AUTHORS ON THE RECORD

the hellhound of wall street

by hilary parkinson
In 1933, the United States was gripped by the Great Depression. The countrys financial system teetered on the verge of collapse. Thirty-eight states had closed their banks, and one in four families had lost their life savings. Reform was needed, and it would begin with Ferdinand Pecora, who investigated the causes of the 1929 crash in his role as chief counsel for the Senate Committee on Banking and Currency. For 10 days, the officers of National City Bank were grilled by Pecora. And 10 days later, Charles E. Mitchellchairman of that bank and former adviser to three Presidentsresigned in disgrace. Ultimately, the results of the investigation would lead to stronger federal oversight on the activities of banks and the stock market. Michael Perino is the Dean George W. Matheson Professor of Law at St. Johns University School of Law in New York. He is also a former Wall Street litigator. He has testified in both the United States Senate and the House of Representatives and has written extensively on regulation, securities fraud, and class action litigation. His website is www.michaelperino.com.

Michael Perino

Although he was responsible for sweeping reform in the United States banking system, the name Ferdinand Pecora is unknown to most Americans. What made you decide to tell his story? I actually set out to write an entirely different book. The subject is unimportant, but it tangentially involved the Pecora hearings. I knew that Pecora had given his oral history in the early 1960s as part of the Columbia University oral history project, and although I didnt think it was going to be terribly relevant to my book, I decided I should read it. By page 10, I was completely hooked. Pecora had such an incredible life storyhe immigrated to the United States from Sicily in the late 1800s when he was five years old. He grew up in a basement tenement on the west side of Manhattan and quit school when he was just 15 when his father was injured in an industrial accident. Over the next four decades, Pecora supported his family, went to night law school, became a prominent New York prosecutor, and eventually took on Wall Street in one of the most successful congressional investigations ever conducted. It really is a classic American success story. I felt compelled to tell the world about this unsung legal hero. in your acknowledgements, you thank Richard McCulley and William H. Davis, national Archives staff who helped you with your requests for records from the Senate Banking and Currency Committee hearings. Were you familiar with these records before you started research for this book? or was this your first experience at the national Archives? This was my first experience at the Archives, and Richard and Bill

were enormously helpful. Although I spent many days there, I still feel that I only scratched the surface of what is available in these records. There are, I believe, over 170 boxes of documents at the National Archives from the investigation. It is a treasure trove for anyone interested in the inner workings of the financial industry during the 1920s and 1930s. Ferdinand Pecora was an excellent lawyer, but not a Wall Street expert. You are a professor of law at St. Johns University whose area of expertise is in securities regulation and securities fraud. How do you think Pecora fared in terms of understanding the complicated issues of securities? Pecora didnt know much about Wall Street, which made his performance in the hearings all the more remarkable. He was a quick study, with a phenomenal memory. One of his aides said that the staff looked with astonishment at this man who, through the intricate mazes of banking syndicates, market deals, chicanery of all sorts, in a field new to him, never forgot a name, never made an error in a figure, and never lost his temper. Of course, Pecora was far from infallible. His ignorance about the finer details of Wall Street practice occasionally led him astray. A few times, he was flat-out wrong. But given the quick pace of the investigation, its actually surprising how accurate he was. In the end, I dont think his few missteps mattered very much. Pecora tried not to get lost in the arcane details. He had spent a dozen years as a prosecutor in New York, and he knew that the way to win over a jury was not to dwell

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on the minutiae. His jury was the American public, and I think he knew that presenting endless testimony about the ins and outs of Wall Street would be counter-productive. If he really wanted public support for reform, he had to tell them a story that was easy to understand. Pecora was the master of the telling anecdotehe was able to spin compelling narratives out of the most confusing welter of complex details. That was how he created the clamor for reform. His genius was his ability to convert complex economic problems into simple morality plays. The hearings take place at the very end of the Hoover administration, days before the inauguration of Roosevelt. The outgoing and incoming Presidents were in contact with each other. Were you able to explore the archives at both Presidential libraries? I spent a good deal of time at the Roosevelt Library in Hyde Park, and I did research in a number of other archival collections as well. I did not make it out to the Hoover Library, but fortunately I was able to rely on previously compiled primary documents from the Hoover administration and the rich body of secondary material that has been written about the interregnum. Although the banks were in their death throes during the 10 days of hearings, Roosevelt remains a background figure until his inauguration. His focus seems to be on creating an inaugural speech that will motivate and comfort Americans while addressing the financial disaster. Did your time at the Roosevelt library shed any new light on Roosevelts motivations? When President Obama took office in the wake of the 2008 financial crisis, his then chief of staff, Rahm Emanuel, said that politicians should never let a good crisis go to waste. Roosevelt understood that maxim perhaps better than anyone else. When Roosevelt took office in March 1933, there was not a single federal law that regulated how Wall Street operated. The wrongdoing Pecora uncovered and the desperate condition of the country gave Roosevelt the political climate he needed to change that. The first federal securities laws, federal deposit insurance (a reform Roosevelt initially opposed), and the creation of the Securities and Exchange Commission all flow from the abuses Pecora uncovered. Roosevelts motivation to capitalize on the crisis is well known. What surprised me was Roosevelts close personal connection

to the scandal. My book focuses on the few weeks after Pecoras appointment as committee counsel in the winter of 1933. The investigation had started the previous March and had largely been ineffective. But Pecora turned it all around when he subpoenaed one of the leading bankers of the day, Charles E. Mitchell, the chairman of the National City Bank of New York (todays Citigroup). Over the course of just 10 days, Pecora showed that the bank and its securities trading arm had engaged in all sorts of unsavory behavior. It sold worthless bonds to investors without fully disclosing the risks, manipulated its stock price and the stock prices of other companies, and lavishly compensated its executives as the country plunged into depression. It all hit close to home for Roosevelt because he had a long personal banking relationship with City Bank. There was one Roosevelt quote that really stood out for me. Shortly after he took office, Roosevelt told a visitor from another Wall Street firm: My gosh, I feel Charlie took my money. Anyone reading this book cant help but wonder why history seems to be repeating itself recently when it comes to banks and investment firms. After researching and writing this book, do you think the Senate will be looking for another Hellhound? I think there have already been some attempts to recreate the success of the Pecora hearings. Senator Carl Levin held hearings in the spring of 2010 on Goldman Sachs and released a scathing report on the investigation earlier this year. Congress created the Financial Crisis Inquiry Commission to investigate the causes of the financial crisis, although that independent commission was more closely modeled on the 9/11 Commission than the Pecora investigation. The more relevant question, I think, is why these efforts did not have the same success. Pecora was a gifted courtroom lawyer, and he certainly deserves the lions share of the credit. But he was also the beneficiary of impeccable timing. He decided to put the leader of the largest bank in the country on the stand in Washington at the peak of the banking crisis of 1933. It was the Washington equivalent of the perfect stormthe precise combination of crisis and scandal necessary to pass major reform legislation. Those political moments, however, are ephemeral. As the 2008 financial crisis slips farther and farther into the past, it looks increasingly likely that we have missed our opportunity for meaningful reform.

Authors on the Record

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