47. Banking and Financial Legislation: 1933-1935

0:00Banking and Financial Legislation 1933-1935 The Rockefellers and other financiers' war with the Morgans in 1933 had been building for several years. By the late 1920s, the Rockefellers, along with newly rising financial groups, increasingly resented the Morgan grip over both the Federal Reserve, especially the New York Fed, as well as the administration. Administration. Bankers enraged at Benjamin Strong and the New York Fed's low interest policy on behalf of Britain in the 1920s were led by Melvin A. Traylor, head of the Rockefeller-controlled First National Bank of Chicago.

0:45The Rockefellers had never been England-oriented. Traylor led the Chicago bankers in going to the Democratic convention in 1928 and supporting Averill Harriman, of Brown Brothers Harriman, solidified his support of the Democratic Party during the same year and for similar reasons. Also, brash new ethnic groups rose to challenge the Morgan hegemony and were fiercely fought by the Morgans and their controlled New York Fed. These included the Bank of America, a huge new Italian-American run commercial bank chain in the West, and the rising Irish American buccaneer Joseph P. Kennedy of Boston, both of whom were Democrats and emphatically outside the Wasp-Morgan Republican structure.

1:35The crucial event occurred within the Morgans' showcase New York institution, the Chase National Bank, a commercial bank with an investment banking arm, Chase Securities. As a result of the 1929 crash, the Rockefeller-controlled Equitable Trust Company was in vulnerable shape and its new head, Winthrop W. Aldrich, engineered a merger into Chase in March 1930, making Chase the world's largest bank. Aldrich was brother-in-law of John D. Rockefeller and was destined to be for decades the key Rockefeller man in banking as well as in the manipulation of politicians. A titanic three-year struggle immediately ensued for control of Chase, between the Rockefeller and the Morgan forces, who had previously been in charge.

2:26The CEO of Chase had been Morgan man Albert H. Wiggin, with Wiggin ally Charles McCain as chairman of the board. The Rockefeller forces quickly mobilized to make Winthrop Aldrich president of the bank, a move fought desperately but unsuccessfully by Morgan partner Thomas W. Lamont. Aldrich was now president and subordinate to Wiggin and McCain, but the nose of the camel was now in the tent as Aldrich strove to oust Wiggin and McCain and take over the bank. Supporting Aldrich in this struggle were board members Thomas M. Debevoie, fraternity brother and top counsel to John D. Rockefeller Jr., Vincent Astor of the famed Astor family and friend and cousin of Franklin Roosevelt, and Gordon Auchincloss, close friend of Winthrop As the conflict came to a climax in late 1932, Lamont found to his horror that several high-chase officials in the Aldrich camp were supporting Roosevelt.

3:28Cementing the closeness of Rockefeller and Chase National to Franklin D. Roosevelt was the crucial role of the shadowy, dominant advisor to President Woodrow Wilson, quote, Colonel Edward Mandel House. Hauss, a democratic politician from Texas, had inherited railroads and other properties in Texas and, during Wilson's day, was very close to the Morgans. Now, however, Hauss, a key behind-the-scenes advisor to Roosevelt, had shifted to the Rockefeller orbit, impelled by the fact that his daughter was married to Gordon Auchincloss. At the end of 1932, Aldrich managed to oust Wiggin as chairman of the board of Chase, and he immediately began to use his perch as president to launch a multi-pronged and savage attack on the Morgan Empire.

4:20In the first place, he collaborated fully and enthusiastically with the bitter and ruckus PCORRA U.S. Senate Banking and Currency Committee assaults on Wall Street, and particularly on the Morgan Empire. Baldrige happily fed the PCORA committee data, blackening the Wiggin-McCain regime at Chase, and PCORA was able to use such material to vilify demagogically the Morgan and other bankers for activities that were legal and legitimate. Thereby, PCORA could appeal both to the ignorance and to the envy of the bedazzled public. Thus, PCORA was able to hector the Morgan bankers for not paying income taxes during and the Depression, the public not being willing to understand the legitimacy of deducting severe losses from one's income.

5:10The Morgans were also pilloried for having a, quote, preferred list of financiers and politicians for purchasing new stock issues in advance of public sale. The list made juicy reading as a clear attempt to curry favor, and it was in vain that the Morgan's remonstrated that this opportunity can only be profitable in a rising stock market. Similarly, Pecora was able to put Wiggin in the dock for profitably short-selling Chase stock on a loan from Chase. He badgered and ridiculed J.P. Morgan himself and drove McCain into resigning from the bank. Aldrich used this crisis to become the dominant force at Chase and to assume the post of chairman of the Board in January 1934.

5:56Ferdinand Pecora has received little but adulation from the media and historians. Ironically, his harassment and persecution of Wall Street originated with Herbert Hoover. As early as 1919, Hoover had called for government regulation of the stock market to eliminate quote, vicious speculation. In 1928 and 1929, Hoover had pioneered in the view that the problem of bank credit was that too much of it was going to the stock market rather than that there was too much bank credit period. After the crash, President Hoover naturally segued into charging that the collapse of stock prices was caused by the vicious action of short sellers, forgetting that for every short seller there must be a buyer.

6:44After the threat of regulation, Hoover forced Morgan man Richard Whitney, head of the New York Stock Exchange, to agree, quote, voluntarily, to withhold loans of stock for purposes of short selling. After forcing the stock exchange to restrict short selling in the crisis of late 1931 and yet again in February 1932, but being dissatisfied with continuing declines in stock prices, And Hoover finally carried out his threat and pressured the US Senate to investigate the New York Stock Exchange, even though he admitted that the federal government had no constitutional jurisdiction over the exchange, which was a New York institution. Hoover continually and hysterically denounced what he termed, quote, sinister and, quote, systematic bear raids on stocks, as well as, quote, vicious pulls pounding down security prices, quote, deliberately making a profit from the losses of other people, end quote, which of course is what bulls and bears always do from each other.

7:52Angrily replying to the protest of New York bankers, Hoover used some crystal ball of Mr. Hoover's preferred alternative criterion? The absurd one of the public being, quote, willing to invest on the basis of the future of the United States." Hoover, lacking any knowledge of the market, was foolishly convinced that all-powerful democratic speculators, headed by John J. Raskub of DuPont and Bernard Baruch, were conducting bear raids to drive down the prices of stocks.

8:45It was in vain that Whitney and the Morgans tried to poo-poo these fantasies. Hoover kept pressing the Senate Banking and Currency Committee to conduct hearings on short-selling in the stock exchange, beginning his pressure in late February 1932. Sensing disaster from these bull-in-a-China-shop tactics, Thomas Lamont vainly pleaded with Hoover to suspend his campaign. Finally, the hearings got underway in April 1932, the first witness, Richard Whitney, Terming Hoover's charges, quote, purely ridiculous. When, in private, Hoover told Lamont that short-selling by bears was responsible for all economic ills, including business stagnation and falling prices, and that, quote, real values were being destroyed by bear raids, Lamont tartly replied, quote, but what can can be called real value if a security has no earnings and pays no dividends."

9:50In late April, a new subcommittee broadened the Senate inquiry from the fruitless attempt to discover a democratic bear conspiracy to include pools and stock market manipulations in general. The short-selling emphasis seemed ridiculous when the Morgans stepped in to try to revive have a crash in the bond market, a market where short-selling had been prohibited. The Senate subcommittee hearings were suspended in late June, but they took on a very different and fateful aspect when they reopened in January 1933 with Ferdinand Pecora of New York as chief counsel. The aggressive Pecora, a former chief assistant district attorney in New York, proceeded to Pecora had been born in Sicily and emigrated as a child to New York.

10:46At first intending to enter the Episcopal ministry, Pecora instead became a lawyer and, at the age of 30, became a district leader of the Progressive Party in 1912 and soon became vice president of the New York State Party. Joining the Wilson Democratic Party a few years later, Pecora rose in the district attorney's office during the 1920s. Politically ambitious, Pecora ran, unsuccessfully, for district attorney on the Democratic ticket in 1930 and repeated his effort and failure while basking in the public limelight during the Pecora stock market practices hearings in 1933. Moira cultivated a media image of feisty integrity, but more astute observers noted that his angry and glaring searchlight pilloried Republican bankers, but managed to overlook such leading Democratic and pro-New Deal investment bankers on Wall Street as Brown Brothers Harriman and Lehman Brothers.

11:47We know now, too, that President Franklin D. Roosevelt, who, in his inaugural address, had ranted against, quote, unscrupulous money changers, and in his first fireside chat to the radio public had oddly blamed investment bankers for the commercial banking crisis, met secretly with PCORRA and with Senate Banking Committee Chairman Duncan Fletcher to urge them to go after JP Morgan and Company. Ferdinand PCORRA was only too happy to oblige. It was the hysterical atmosphere deliberately generated by the Pecora hearings, particularly Pecora's assaults on Albert Wiggins Chase National Bank and on the Morgans, that created the atmosphere that permitted the coalition of New Deal reformers and Winthrop W. Aldrich's Rockefeller forces to drive through fateful banking and financial legislation during the and the, quote, first 100 days of 1933, legislation that overturned and destroyed the economic power of the Morgan Empire.

12:52In particular, the Roosevelt administration managed to pass the Banking Act or Glass-Steagall Act of 1933 and the Securities Act of 1933. In a thorough and illuminating analysis of the Vacora hearings, Professor George Benston Benston has demonstrated both the legitimacy and the economic soundness of the maligned practices of the investment bankers, as well as their complete irrelevance to the major anti-Morgan thrust of the Banking Act of 1933, the compulsory separation of investment and commercial banking. Benston shows that the charges were generally trumped up and the vaunted Pecora quote, findings were usually only ad-hoc speculation by individual senators.

13:40The Banking Act of 1933 had three major provisions. One, the compulsory separation of commercial and investment banking. Two, the provision of federal, quote, insurance to guarantee all bank deposits. And three, prohibiting commercial banks from paying interest on their demand deposits. The Compulsory Separation Clauses a. Severely restricted commercial banks from buying securities, except, cleverly, that government securities were exempt from this restriction, b. Prohibited commercial banks from issuing, underwriting, selling or distributing any securities, again, government securities were exempt, and c. Prohibited any investment bank, that is, a bank that does not underwrite corporate securities, from Ever Accepting Any Deposits.

14:34Provision B, the divestment by commercial banks of underwriting, was a slap by Aldrich and the Reformers against the security affiliates that large commercial banks had developed for investment banking functions, in particular the two largest, Chase's Chase Securities Corporation and National City Bank's National City Company. The securities affiliates had been particularly active in the late 1920s, and it was therefore all too easy to blame them for the stock market crash. Aldrich had been happy to repudiate the Wiggin-Morgan regime's Chase Securities Corporation, which was doing badly during the Depression anyway, but his main thrust was provision C, C, a direct death blow to J.P. Morgan & Company, a private investment bank which also accepted bank deposits.

15:26The Rockefeller commercial banks, not tied in much with investment banking anyway and content to use their allied investment banks, could happily strike at Morgan and its characteristic fusion of the two forms of banking. Indeed, not only did Winthrop Aldrich agitate for this latter clause, he actually drafted Section 21 of the Senate Bill in Glass' behalf. The Morgans fought back bitterly, William Potter of the Morgan-dominated Guarantee Trust calling Aldrich's proposal, quote, quite the most disastrous ever heard from a member of the financial community, end quote. The opposition was to no avail, however, with President Roosevelt personally urging Senator Glass to retain Section 21.

16:15As Cherneau writes, quote, this was the coup de grace for the House of Morgan, end quote. J.P. Morgan and company delayed their final divestment decision, hoping for the passage of Carter Glass' amendment to the Banking Act of 1935, allowing some securities powers to deposit banks, but Roosevelt delivered the final blow to the Morgans by personally interceding in the House-Senate Conference Committee to kill the amendment. Upon this defeat, J.P. Morgan & Company made the fateful decision to keep its deposit business and to divest itself of its power center, the investment banking business. The Morgans set up a new Morgan Stanley & Company to engage in investment banking.

17:02It is a tragic irony that Carter Glass and his theoretician H. Parker Willis were lured into this alliance with the Rockefellers and the New Dealers to clobber the Morgans by Coercively Divorcing Commercial and Investment Banking. Willis, as noted above, was a trenchant critic of the strong Morgan credit inflation of the 1920s. Unfortunately, Willis' quote, real bills approach, which led him to oppose the bank credit expansion, also led him to opposeivid it for the wrong reason. Contrary to Willis, the problem was not that banks were buying corporate securities The problem was that the banks were inflating credit, period.

17:48But Willis and Glass, starting with the wrong reasoning, came to the wrong solution, to compel the commercial banks to stop purchasing or issuing securities as a partial means of reaching the ultimate goal, forcing the banks and the Fed to return to the original concept of confining their credit to short-term, self-liquidating, quote, real bills. Hence, the luring of the reluctant Glass and Willis into uncongenial schemes of socializing and cartelizing Wall Street and helping the Rockefellers destroy the Morgans. Professor Benston points out that all the provisions of the Banking Act of 1933 helped develop a coherent structure for government cartelization of the banking industry.

18:34In the first place, the separation sections, which we have been discussing, helped the commercial bankers get rid of unprofitable securities, and to eliminate the powerful competition of investment bankers for customers' deposits. As for investment bankers, one-third of them, including JP Morgan & Company, hived off that business to stick to deposit banking, leaving the remainder free of their competition. In particular, as we have seen, the Rockefellers rid the commercial banks of unwelcome investment banking competition. Other banking act provisions reinforced the cartelization. Thus, federal deposit insurance guaranteed all bank deposits, thereby cartelizing the industry and supposedly guaranteeing every bank's success.

19:22The prohibition of bank payment of interest on demand deposits was a particularly cartelizing In addition to all this, the Banking Act of 1933 began the crucial process of stripping away the dominant power of the Federal Reserve Bank of New York, and hence the Morgans, over of the operations of the Federal Reserve System, and of transferring that power to political appointees in Washington. Previously, for example, each Federal Reserve Bank, and therefore the private bankers in that district, had total power over its own open market operations, and therefore over the movement of bank reserves.

20:16In practice, this meant the New York Fed, since open market operations were in U.S. Securities, and the bond market is located in New York. The Banking Act of 1933 began a transfer of power by creating a statutory Federal Open Market Committee, or FOMC. The FOMC, however, continued to be in private banker hands since it consisted of one member from each Federal Reserve district, selected by the board of directors of each Federal Reserve bank. In practice, these were the governors of each Federal Reserve Bank. The new law required that every Federal Reserve Bank's open market operation conform to Federal Reserve Board regulations, but each Federal Reserve Bank retained the right to refuse to participate in the FOMC's recommended open market policies.

21:09The result of this hybrid system was that the Federal Reserve Board was ultimately responsible for Fed Policy, but it could not initiate open market operations. The Federal Reserve Board could ratify or veto FOMC policies, but those policies had to be initiated by the FOMC. The Federal Open Market Committee, for its part, could initiate open market policies, but it could not execute them. Execution remained in the hands of the New York Fed and the Federal Reserve Banks. The Federal Reserve Banks, for their part, could not initiate open market policies, but could obstruct them by failing to execute them. All in all, the Federal Reserve Bank of New York, while losing much of its power over open market operations in the 1933 Act, was able to live with the new arrangement.

22:02It was more annoyed over a neglected provision of the Act that forbade the New York Fed, or any other Federal Reserve Bank from conducting negotiations with foreign banks, a direct slap at the crucial New York Fed-Morgan role during the 1920s in making arrangements with the Bank of England and other European banks. The demagogic eruption of the PCORA hearings also led to another New Deal 100 Days measure that both revolutionized and cartelized the securities industry and delivered another body blow to the House of Morgan. This was the Securities Act of 1933, passed in May, followed the next year by its more powerful successor, the Securities Exchange Act of June 1934.

22:49The first act imposed rigorous and expensive laws and procedures for any new securities issues, allegedly to protect the investing public. Its actual effect was to cartelize the sources of new capital, channeling the supply of savings The Securities Act cartelized the investment banking industry, keeping out any newer and smaller investment banks that might challenge the established giants. While many investment bankers were unhappy with specific provisions and urged amendments, they were on the whole delighted with the basic thrust of the regulation. Thus, testifying on the bill before the House Commerce Committee, George W. Balvinizer, partner in Kuhn-Lebb & Company, and a venerable Morgan enemy, declared that his firm was, quote, wholeheartedly in favor of the type of legislation suggested by the President.

23:51We have stood by now for the past 12 years or more and have looked on with apprehension as the good name of investment banker has been put into jeopardy by the actions of some I believe that every honest banker today will look with great favor upon the principle of this legislation as the dawn of a new era." The enforcement of the Securities Act was put into the hands of the Federal Trade Commission since the accession of Roosevelt in left-wing hands, but a new Securities and Exchange Commission created for this purpose was to take over the enforcement powers in July 1934. By that time, however, Congress had passed the Securities Exchange Act of June 1934, greatly expanding the powers of the Securities and Exchange Commission from compulsory registration of new issues, to control over the practices of the exchange, as well as to compulsory disclosure for existing securities.

24:53The securities legislation constituted a body blow to the Morgan Empire because the Morgans dominated the New York Stock Exchange, especially through the exchange's president, Richard Whitney. Whitney, a scion of the prominent Morgan-oriented financial family, was the head of Richard Whitney & Company, the major bond broker for J.P. Morgan & Company. In addition, Richard's brother George was a senior partner at the House of Morgan and and was Morgan's man on such important boards as that of General Motors and of the giant Morgan-controlled public utility holding company, the United Corporation. Since Richard Whitney was the leader of fierce opposition to any government regulation of securities and in behalf of laissez-faire, his defeat by the New Dealers, and in particular his later disgrace, tended to discredit his free market views.

25:48It had always been assumed that since the stock exchange was a New York institution, it could only be constitutionally regulated by the state of New York, rather than by the federal government. The New Dealers, however, considered states' rights an absurd obstacle in the path of centralizing the economy, and they treated it accordingly. Moreover, by imposing federal regulation and enforcement, they could, at one and the same Substantial roles were played by Federal Trade Commission Chairman Houston Thompson, a Washington and State Populist, and by the venerable New York trial lawyer Samuel Unnermeyer, scourge of the House of Morgan as chief counsel of the U.S. Senate's Pujo Committee in 1912, which had then helped to drive J.P. Morgan Sr. to his grave.

26:55But the most important role in drafting and pushing through the securities acts was played by powerful left liberal theorist, agitator, and shadowy manipulator Felix Frankfurter, A Professor at Harvard Law School An old friend and advisor to Franklin Roosevelt, Frankfurter specialized in seeding his former students and assistants, his quote, happy hot dogs, into powerful positions in the federal government. In particular, Frankfurter folded into the New Deal and into drafting the Securities And standing behind Frankfurter, pulling the strings from his Supreme Court bench, was the even more shadowy master manipulator, Louis D. Brandeis, Frankfurter's mentor from Harvard Law School.

27:51Brandeis was able to violate judicial ethics systematically while on the court, by putting Using Frankfurter on permanent retainer on his secret payroll, and using Frankfurter as his agent in the political realm. Brandeis, who had been powerful in the Wilson administration, had been fiercely anti-Morgan for decades and was a long-time legal representative for retail users of Morgan railroads and utilities, particularly for the Falleen interests of Boston. While the New Deal left originally wanted security regulation in the hands of the left Indeed, Roosevelt cunningly threw a stop to conservatives and moderates by naming his old friend, the Irish-American Stock Speculator and Buccaneer Joseph P. Kennedy, to be chairman of the five-man SEC, while the other commissioners were leftist ideologues from the FTC.

28:53While the other commissioners were leftist ideologues from the FTC, including the leading new dealer writing the legislation, James Macaulay Landis. Rounding out the SEC was none other than that scourge of the Morgans and the Wall Street Republicans, Ferdinand Pecora. Landis was to succeed Kennedy when the latter left the SEC chairmanship in 1935. While Joseph Kennedy was a bit more conservative than his colleagues, especially on the New Deal assault on public utility holding companies, his life as a speculator successfully bamboozled many moderates who did not realize the extent of Kennedy's collectivist views. Thus, Kennedy not only enthusiastically endorsed the New Deal, he went beyond it to advocate a general federal incorporation law, as well as the abolition of private investment banking.

29:49In addition, during his buccaneering period in the 1920s, he had repeatedly clashed with the Morgan interests. The extent of Kennedy's collectivism is seen by his assertion, similar to all collectivist planners. Quote, An organized functioning economy requires a planned economy. The more complex the society, the greater the demand for planning. Otherwise, there results a haphazard and inefficient method of social control, and in the absence of planning, the law of the jungle prevails." Though Kennedy was a buccaneer, he was scarcely the lone ranger. In the late 1920s and the 1930s, Kennedy worked closely with various Hollywood film corporations, particularly those such as Paramount Pictures, dominated by Lehman Brothers.

30:41As for Landis, on the other hand, businessmen expecting a socialistic, anti-business force at the helm of the SEC were pleasantly surprised to find Landis a conscious and deliberate creator of governmental cartelization, of a government-business partnership in behalf of quote, industrial self-government under the benign aegis of federal regulation. Landis charmed the financial groups by overcoming his personal dislike of bankers, brokers and accountants in order to include them in his well of support and regulation. Thus, as early as 1934, Landis wrote in the yearbook of the Encyclopedia Britannica, Quote, In all its efforts, the Securities and Exchange Commission has sought and obtained Landis also shrewdly won over the accounting profession, which had been fearful of New Deal attempts to dictate to and penalize the nation's accountants.

31:58Instead, Landis explicitly offered that profession, previously resentful of domination by corporate clients, the opportunity to cartelize and rule the securities roost under the benevolent aegis of the SEC. As historian Thomas McGraw puts it, It struck him, Landis, as far preferable to use their, the accountants, existing expertise and to make their professional institutions the vehicle of change, rather than attempting to force results with direct government action." As a result, the accounting profession took to Landis and the SEC with alacrity. The American Institute of Accountants quickly formed a special committee on cooperation with the Securities and Exchange Commission, and this group functioned as a permanent liaison with the SEC.

32:51A leading scholar of accountancy soon noted that, with the establishment of the SEC policy, "...the control function of accounts takes on a new and quite different form. Instead of being merely a tool of control by business enterprise, they become a tool for the control of business enterprise itself." In other words, the scholar, D. R. Scott, was noting the wondrous fact that whereas As until the SEC, accountants were forced to subordinate themselves to their private business clients on the market, the SEC was enabling accountancy to enter a new era where accountants could turn the tables by serving the central government to control and dominate their clients.

33:38In particular, Landis set up a special accounting subdivision headed by a chief accountant who quickly became the most important auditing regulator in the United States. The Chief Accountant happily accepted the charge of driving toward more rigorous audits, cracking down against violators, and setting up compulsory, uniform accounting standards. In 1937, the Chief Accountant began the practice of issuing much-vaunted accounting series releases, laying down a network of standardized accounting practices for the profession. Much of the SEC's power to enforce guidelines was deliberately delegated to the professional One charm the SEC regulations had for the accountants is that the SEC acts required a large number of new financial statements by quote, an independent public or certified accountant, end quote, provisions that created a welcome substantial increase in the demand for accountants.

34:45As a result, while the number of lawyers and physicians in the nation increased by about 71% between 1930 and 1970, the number of accountants swelled by no less than 271%. Finally, Landis' shrewd strategy induced the New York and other regional stock exchanges to collaborate and run their own regulation under the wing, of course, of the federal government. In a series of addresses to the New York Stock Exchange Institute during 1935, Landis called for quote, self-government as the crucial principle. Indeed, Landis carefully worked out the SEC rules in a series of negotiations with the exchanges. In early 1937, Landis outlined his strategy candidly in a major address.

35:35Regulation, Landis noted,

36:05James M. Landis left the SEC in alleged triumph in 1938 to attain the coveted post of Dean of Harvard Law School. He was succeeded as SEC chairman by commission member William O. Douglas, an old friend of Roosevelt, who had developed his own network at Yale Law School. Douglas, even more left-wing and anti-Morgan than Landis, felt that Landis had been lax in hounding Morgan's Richard Whitney out of his post as head of the New York Stock Exchange. Douglas proceeded to pursue this goal with vigor. But even Douglas was no simple anti-business socialist, preferring to continue cartelization by working with dissident anti-Morgan groups within the stock exchange, led by the Rockefeller-oriented E.A. Pierce.

36:58Douglas was particularly able to work with the retail commission brokers, led by young St. Louis stockbroker William McChesney Martin Jr. who resented the elite floor traders led by Whitney and the Morgans. It was these dissidents who ousted Whitney and took over the stock exchange and whose tough new disclosure rules unexpectedly turned up the financial irregularities of Richard Whitney that were to send him to the penitentiary for embezzlement in 1938. As Douglas exclaimed at this stroke of good fortune, quote, the stock exchange was delivered into my hands, end quote. Douglas cunningly used the Whitney crisis, coming on top of widespread denunciations of short sellers allegedly causing a stock collapse during the 1938 recession, to complete Meet the Anti-Morgan and Cartelizing Coup at the New York Stock Exchange William McChesney Martin was named head of the exchange in a new full-time salaried post as president, and Douglas Ann Martin proceeded to conduct what Professor McGraw correctly terms a quote, carefully orchestrated series of negotiations to hammer out a new cooperative

38:11SEC stock exchange structure. Both men used time-honored tactics, Douglas employing severe pressure to force his desired changes, Martin pretending to oppose those changes, but, quote, raising the specter of direct SEC intervention to persuade his recalcitrant colleagues to accept the new system, end quote. In the end, both men affected a cartelizing revolution, achieving their common goals. As McGraw concludes, Again, the SEC had used the circumstances of an evanescent crisis to work permanent change, insisting all the while that the Exchange itself propose and adopt the new rules as its own.

38:59The New Dealers completed their financial revolution, as well as their successful multi-pronged assault against the Morgans, with their most implacably radical piece of legislation, the Public Utility Holding Act of August 1935. Urged on by Roosevelt himself, the administration insisted on driving through the drastic quote death sentence clause, abolishing all holding company systems in the public utility industry. By 1932, the public utility industry, formerly mired in separate locations, had been producing One was Samuel Insull's independent Chicago-based utility empire, which collapsed with Insull fleeing to Europe in mid-1932.

39:53The other two were Morgan-oriented combines, J.P. Morgan's directly controlled United Corporation and General Electric's bond and share company, General Electric being from its inception in the Morgan ambit. For seven years until 1935, the Federal Trade Commission engaged in massive assaults on the utility holding companies, and Pecora did his snarling best with a retrospective series of blasts against Insel. Finally, Roosevelt set up a National Power Policy Committee in the summer of Arch New Dealer, Interior Secretary Harold Ickes was chairman of this committee, and General Counsel was Benjamin V. Cohen, who drafted the fateful Public Utility Holding Act or PUHA, a measure so radical that Joseph Kennedy felt he had to resign as chairman of the SEC.

40:53The public utility holding companies, led by the Morgans, waged a long, ferocious, political and constitutional battle against the PUHA. It was led by the Edison Electric Institute, the lobbying organization for the public utilities, and by its general counsel, longtime Morgan attorney and personal friend of Morgans, John W. Davis. Also assisting the opposition effort was Wendell L. Wilkie, head of the Commonwealth and Southern Morgan Corporation, a subsidiary of Morgan's United Corporation. Davis thundered that the act was, quote, vicious, the last word in Federal tyranny, the gravest threat to the liberties of the American citizen that has emanated from the halls of Congress in my lifetime, end quote.

41:43But all to no avail, as in 1938, the Supreme Court, tamed and denatured by the New Deal, upheld the constitutionality of the public utilities holding company.