Ferdinand Pecora Ushered In Wall Street Regulation After 1929 Crash

Ferdinand Pecora's basis for reform helped maintain relative stability in the banking industry until the recent crisis.
Ferdinand Pecora's basis for reform helped maintain relative stability in the banking industry until the recent crisis. (1938 Wide World Photo)
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By Brady Dennis
Washington Post Staff Writer
Wednesday, September 16, 2009

The last time Washington enacted sweeping financial reform, more than 75 years ago, the catalyst was a cigar-smoking, Sicilian-born immigrant named Ferdinand Pecora.

A former New York prosecutor, Pecora was the last in a series of investigators hired to examine the causes that led to the stock market crash of 1929 for the Senate Committee on Banking and Currency. In early 1933, the newly-elected Democratic president, Franklin D. Roosevelt, gave the bulldog lawyer his blessing to dig deep into the excesses that had plunged the nation into the Great Depression.

The result was a relentless investigation, 12,000 pages of transcripts that laid bare abuses on Wall Street and failures of Washington to adequately regulate the nation's financial system. Pecora's efforts provided a basis for reforms that would alter Wall Street and maintain relative stability in the banking industry until the recent crisis. These included legislation that for the first time regulated the sale of securities and helped establish the Federal Deposit Insurance Corp. and the Securities and Exchange Commission.

For all the differences between then and now, there also are whispers of familiarity: Abuses on Wall Street. The blind eye of Washington. An economy in crisis. A new and eager administration calling for reform, and efforts by those with vested interests to shape those reforms to their will.

On Monday, President Obama tried to wake the national debate over financial reform from its August slumber, urging Wall Street to embrace the changes rather than seek to impede them. But Wall Street has rarely embraced broad change without some prodding.

Pecora and his small team of dogged investigators recognized as much in the 1930s. They issued subpoenas and summoned the titans of finance to Washington, where Pecora savaged them during a series of probing and withering cross-examinations. Charles E. Mitchell of National City Bank, the precursor to Citibank, was forced to resign after Pecora revealed his many transgressions. Likewise, financier J.P. Morgan, namesake of J.P. Morgan Chase and Morgan Stanley, left with a battered reputation.

Day after day, Pecora turned the proceedings into riveting political theater. He made villains of some of Wall Street's most revered bankers, earning them the nickname "banksters," generating a steady stream of headlines and captivating the nation.

One senator accused Pecora of "having a circus, and the only things lacking now are peanuts and colored lemonade."

There was truth in that, especially after an employee of Ringling Brothers Circus plopped a midget named Lya Graf onto Morgan's lap during a break in the hearings -- the world's smallest woman in the lap of the world's richest man -- a picture that ran in many newspapers.

At the same time, Pecora's relentless grillings drew back the veil on the shrouded world of Wall Street and revealed excessive salaries, failures to pay income taxes and a litany of other abuses.

"His investigation drove these bills and made them stronger than they would otherwise have been," Don Ritchie, an associate historian for the Senate, said. "I don't know any other investigation that produced as much" legislation.

Harnessing the Outrage

Above all, Pecora understood the power of public outrage.

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