-1933, the pool dumped the stock, which quickly halved in price. The New York Stock Exchange allegedly was unable to find evidence of the stock manipulation. Despite his crushing workload in Washington, Pecora personally went to New York and recounts:

Finally, the writer (Ed.: Pecora) received a letter from Mr. Richard E. Whitney, as the Exchange’s President, informing him that the investigation had brought no evidence of wrongdoing to light, and that ‘there were no material deliberate improprieties in connection with transactions in these securities.’

This information left the writer incredulous. He (Ed.: again, Pecora himself) . . . investigated for the Committee with his own limited facilities. It required only a few days to come upon written proofs of the pool operations described above, among the records of the brokerage firm of W. E. Hutton and Company, in which Mr. Ben Smith (Ed.: manager of the pool) then had his office. The writer, incidentally, had been assured that W. E. Hutton and Company’s office had previously been visited and was still being examined by the Exchange’s investigators in its own sweeping search for the truth. The writer is still uncertain why those investigators had not succeeded in finding it.”

How droll a wit the man had! (And we wonder today what legal or illegal collusion would be revealed from a review of non-public documents.)
The final two chapters are the most important from a modern perspective. Chapter 13, “After the Investigation,” begins:

The investigation was not completed until June, 1934. But long before that date the defects it had laid bare in our financial structure had already led to the institution of a sweeping program of reforms. The old regime of unlimited license may be said to have definitely come to an end. (Ed.: But it came back.) 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. (Ed.: Which also came back.) 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 benefit of their members.” (Ed.: The Establishment has been successful in inhibiting real outrage.)

He then goes on to explain the major Acts of reform:

The Banking Act of 1933, which separated commercial banking from “security flotation and market plunging”;
The Securities Act of 1933-“the so-called ‘Truth in Securities’ bill”;
The Securities Exchange Act of 1934; and
The Public Utility Holding Company Act of 1935.

The amount of opposition, even after the Acts were passed, was immense. The book quotes Silas Strawn, former President of the American Bar Association and the U. S. Chamber of Commerce, who opined: “I believe there is an abundant market for securities, if the Securities Act did not prevent their issue and distribution”.

As if the Depression itself were not inhibiting IPOs!

The final chapter establishes Pecora as a 20th Century Nostradamus. Titled “A Word about the Future”, it first provides some humble quotes from 1933 from Charles Mitchell and Otto Kahn (Kuhn, Loeb), which quotes are most interesting for the lack of similar apologies from today’s generation of dancing financiers. He then continues:

The more business recovered, however, and the stronger it felt, the more openly and bitterly did Wall Street oppose any sound program of reform. In place of the humble disclaimers of omniscience of March, 1933, the titans of finance developed once again an arrogant self-confidence and a dogmatic assurance that any attempt to restrain their own activities must inevitably mean the ruin of the country.

Even so mild a measure as the creation of the Federal Deposit Insurance Corporation became a target of vehement resentment. . . .

The ‘Truth in Securities’ bill was condemned as a measure which would ‘hinder legitimate business without accomplishing any essential purpose.’ To the Merchants’ Association of New York ‘it was almost self-evident’ that practically no individual dealer or banking house would assume the personal liability provided for in the Act.

The above and other pointed comments were but lead-ins to Pecora’s main villain:

. . . The real center of warfare, so to speak, remained the New York Stock Exchange. . .
“In one field after another, the necessity for some measure of public control, where private ownership failed to meet its social responsibilities, has been recognized. Public utilities-railroads-“business affected with a public interest”-banks-industry generally, all came to regard public supervision as normal and beneficial.

But there was one important outpost that resisted the tide of progress-the New York Stock Exchange, the last citadel of ‘rugged individualism.’ Since its foundation in 1791, it exercised complete control over its own practices and jealously guarded its self bestowed privileges. Despite the fact that it was intimately intertwined at a thousand point with vital interests of the public, it knew no law but its own will. . .

The disclosures of the shocking practices and base uses to which the Exchange was customarily put, stripped it of its mystery and sanctity, and dissipated the awe with which it had been regarded. Fighting at every step, it finally went the way of all flesh. Like the humblest of us all, even the might Stock Exchange must now recognize the existence and authority of the United States Government. . .

The book ends with a warning:

. . . It is certainly well that Wall Street now professes repentance. But it would be most unwise, nevertheless, to underestimate the strength of hostile elements. When open mass resistance fails, there is still the opportunity for traps, stratagems, intrigues, undermining-all the resources of guerilla warfare. These laws (Ed.: the aforementioned Acts) are no panacea; nor are they self-executing. More than ever, we must maintain our vigilance. If we do not, Wall Street may yet prove to be not unlike that land, of which it has been said that no country is easier to overrun, or harder to subdue.

And with that, Judge Pecora concludes the summary of his case. Each reader can judge how well our modern era has done in heeding his warning.

Congress is nowadays from time to time heard to mumble about a new Pecora Commission. Let us not forget the massive pump and dump stock shenanigans of the late 1990s which led only to one-off trials and the limited Sarbanes-Oxley law. Let us recall that no Congress since the passage of Sarbox has passed important legislation to limit or prevent the housing and credit bubbles or, the power of Big Finance. We note that the President’s two main finance and economic advisers are Robert Rubin protégés.
It therefore would appear that the chance that this Administration and Congress will truly take on Big Finance in any way, shape or form as did Ferdinand Pecora in alliance with Franklin Delano Roosevelt will remain vanishingly low unless, perhaps, a yet greater calamity engulfs our financial system and it would then be expedient for politicians to turn on their current allies in Big Finance.

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  1. Oregon Guy

    A search on Powells Books turns up nothing. It would be a public service for someone to scan Pecora's book and put the entire thing on the web.

    There will be no Pecora commission today: Congress in 2009 is even more bought and paid for than Congress in 1929. Obama might lead the way, but he wants his legacy to be sweeping social policies not in the realm of the economy.

    Perhaps the next crisis will spur reform. With no real reform now, we won't have to wait long.

  2. "DoctoRx"

    Oregon Guy:

    I agree with all your points. Re your third point, perhaps you would concur that the current crisis has not ended.

    Dr. Harrison: Thank you for your very kind comment.

  3. Hugh

    I concur. Great post.

    Re the signature legislation:

    The Banking Act of 1933 or Glass-Steagall was weakened and then repealed in 1999.

    The Securities Act of 1933-“the so-called ‘Truth in Securities’ bill” has been massively ignored

    The Securities Exchange Act of 1934 The SEC went from being a watchdog of Wall Street to its poodle

    The Public Utility Holding Company Act of 1935, this was repealed in 2006. The repeal allowed previously regulated utilities to set up holding companies that could greatly expand in size, move into, and manipulate unregulated markets.

    As Pecora said, these are not self-executing but some like Glass-Steagall and PUHCA were dumped anyway.

    The current so-called Pecora Commission put together by Congress is, of course, nothing of the kind. It simply appropriates the name but dodges the purpose. What made Pecora so effective was not that he was smart or angry but that he was smart and angry. Outside of blogs like this one, I see no evidence of that combination in our public discourse. I especially don't see it on Capitol Hill or on Pennsylvania Avenue.

  4. Doc Holiday

    Nicknamed "Sunshine Charley," Mitchell was elected president of National City Bank (now Citibank) in 1921, and in 1929 was appointed chairman. Also in 1921, he was elected president of National City Company, which became the largest security issuing entity in the world. Under his leadership, the bank expanded rapidly and by 1930 had 100 branches in 23 countries outside the United States. His salesmen sold millions of shares in the bank totaling $650 million, much of which would be lost in the Crash of 1929. Indeed, while the Federal Reserve Bank was attempting to curb speculation earlier in 1929, Mitchell flaunted a $25 million advance to traders.
    Mitchell remained chairman until 1933, when he was arrested and indicted for tax evasion by then Assistant U.S. Attorney Thomas E. Dewey.[1][2] He was found not guilty of all criminal charges, but the government won a million dollar civil settlement against him. In 1933, the Senate's Pecora Commission investigated Mitchell as its first witness for his part in tens of millions dollars in losses, excessive pay and tax avoidance. In November 1929, Senator Carter Glass said of him, "Mitchell more than any 50 men is responsible for this stock crash."[3]
    He died penniless in New York City. His townhouse on Fifth Avenue, built for him by Walker & Gillette in 1926, with a rusticated facade in the manner of a 16th-century Roman palazzo, now houses the French consulate.

    Praise Be Wiki

  5. tom a taxpayer

    Today is there anyone like Pecora who will fight the multi-headed Wall Street beast and make an historic difference? Thank you, DoctoRx, for showing that one man can fight Wall Street and make an historic difference.

    It takes only one prosecutor to investigate just one crime, and follow the money and the connected crimes, and bring down the entire criminal enterprise using a Racketeer Influenced and Corrupt Organizations Act (RICO) prosecution. This is a target rich environment, and the criminal activities (fraud, Ponzi schemes, blackmail, looting of treasury, cover-ups, etc.) are continuing today. So the investigation and prosecution can begin anywhere, with Countrywide, the mortgage industry and the appraisers or Freddie and Fannie or Citi and the big banksters or with Goldman Sachs and other Wall Street investment banks and brokerages or the rating agencies or AIG or with the federal co-conspirators at U.S. Treasury, SEC, OTS, and the Federal Reserve or with Hank "the mole" Paulson, Ben "the bag man" Bernanke, Tim "the patsy" Geithner, or the members of Congress who took money to facilitate the criminal enterprise.

    It takes only one prosecutor to bring down the entire mob that raped and pillaged the mortgage industry, ruined the housing market, destroyed the credit system, endangered municipal financing, pension funds, and the banking system, sent the economy into a downward spiral, endangered the world financial system, and now extort the U.S. and the world to pay them billions in ransom or face the destruction of the world financial system and economy.

    Using RICO, it takes only one prosecutor to initiate investigations leading to the arrest and prosecution of the hundreds of criminals responsible for committing the greatest financial crimes in U.S. history.

    To make a difference today, mass prosecutions are needed in style of the Maxiprocesso (Maxi Trial) of the Mafia in Sicily during the mid-1980s that resulted in hundreds of defendants convicted. If Pecora, an assistant District Attorney and immigrant from Sicily, were here today, I think this time he would lead a RICO prosecution and MaxiTrial of the Wall Street Mafia.

  6. NOTaREALmerican

    The Pecora's of today would be part of the same social class as the banksters and the rest of the insiders. Societies in the 30's were different. The "working class" might actually have had some geniuses floating around. Now, the geniuses get scholarships to Harvard, network with the scum, and run the country.

    Personally, I think anybody with half a brain would be better off finding an exit OUT of the US than wasting any time trying to “save” it. The majority of the peasants are perfectly happy with the current mix of circus and bread – they don’t really want things “fixed” as they actually know they’ve got "enough". If it wasn't for family commitments I'd be trying to get into NZ, the last unpopulated civilized place with good weather (and good wine). But, it's almost too late for me.

  7. Greg

    I have read "Wall Street Under Oath." I also spent several months of my life, when I was a student, reading volume after volume of the transcripts of the Pecora hearings. Like most people, before I actually read the transcripts, I had accepted the consensus view of the hearings as a great truth-finding mission led by the intrepid figure of Pecora. What I found, though, was a Vyshinski-like show trial, where Pecora had prejudged every issue, and he mercilessly browbeat and shouted down every witness who disagreed with his preconceived ideas or attempted to explain why he was wrong.

    One example that sticks in my mind, because it was the subject of my research: During the 1920's, it was common for investors to form investment pools for the express purpose of staging manipulating a stock's price, which was legal in those days but has been illegal since the securities acts were passed. These were the pools that I was investigating. The objective of my research was to identify pools that had been formed for the purpose of creating "bull runs" and "bear runs," and to try to figure out how profitable these pools had been.

    My research was complicated by the fact that in those days, a "pool" in Wall Street parlance was a very broad term. It meant any investment vehicle in which a group of investors pooled their funds for an investment purpose. A “blind pool” was a pool that would invest in stocks which had not been identified to investors in advance of forming the pool. Many pools were created for the purpose of creating bull and bear runs. Most of the time, though, pools were formed for other purposes. Sometimes the purpose was to manipulate stock prices, but not through bull and bear runs. For example, the pool might be formed to acquire shares in an initial offering, either to reward favored friends with cheap IPO stock (which remained legal until after the tech crash in 2001) or to stabilize the stock's price in the days after the IPO (which is still legal today).

    In the vast majority of cases, however, "pools" were not formed for any of these purposes. Instead, these “pools” were what we would today call "mutual funds" or "hedge funds." Investors entrusted their money to an investment manager who would then invest it at his discretion in whatever investments he thought might be profitable. All such "pools" were, of necessity, "blind pools," just as today's investment funds are "blind pools," because the investment manager had not yet decided what to invest in, and would in fact, buy and sell stocks over time as he thought most likely to be profitable.
    Pecora seemed unable or unwilling to grasp these distinctions. He had formed the notion that all "pools" were formed for manipulation, and whenever he interrogated a witness about a pool, he demanded a confession of its sinister, manipulative purpose. No matter how often and how patiently a witness tried to identify for him which pools had been “bear” or “bull” or “stabilization” pools and which had been mere innocent investment funds, he obstinately refused to hear or understand them. For the most part, his witnesses had nothing to hide, since all of these practices had been perfectly legal at the time, but Pecora sneeringly accused them all of being liars and crooks. Pecora created so much confusion that, in the end, I had to give up my research after reading thousands of pages of transcripts, because it was impossible to figure out, from this tangled and interrupted testimony, which pools had been bear and bull pools and which had not.

  8. Greg

    If you read “Wall Street Under Trial” carefully with these distinctions in mind and pay close attention to Pecora’s descriptions of the schemes that he claims to have uncovered, you will quite often find that what he is saying is garbled or makes no sense at all. Take a look at the story in the review about the “workings of a ‘pool’ manipulating the stock of a small alcohol producer poised to benefit from the expected repeal of Prohibition.” Now ask yourself what is wrong with this story. Allegedly, the purpose of the pool was to jack up the stock’s price in anticipation of repeal, and the pool dumped the stock after repeal, whereupon the stock price crashed. Why would the buyers want to increase the price of the stock that they were buying? Why would the price of the stock crash upon repeal, when that was precisely the good news that the buyers were hoping for? Something in Pecora’s telling is clearly not quite right.

    For what it’s worth, I suspect that the story is false and that Pecora made it up in an effort to associate himself with the arrest and conviction of Richard Whitney for embezzlement in 1938, which was the hottest scandal of 1938, when Pecora was writing his book, but which Pecora had played no part in uncovering. Without going into tedious detail, the circumstances described by Pecora sound suspiciously similar to the facts surrounding a pool organized by Whitney to invest in a company called Distilled Liquors, as these facts might have been misunderstood by Pecora from his reading of the newspapers in 1938. (Among other things, although the attempt to manipulate Distilled Liquors’ stock price actually occurred in 1936 and 1937, a few years after Pecora’s committee had been disbanded, Pecora might have believed from his reading that it had happened in 1933, especially since his grasp of such matters was so weak.)

    If so, the story would be keeping with the rest of the book, in which Pecora habitually exaggerates his cleverness for uncovering various scandals (in most cases, they were described quite candidly by witnesses who had nothing to hide), the obstacles that he overcame (he had only a carbon copy of President Taft’s assistant attorney general’s opinion rather than the original!) and the personal efforts and sacrifices that he made in doing so. Along this line, I must sneer for a moment at the picture of Pecora tearing himself away from his “crushing workload in Washington” to conduct a personal investigation in New York. I have no way of knowing whether his workload was crushing or not, but Pecora’s family lived in New York, which then as now was only a two-hour train ride from Washington, so that his investigative journey (assuming that it happened at all) was if anything a welcome diversion from his workload rather than an addition to it.

  9. Greg

    A few other points worth making:

    1. The formation of pools for the purpose of creating bull and bear runs had never been an underground practice. It was well known to every stock market investor of the 1930’s. Every newsstand carried numerous newspapers and tip sheets that purported to inform the public when a stock would be “taken in hand,” who would be doing it and for what purpose; and every stockbroker’s job was to pass these rumors to his clients. These sheets were akin to the racing form, and a great deal of the sport of stock market investing in those days consisted of betting on which of these tips would prove to be true. When Pecora says that he was shocked, shocked, shocked by the practice, he is either disingenuous or naive.

    2. A large number of the witnesses who appeared in front of Pecora’s committee to complain about having lost their money in the stock market were not innocent victims at all; they were speculators who had been perfectly happy to make big profits when the market went up, but now were blaming other people for their losses in the crash. Mr. Edgar G. Brown in the excerpt above appears to be one of those. Do you suppose that from 1927 through 1929 he remained unaware of the fact that his money had been invested in stocks? Or do you think it is more likely that he was gloating over his brokerage statements, which showed that his $100,000 initial investment on was now worth many times that much? In this, the speculators of the 1920’s resemble today’s real estate speculators, who two years ago boasted to their friends that they were rich, but today complain of “high-pressure sales tactics” because they are no longer rich.

    3. It is true, as the reviewer says, that the House of Morgan “floated above” the fray, in the sense that they did not engage in the worst (although perfectly legal) excesses of the 1920’s. But Pecora seemed to resent them all the more because they had not misbehaved. If I recall correctly, he said in the first few pages of the book something to the effect that he considered Morgan to be the worst of all, because they were so smug about their own good behavior.

  10. Yves Smith


    Thanks for this.I was stuck reading that Prohibition play that the the story made no sense.

    Your research is a bit disheartening, because the hearings were the reason we had sound and durable securities laws implemented. Although Pecora's indiscriminate attacks may also explain why some key people got involved in the legislation. The figured they'd better draft something that worked or there would be no industry.

  11. Greg

    I agree wholeheartedly that the securities laws were a great thing. Just because Pecora personally was an ass doesn't change that fact. The same is true today: it's surprising, if you watch a Congressional hearing and see the cluelessness, witch-hunting and grandstanding of our elected officials, how well thought-out the resulting legislation often is.

  12. Greg

    Another nerdy point: The Securities Act was not written by Pecora but by Benjamin Cohen, Thomas Corcoran and James Landis. Cohen had clerked for Judge Learned Hand, Corcoran for Oliver Wendell Holmes, and Landis for Louis Brandeis (for those who are not lawyers, those are probably the three preeminent judges of the 20th Century); Cohen and Corcoran were New York corporate lawyers with years of experience; and Landis was a professor of corporate law at Harvard Law School. I imagine that nothing revealed in the Pecora hearings was news to them, and they were probably well aware that Pecora himself was often flailing. In the end, though, without the public outrage stirred up in large part by the Pecora hearings, the new law might never have been enacted, so they doubtless thought the hearings were on balance a good thing, as I do myself. The good done by the Securities Act outweighs the excessive praise won by Pecora and the possibly undeserved frustration and embarrassment suffered by a few rich men who might not have actually done anything wrong.

  13. "DoctoRx"

    Greg: Your attacks on Pecora are quite harsh. It would appear implausible that he invented the alcohol pool/Prohibition story out of whole cloth, esp. considering that he was a sitting Supreme Court justice of the State of NY when he authored Wall Street Under Oath (WSUO).

    Obviously FDR wanted a Chief Counsel to stir the pot, and Pecora filled the bill. That's politics!

    Insofar as the book itself, he involves in minimal self-promotion. Instead he lays out a prosecutorial, logical story justifying the legislation by recounting what the New Dealers considered to have been then-legal but abusive securities behavior.

    It was my characterization of the "crushing workload" and not the book's re the Hutton/Ben Smith investigation. Pecora mentions his work effort matter-of-factly and in fact shows that it took little effort for him to find the facts that the NYSE claimed to be unable to find.

    Why would you even mention that Pecora did not author the securities legislation? Of course he didn't. He finished his job as Chief Counsel and went on to the SEC.

    Unlike you, I have read and reread the book several times this year.
    Your research into different types of pools and your dated recollection of the book hardly qualify you to make multiple sweeping criticisms of him. That's not how blog comments normally work.

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