The Hellhound of Wall Street

Mitchell rode roughshod over Gray, and with so little time to investigate the bank, there was every chance that he would do the same to Pecora. Still, the payoff was potentially enormous. City Bank was a pillar of the banking community. The bank was an international powerhouse with almost a hundred branches in twenty-three countries. It had a hand in a fifth of all securities sold during the 1920s, and it was catering to more and more middle-class investors who entered the market in droves during that decade. Mitchell, one of the most powerful and well-known financiers of his day, was almost single-handedly responsible for creating that securities-selling giant.

Besides the new focus on securities sales, the City Bank subpoenas signaled another radical shift for the investigation. In its first year, Norbeck focused on short sellers and pool operators—men like Mike Meehan, Ben “Sell ’Em” Smith, and Jesse Livermore—financial pirates who most people assumed used any means, legal or illegal, to make money in the market. When he returned after the 1932 elections, Norbeck focused on Kreuger and Insull, scandals that had already been unveiled.

Pecora was attempting something quite different—something that was much more difficult but had the potential for a much greater impact. Mitchell had been criticized for his exuberant overoptimism during the bubble, but most of the public did not suspect him or his bank of any overtly unethical or wrongful behavior. Mitchell and City Bank occupied Wall Street’s rarefied heights, the men and firms who, so far at least, had remained untouched by scandal. If Pecora could show improprieties at City Bank, if he could suggest that a swindler like Kreuger was not, as the New York Times thought, a “monstrous exception” but an all too common menace to small investors, then he would go a long way toward securing federal legislation of the stock market. With a little more than a month left in the investigation, what did he have to lose?

Founded two days before the outbreak of the War of 1812 essentially as a credit union for a group of New York merchants, City Bank had a rather shaky start and repeatedly came close to collapsing in its early years. The bank’s heyday began about eighty years after its founding, when the famed banker James Stillman took over the reins. The enigmatic Stillman, known on Wall Street as the Sphinx, moved quickly to enlarge the bank and to attract big corporate clients, but the engine really fueling its growth was investment banking. After the Panic of 1893, railroad and other capital-intensive firms desperately needed to raise funds. Looking for a toehold in the field, Stillman formed an alliance with Kuhn Loeb, a leading private investment bank of the day, to help reorganize the faltering Union Pacific Railroad.

It was a good fit, with each bank complementing the other’s strengths. As the more established investment bank, Kuhn Loeb had the relationships necessary to originate transactions, but it lacked City Bank’s strong capital base. City Bank’s rich clients were always looking to diversify their holdings and so provided a ready stable of customers for the firms’ securities offerings. Eventually City Bank, like J.P. Morgan, became a consolidator of industries, orchestrating complex mergers in the copper and utilities industries.²

In 1909, the bank moved in to its palatial new home at 55 Wall Street. At the time, critics called it absurd that a bank should occupy an entire city block, but Stillman conceived the bank’s headquarters as a monument to the firm’s pre-eminence in banking and a testament to its durability and permanence. City Bank was indisputably the largest and strongest commercial bank in the country. Its clients were the dominant companies in a dozen different industries, from meatpacking and sugar refining to chemicals, oil, utilities, and railroads. At that point, Stillman retired from day-to-day operations of the bank. The new president was Frank Vanderlip, who wanted to extend Stillman’s successes by transforming the bank into a worldwide, full-service financial supermarket, a one-stop shop for all its customers’ financial needs.³

Vanderlip began opening City Bank branches throughout South America, Asia, and Europe, but investment banking once again drove the bank’s success. With the advent of World War I, the United States became a creditor nation and as the European combatants increasingly sought to raise money here, New York surpassed London as the world’s financial capital. City Bank and other New York banks flourished. Through its affiliated securities business, the National City Company, the bank pushed ahead in investment banking, forging relationships with the other leading investment banks, floating foreign government bonds, and underwriting risky offerings for emerging electric and gas utilities. The more established investment houses wouldn’t touch these industries, but utilities provided City Bank with yet another way to expand its investment banking operations. The riskiness of such securities—technology was changing so rapidly that an established firm could become an anachronism nearly overnight—also made them harder to market to investors. That meant City Bank would have to look past the wealthy investors who were the traditional buyers of stocks and bonds. Vanderlip foresaw middle-class Americans as a natural outlet for all the firm’s securities offerings and embarked on a plan to develop a broad, nationwide retail network to reach them. Vanderlip’s chance for rapid expansion came in 1916 when National City acquired N. W. Halsey, a young and innovative firm that had pioneered the use of mass advertising to sell securities.

Although happy with his acquisition, Vanderlip was disappointed that he failed to convince the company’s most promising executive, Harold Stuart, to stay on. Stuart decided to set up his own bond-selling firm in Chicago, which he named Halsey, Stuart & Co. Casting about for someone to run City Bank’s newly acquired retail network, Vanderlip found an intelligent thirty-eight-year-old bond salesman “with a good eye and a keen mind,” a man he felt sure would “prove of real strength to the whole situation.” Charles E. Mitchell, Vanderlip thought, had “an astonishing capacity to create energy.”⁴

Mitchell was born on October 6, 1877, in Chelsea, a “shabby and unfashionable” industrial suburb of Boston on the northern bank of the Mystic River. It was, fittingly, the hometown of Horatio Alger, and although Mitchell’s was not quite a rags-to-riches success story, it was close. He had a comfortable, middle-class childhood. His father was a produce wholesaler who dabbled in local politics, eventually becoming mayor of Chelsea when Mitchell was ten. Although financially more comfortable, Mitchell’s early life eerily echoed Pecora’s. Both overcame hardships to become accomplished schoolboy speakers. Pecora had to learn English; Mitchell to conquer his early stuttering. Both became president of their class.

Mitchell went to Amherst, and although he was not a stellar student, he was diligent and determined. Like Pecora’s, his family suffered a setback—his father’s business failed in Mitchell’s junior year. But unlike Pecora, Mitchell stayed in college, supporting himself by working part-time in a general store and teaching public speaking. The future Wall Street titan was tall and ruggedly good-looking. He had wavy hair, deep-set eyes, an “indomitable jaw,” and an athlete’s muscular body, with thick wrists and the hands of a “worker.” He exuded strength, not only physically, but mentally. He never wasted words and he always locked eyes with whomever he was talking to. For all that steely strength, Mitchell remained an amiable man, one who was well-liked and whose many friends voted him “the greatest” when they graduated in 1899. Mitchell, never one to doubt his own abilities and accomplishments, responded, “I am.”⁵

He left Massachusetts for Chicago to work for Western Electric, earning ten dollars a week as a clerk and spending a fifth of his salary on night classes in bookkeeping and commercial law. He quickly rose through the ranks and, six years after he arrived, the ambitious Mitchell came up with an idea to merge several manufacturing companies. He took that idea to the president of the Trust Company of New York, Oakleigh Thorne, who was so impressed with Mitchell that he hired him on the spot as his assistant.

Mitchell arrived on Wall Street just before the Panic of 1907 and he had a front-row seat for the good old-fashioned bank run then threatening his firm. Every day he saw the customers line up in the street to get their money out, and every night he worked with Thorne planning the next day’s strategy. In those days, it was up to private bankers to avert financial catastrophe, and J. P. Morgan, City Bank’s James Stillman, and other leading New York commercial and private bankers pumped millions into the firm, successfully preventing its collapse. “In five weeks,” Mitchell later boasted, “I was given five years’ training in banking.”⁶

After a few years with Thorne, Mitchell set out on his own. C. E. Mitchell and Company sold bonds, and no one sold bonds more aggressively than the firm’s namesake. He joined clubs, not to socialize, but for prospects, and he quickly developed a reputation as a young, high-energy go-getter. Mitchell was fantastically disciplined. With neither the time nor the inclination to join a gym, each morning he would walk the six or so miles to his Wall Street office at a blistering pace. It was a regimen he would keep up, rain or shine, for decades.

When he joined City Bank in 1916, Mitchell articulated a high standard for the affiliate’s selling efforts, first in bonds and then in stocks as the market ballooned. It was a standard that was built on the trust and confidence that he knew its customers, most of whom were financial neophytes, placed in the bank. “The time will never come,” the new president told a group of trainees, “when, pressed with the need for securities of our great selling organization, we will let down in our exacting requirements. . . . We are going to make more exacting our yard-stick,” he told the trainees, because for the firm “the law of caveat emptor cannot apply.”⁷

The old-line investment banking firms never advertised—J.P. Morgan was famous for not even having its name on the building. National City, however, was trying to reach a different audience—the “person of limited resources, all of whose capital and income are necessary to insure life’s future comforts.” So the firm placed advertisements in many of the magazines popular with the rapidly expanding middle class, right next to those for RCA radios and Lifebuoy soap. Mitchell even rolled out a nationwide billboard campaign. The advertising struck the same chord as Mitchell’s speech to the trainees. In an age when advertising was viewed quite explicitly as a form of education and when consumers remained uncritically accepting of many advertising claims, the company offered an image of financial solidity, investment acumen, and “unquestioned reliability.”

Tapping directly into investors’ natural insecurity over making potentially devastating blunders in a field in which few felt comfortable, National City assured investors that they needn’t “decide it alone.” It could help investors choose safe investments in which “their principal is always safeguarded.” National City’s “world-wide investment organization” was there “for the asking” to help investors sort out the “perplexing range of possibilities” they faced. City was not just pushing generic investment advice, but individualized counseling. “National City judgment as to which bonds are best for you,” one ad read, “is based on both strict investigation of the security and analysis of your own requirements.” Indeed, the National City Company was pitched as a time-saving device, no different from the washing machines and vacuum cleaners then flooding the marketplace. Investors no longer needed “to make a prolonged personal study” of investments; they could rely instead on the company’s “experienced advice” to help them choose from “broad lists of investigated securities.” It all seems a bit quaint to modern ears, but in the 1920s the company’s customers really did seem to believe that the investment banker was a man of probity who put his customers’ needs and welfare before everything else.⁸

Those sentiments notwithstanding, Mitchell pushed his salesmen hard. If a salesman complained there were no buyers, Mitchell, universally renowned as “the greatest bond salesman who ever lived,” would take him to the opulent Bankers’ Club high atop the nearby Equitable Building and lead him to the window. “There are six million people with incomes that aggregate thousands of millions of dollars,” he would tell the salesman, waving his hand at the city below. “They are just waiting for someone to come and tell them what to do with their savings. Take a good look, eat a good lunch, and then go down and tell them.”

The biggest money in investment banking was in originating deals directly with the issuers. J.P. Morgan and Kuhn Loeb dominated the major issuers, so National City continued to underwrite the bonds of newer, riskier ones—utilities and airplane manufacturers, municipalities, and a host of foreign governments ranging from European countries devastated by World War I to shaky Latin American dictatorships. Some of these bonds looked like huge gambles, but they quickly became market darlings as the company continued to assure investors that its extensive research staff had examined them thoroughly and given them its seal of approval.⁹

Mitchell proved to be as good a motivator as he was a bond salesman, and his timing was excellent; he assumed the helm of the securities affiliate just before the sale of Liberty Bonds during World War I primed the burgeoning middle class to buy securities. Within a few years, the National City Company had 1,400 employees with branches across the country and around the globe. It was the largest securities distributor in the country, selling $1 billion worth of bonds annually in a decade when stock and bond sales more than tripled. Mitchell viewed his vast securities-selling organization no differently than he would any chain store. Like any large retailer, Mitchell’s goal was to reduce his “unit cost” by generating a huge volume of business. “Our newer offices,” he told the sales trainees, “are on the ground floor. . . . [We] are getting close to the public . . . and are preparing to serve the public on a straightforward basis, just as it is served by the United Cigar Stores or Child’s Restaurants.” City’s chain stores, Mitchell insisted, should sell securities “like so many pounds of coffee.” Indeed, not content to wait for customers to walk through the doors, Mitchell had his salesmen waiting for potential buyers in train stations, attending churches on Sundays, and “knocking at the doors of rural houses like men with vacuum cleaners or Fuller brushes.” No one had ever sold securities this way before—Mitchell was transforming the investment banking industry.¹⁰

A s Mitchell was overseeing National City’s phenomenal expansion, Frank Vanderlip’s term in charge of the bank came to an abrupt halt. City Bank’s aggressive overseas expansion included heavy investments in Russia. After the 1917 revolution, the new government nationalized banks and City Bank took a major hit. James Stillman died just a few months later; his son James Jr. was named chairman, and he soon forced Vanderlip out of the presidency. Stillman the younger was nowhere near the banker his father was, but it hardly mattered. Times were flush and City Bank had just become the first billion-dollar bank.

The good times, however, evaporated with the recession of 1920-21. As the economy turned south, it soon became all too clear that no one during the boom years had paid close enough attention to the quality of the loan portfolio. The worst situation was Cuba. During World War I, Cuba had a monopoly on sugar in the United States market. After the war, prices continued to boom even as more land was converted to cane production and refineries sprouted everywhere. All that expansion needed capital and City Bank was there to meet the demand. In 1919 alone, the bank opened twenty-two branches in Cuba, telling its shareholders that sugar was produced there “under very favorable conditions economically” and that the industry was on a “sound basis.” Soon City Bank held nearly 20 percent of the loans outstanding in the Cuban banking system. It had wagered an astounding 80 percent of its total capital on Cuban sugar, a huge, risky, and ultimately foolish bet. In November 1920, the United States lifted wartime controls, producers from outside Cuba came on line, and prices tumbled from twenty-two cents to a penny a pound. Sugar firms failed left and right, local Cuban banks closed, and the Cuban government eventually declared a debt moratorium that lasted into 1921.¹¹

In the face of that disaster there was no way the younger Stillman, already in the midst of a very public and very messy divorce, could hold on to the presidency. He resigned in May 1921 and the board decided that Mitchell, then just forty-three, was the right man to clean up the mess. The new bank president wrote to Vanderlip that he was humbled by the selection. He had not sought the job “as it has been my feeling that the possibilities in the Company itself were sufficient to gratify my every ambition.” City Bank’s prominence and its importance in the economic structure of the country, he recognized, meant that he owed a duty not just to the bank’s shareholders but to the public at large. “I am fully mindful,” he wrote, “of the quasi-public position which The National City Bank must hold, and cognizant as I am of my own shortcomings, I can indeed approach the work with none other than a feeling of solemnity.”¹²

Neither solemnity nor his lack of experience in commercial banking translated into long deliberation. The new bank president acted quickly and decisively, writing off bad loans, closing weak overseas branches, and instituting more stringent centralized controls. Mitchell’s timing was again fortunate—the recession was short-lived, transforming once sketchy loans into solid ones. And although he claimed never to have aspired to his new position, he quickly consolidated his own power to ensure that he was the undisputed ruler of the bank. Immediately, he insisted that the board institute a bonus system for the bank’s senior executives, telling shareholders that bonuses would “concentrate the attention of the officers upon service to the institution” and thereby reap “larger returns to the shareholders.” In his pitch for bonuses, Mitchell never even mentioned how those bonuses might affect City Bank’s “quasi-public position.”

Knowing that failing to resolve the Cuba debacle “would have meant pretty nearly the destruction of our institution,” Mitchell left for Cuba. He spent eighteen-hour days asking question after question at plantations and sugar mills around the country. Mitchell wouldn’t write off the loans; doing so would have reduced the bank’s capital too much, hurting its capacity to make new, sound loans and making it that much more difficult for the bank to right itself. Ever the gambler, Mitchell chose instead to invest even more money in Cuba. He consolidated the bank’s holdings in a newly formed company, the General Sugar Corporation, which immediately became one of the largest sugar operations in the country. Going more heavily into the sugar business was a bold move for the bank, one that would only work if sugar prices rebounded. By 1922, Mitchell assured shareholders the strategy was working; the situation was “well in hand.” To employees he was even more upbeat. “We are on our way to bigger things. The National City Bank’s future is brighter, I believe, than it has ever been.”¹³

Mitchell was true to his word, and over the next seven years he brought to the bank the same retail spirit he had used to transform the National City Company. “What General Motors was doing for the automobile and Proctor and Gamble for household products,” Citibank’s historians wrote, “National City now did for financial services.” Mitchell envisioned City Bank as the “bank for all,” and he scored huge public relations successes when the bank began accepting deposits of as little as one dollar and began making personal loans as small as fifty dollars. Those decisions were hailed as the “death-knell of the loan-shark business in New York” and a “new adventure in democratic finance.” By 1929, the bank had more than 300,000 personal accounts, all waiting for City Bank and the National City Company to “tell them what to do with their savings.” These “small but developing capitalists,” as Mitchell called them, would be customers not only for banking and trust services, but also for the affiliate’s securities offerings.¹⁴

Always pushing to reduce the bank’s unit costs, Mitchell expanded aggressively. He sold large amounts of stock—increasing capital eightfold over the 1920s—and then used that money to acquire other banks and trust companies. He also took advantage of a change in federal law that finally permitted City Bank to open branches. By 1929, the bank had dozens scattered throughout New York City. Mitchell stationed bond salesmen and trust officers in each one, making it that much easier to cross-sell to his customers. By the mid-1920s, City Bank wasn’t just the largest bank in the country, it was one of the largest corporations, rivaling in size U.S. Steel and American Telephone & Telegraph. Affiliate offices continued to spread across the country—there were sixty-nine in fifty-one cities in 1929—all connected by 11,000 miles of private wire. There were company offices throughout Canada and in London, Amsterdam, Geneva, Tokyo, and Shanghai, all originating new bond offerings for the salesmen to peddle. The affiliate continued its run of record annual profits. In 1927 it had sales of $2 billion, was adding a thousand new customers a month, and had built its own new thirty-two-story office building.¹⁵

Through it all City Bank’s stock price soared. In 1928, the stock was approaching $800 a share, too expensive for the middle-class investors Mitchell wanted most to attract. Mitchell split the stock five for one, but it rose again, this time to almost $600 a share. By the fall of 1929, in the midst of an enormous boom in bank mergers, Mitchell was negotiating a combination with the Corn Exchange Bank. The deal would give City Bank far more branches than any other bank in New York. More than that, it was a capstone for Mitchell’s ambition. The deal garnered nationwide attention because it would, in Mitchell’s words, make City Bank “not only . . . the largest and most powerful, but the most solid institution in the world.” Shareholder approval was all that was needed to complete the deal, and it was widely assumed to be a foregone conclusion.¹⁶

With the booming stock market, Mitchell and other Wall Street leaders were celebrities, and the press chronicled their business pronouncements and their social lives with equal ardor. Mitchell employed a “highly organized publicity machine” to build him up as “a symbol of the great American banker of the twentieth century,” a transformative figure who had revolutionized the way that commercial and investment banks did business. In a time when Wall Street was considered the stage on which strode “the aristocracy of American intelligence,” Mitchell was front and center. He was “the ideal modern bank executive,” someone who had risen faster than anyone else on Wall Street by the sheer force of his personality. Mitchell’s successes and those outsize public perceptions of Wall Street genius spurred his own grandiose visions of his place in the financial and business pantheon. “He saw himself as a man of destiny,” wrote a biographer at the time. “If John D. Rockefeller had become the master of oil he would become the master of money.”¹⁷

With his celebrity and his wealth came all the trappings of Wall Street success—the limestone mansion on Fifth Avenue and the summer homes in Southampton and Tuxedo Park, all with their own live-in staffs. Mitchell lived flamboyantly and spent lavishly. He took annual European trips, shot grouse on the Scottish moors, and made six-week yacht cruises to the Caribbean. When Mitchell traveled for business, it was always by private railcar, complete with kitchen and chef. He was the epitome of the crass, nouveau riche gate-crasher. He drove big cars at reckless speeds. His wife was a music patron, but Mitchell called the opera a good place “to catch up a couple of hours’ sleep.”

In the 1920s, Tuxedo Park was still synonymous with high society and upper-class living. Mitchell outraged the town’s old guard by building his massive home, aptly named Hillsdale, on the highest spot in town so that everyone had to look at it. They may have been annoyed, but they still came to his elaborate parties. The Vanderbilts, Hearsts, and Astors were frequent guests, as were President Coolidge and the Treasury secretary, Andrew Mellon. Even the queen of Romania, touring the country in 1926, requested to stay at Hillsdale, which she remarked made her own palaces look barren. Mitchell was in every way the great Wall Street success story. The handsome, powerfully built self-made millionaire was rugged individualism personified.¹⁸

On January 1, 1929, in a sign of his stature in the banking world, Mitchell was named a director of the New York Federal Reserve. Benjamin Strong, the bank’s governor until his death in October 1928, had tapped Mitchell for the post. Mitchell, he thought, was “truly one of the ablest of our bankers” even though he had been, to that point, a “bitter critic” of the Federal Reserve. The relentless market booster was now a caretaker of the solidity and safety of the financial system, and he wasted no time in shaking up the place.

The Federal Reserve was becoming concerned that stock market speculation, much of it driven by margin stock purchases, had gotten out of hand. At the time, investors could buy stocks for as little as 10 percent of their value, borrowing the rest from the broker and putting up the purchased stock as collateral. The broker would in turn borrow the money in what was known as the call loan market. Call loan rates had skyrocketed to 12 percent by the end of 1928, and companies like Standard Oil, General Motors, and RCA decided that this was the best way to invest their idle cash. New York banks were equally ebullient; they could borrow from the Federal Reserve for 5 percent and immediately lend the money at 12. It was a great system for everyone concerned so long as stock prices continued to rise. The lenders were making easy money with little risk because the collateral underlying the loans could be sold immediately. Margin magnified the stock buyer’s gains. A 10 percent rise in price would give the investor a 100 percent return. Of course, a 10 percent decline would wipe the investor out, but no one, apart from the Federal Reserve, seemed very worried about that possibility in early 1929. This was the New Era. Many uttered what nearly always proves to be the most expensive phrase in investing: “This time is different.”

The Federal Reserve was in an unenviable position. If it raised rates it could harm the broader economy, not just put a crimp on stock speculators. And, of course, if the market came crashing down it would be the Federal Reserve that would take the brunt of the criticism, a prospect that no regulator relishes. So it took more timorous steps. In February, it twice warned member banks not to borrow money “for the purpose of making speculative loans.” On March 4, 1929, when Hoover was inaugurated, he urged the Federal Reserve to do more, prompting daily meetings of the board. The Federal Reserve made no announcements, but after an unprecedented Saturday meeting on March 23, the market was spooked. That Tuesday, prices plummeted on huge volume, and as banks reduced their call market loans, rates zoomed to 20 percent. It looked like the party was over.¹⁹

Strong’s recommendation of Mitchell had been contingent on having a “nice talk” with Mitchell that emphasized that “so long as he is a member of the board of directors he should be willing to accept the decision of the directors in all matters and not indulge in outside criticism.” Apparently the talk didn’t take, because Mitchell came to the rescue of the staggering stock market, announcing that City Bank would borrow $25 million from the New York Federal Reserve to prevent liquidation of margin loans, “whatever might be the attitude of the Federal Reserve Board.” Mitchell’s edict, in the words of the economist John Kenneth Galbraith, was “the Wall Street counterpart of Mayor Hague’s famous manifesto, ‘I am the law in Jersey City.’” The Federal Reserve and Hoover remained silent, unwilling to openly challenge Mitchell. Or at least that was the way it seemed to outsiders. In truth, Mitchell had acted with the approval of the New York Federal Reserve’s new governor, George L. Harrison.²⁰

After City Bank’s intervention, call loan rates declined and the market continued its upward trajectory. Senator Carter Glass, never a fan of the stock market and always protective of his Federal Reserve, was livid at Mitchell’s apparently defiant attitude. Mitchell, the senator said, slapped the Federal Reserve “squarely in the face,” treating its policies “with contempt and contumely.” He was unfit to serve on the board and should resign immediately. But to everyone else, Mitchell was a hero. A New York Times editorial proclaimed that Mitchell had “saved the day for the financial community. No one can say how great a calamity would have happened had he not stepped into the breach at the right moment.” Mitchell, it seemed, had refused to be browbeaten by know-nothing Washington bureaucrats. He had single-handedly prevented a panic and saved the great bull market. Maybe he was indeed the heir to J. P. Morgan.²¹

The market euphoria of spring barely survived the summer. Stock prices were choppy in September but unmistakably trending downward after the market’s peak just after Labor Day. In October 1929, the Yale economist Irving Fisher uttered what would prove to be one of the more durable quotes linked to the Great Crash. “Stocks,” Fisher confidently predicted after an alarming dip in early October, “have reached what looks like a permanently high plateau.” Mitchell and Fisher saw eye to eye. The two were “Wall Street’s official prophets,” but they were far from alone in their optimistic assessments. Most everyone was exuberant; Mitchell and Fisher were simply more visible and more insistent.

In September, as he boarded a liner for a European vacation, Mitchell assured investors “things have never been better”; there was simply “nothing to worry about in the financial situation of the United States.” As late as October 21, after a particularly bad day on the market, Mitchell, now arriving back in New York, tried to calm welling public panic. The market readjustment, he told reporters, “had actually been an encouraging sign” and, in fact, had already “gone too far.”

The crash began two days later, not as a nauseating one-day plummet, but as an agonizing weeklong plunge into the abyss. The sell-off that began in earnest on the afternoon of Wednesday, October 23, fed on itself as speculators abandoned their positions and margin accounts were sold out. On Black Thursday, almost 13 million shares changed hands, three times the previous record. As the averages continued to fall, the Morgan partner Thomas Lamont, Mitchell, and other leading bankers tried to support the market—just as J. P. Morgan had done to stave off the Panic of 1907. They pooled resources and sent Richard Whitney out to the floor of the New York Stock Exchange to ostentatiously purchase U.S. Steel and other leading industrial stocks at above-market prices.

Could Mitchell save the market again? He tried to say all the right reassuring things, insisting that he was unconcerned about what he viewed as a “purely technical” market adjustment. Sunshine Charlie had been right many times before—this time he was dead wrong. With the bankers’ organized support the market stabilized, but only temporarily. On Monday, as thousands of frightened investors congregated outside the police barricades surrounding the New York Stock Exchange, the market dove a record 13 percent. Another 12 percent drop on Black Tuesday, on volume that easily beat the record of the previous Thursday, meant that the market had lost $30 billion in value in a week, ten times the annual federal budget.²²

There was no way that Mitchell, after his unbounded optimism and failed attempt to stem the crisis, could avoid some well-earned rebukes in the aftermath. Senator Glass did not mince words, charging that Mitchell was “more responsible than all others together for excesses that have resulted in this disaster.” The New Yorker did its best to supply a little humbling derision. Parodying the New York Times’s Neediest Cases column, it told the story of “Charlie,” who “likes nothing better than to tell everyone that the prices of securities in Wall Street are grotesquely conservative.” Charlie was now forced “to subsist on a diet of crow and raspberries. What he needs for Christmas is some good, serviceable prestige.” Publicly, Mitchell maintained the requisite stiff upper lip, but in private he “accused the country of crucifying him.”²³

The reprimands and ridicule, however, were aimed at Mitchell’s lack of foresight, not his villainy. Almost no one seemed to believe that Mitchell had deliberately deceived investors—he was simply overly optimistic. “When Mr. Mitchell was broadcasting his roseate dreams to buy stocks,” one author wrote at the time, “he thought he was walking in a new world.” Mitchell’s public optimism mirrored his private comments. The banker had wired the Wall Street financier Bernard Baruch in August 1929 that stocks looked “exceptionally sound” and likened the market to “a weather-vane pointing into a gale of prosperity.” Baruch proved to be the savvier investor—with Mitchell’s predictions still reverberating in his head, he chose to sell all his remaining stocks and managed to get out of the market before the crash.²⁴

Even with this colossal blunder, Mitchell’s position at City Bank was never in jeopardy. Percy Rockefeller (John D. Rockefeller’s nephew) was a City Bank director and one of its largest stockholders, and he called rumors that Mitchell would resign in the wake of the crash “too absurd to be considered by any sensible person.” Even a magazine as liberal as the Nation could still call the “imaginative and unconventional” Mitchell “courageous” for his “progressive” attempts to democratize banking. Sure, he was only doing it to make money, but Mitchell had, nevertheless, convinced his bank “to lend to common people in small amounts, at reasonable interest” and to “sell securities to even the least investor.” He had “done as much as any one . . . to socialize banking.” Mitchell was still a banking visionary.²⁵

Within a few months, Mitchell’s reputation would rebound, and by 1932 he was far from a pariah. His place in society and in the power structure of the country appeared both secure and undiminished. In 1930, he was on a list put together by a wealthy corporate lawyer and former ambassador to Germany, James W. Gerard, of the fifty-nine men—mostly bankers and industrialists—who, “by virtue of their ability” actually “ruled” the United States. Publication of the list caused something of a sensation. Some scoffed at Gerard’s assertion that these men were “too busy to hold political office but they determine who shall hold such offices.” Still, New York’s Governor Roosevelt felt compelled to announce that he was tired of a handful of men controlling the destinies of 120 million. Whatever the truth, Mitchell’s inclusion on the list reflected his secure position among the business and financial elite. He served out his term as a director of the New York Federal Reserve, despite Glass’s finger-pointing. In many quarters he was still praised for his courageous stand against the Federal Reserve.²⁶

A year later, Mitchell prominently came to the rescue of New York City. As the Depression worsened, cash-strapped owners stopped paying their property taxes, while relief efforts sent the city’s expenses skyrocketing. In no time, New York City was on the brink of financial collapse. Mitchell led a team of bankers in negotiating potential loans to the city. When Mayor Walker was summoned to a meeting at Mitchell’s Fifth Avenue home, the banker read him the riot act—he needed to cut salaries and purge the city’s bloated payroll of patronage appointments. “Cut your budget,” he bluntly told Walker, “or go elsewhere for your money.” Despite Walker’s popularity with the voters, it was clear where the power lay. Walker was so nervous that he pulled all the tacks out of the antique French chair on which he was sitting. He hastily retreated, the city slashed salaries, and the loan was made.²⁷

That same year Hoover consulted Mitchell and other leading bankers on ways to address the credit crisis then gripping the country. Mostly, Mitchell thought the government did more harm than good. Taxes were damming “the natural flow of wealth,” and he advised the government to simply stay out of the way. “[E]very experiment in Government management,” he lectured, “demonstrates its disqualification in that field.” By 1933, Mitchell’s knee-jerk optimism remained, for the most part, undimmed. He was “moderately hopeful” that the storm would soon be over. The banking panic, he said, had been overcome and the United States’ economic system was “essentially sound, the most efficient in the world, and capable of providing a higher standard of living for the people than yet has been known in any country.” A few days before the Long filibuster killed Senator Glass’s banking bill, Mitchell warned City Bank’s shareholders about the dangers of severing securities affiliates from commercial banks. Affiliates were an “essential element in the financial machinery of the United States” and eliminating them would, he confidently asserted, make it that much more difficult for the country to emerge from depression.²⁸

Bankers’ reputations among average Americans were certainly battered and bruised at the end of January 1933. Father Charles Coughlin, the popular radio priest, grew even more popular when he began to blame Wall Street and international bankers for the Great Depression. As the Depression wore on, Coughlin’s commentary turned violently anti-Semitic, leading some commentators to dub him the father of hate radio. But in the early 1930s, at the height of his popularity and influence, Coughlin’s targets were “greedy bankers and financiers.” When Coughlin called Hoover “the Holy Ghost of the rich, the protective angel of Wall Street,” tens of thousands of letters, many stuffed with donations, inundated his church in Royal Oak, Michigan. In January 1932, another priest, Father James Cox, led a ragtag group of unemployed men to Washington. After an audience with Hoover, Father Cox confidently declared that the United States had “a government of the bankers, for the bankers and by the bankers.” Being a banker, the American Mercury noted, was “formerly regarded as a mark of esteem in the United States,” but was now synonymous with “rascal” or “scalawag.”²⁹

There was, at the time, a tendency, wrote journalist Anne O’Hare McCormick, “to blame the bankers for almost everything.” Mitchell was still thought of as a “rampant bull” and he and other bankers, once heroes, were now the scapegoats of the crash. In bad economic times, Americans have traditionally suspected Wall Street’s motives and its morals, but now the country doubted its intelligence, too. “An eminent financial expert,” one wag noted, “declares that conditions are improving. Nevertheless we think conditions are improving.”

When Pecora subpoenaed Mitchell to appear before the committee, it remained clear that the public’s simmering and unfocused anger at Wall Street and the lingering animosities about Mitchell’s role in the boom days had done little to dent either the power he wielded or his stature in the banking community. Americans were angry and suspicious. Demagogues like Father Coughlin were eagerly denouncing bankers as “gangsters” who were “perfectly organized for their own selfish ends.” But no one had yet provided proof that Mitchell or any other leading Wall Street banker had in fact acted illegally or unethically.³⁰

The day after he was subpoenaed, Mitchell called Pecora directly. Seated in his wood-paneled office with its black marble fireplace, the banker was in full salesman mode, apparently feeling no need to interpose a layer of lawyers between himself and this neophyte senatorial investigator. Mitchell wasn’t taking Pecora too seriously—when he wrote Pecora a few days later, he didn’t even get his address right. On the phone he “told [Pecora] a persuasive story about the urgent necessity” of his trip to Italy and of his plan to sail in just a few days. The banker assured Pecora that he was unnecessary; the other executives of the bank had all the information the committee needed. If the committee released him from the subpoena “he would return on March 1st and submit himself for examination before the close of this session of Congress.” In exchange, the banker held out a big carrot. Mitchell promised Pecora that the bank would fully cooperate with the committee’s investigation. “Mr. Mitchell agreed,” Pecora informed Norbeck, “that the investigators and accountants of the Committee’s staff should have complete access to all the records that we regarded as relevant to the Committee inquiry.”³¹

Mitchell was trying to stall, to run out the clock. He knew that authorization for the investigation expired on March 4, and if he returned from Europe on March 1, at best the committee would have just two days to question him. And that was a big if. Less than a decade earlier, Harry Blackmer had fled the country rather than testify in Congress about Teapot Dome. On that last day of January 1933, he was still safely beyond the reach of the United States legal system, splitting his time between Monaco and Cannes. Samuel Insull, currently under indictment in Chicago, was still successfully fighting extradition from Greece. Mitchell would have a much easier time avoiding the committee.³²

Pecora surely realized all this, but he also must have wanted to keep his options open. He certainly did not want to reject Mitchell’s request while the banker was holding out the promise of unfettered access to the bank’s records. There is, of course, nothing glamorous about document review—most of the time it’s mind-numbing drudgery. Lawyers typically dread the countless hours it consumes, the incessant, patient sifting of stacks and stacks of documents necessary to reconstruct the facts of a case and to unearth the few gems that may make or break it. Pecora thrived on courtroom forensics, so he was probably no different. He knew, however, that the flashy and effective cross-examination couldn’t happen without the long slog through reams of paper. There are few surprises for great cross-examiners, who almost invariably know the answers to their questions before they ask them. It is really the only way to pin down evasive witnesses, who are unlikely to concede anything important unless confronted with the documentary evidence that leaves them with no other choice. It was the failure to do that kind of legwork that had made Richard Whitney’s appearance such an abject failure for the committee. With the investigation hanging in the balance, Pecora was not about to make the same mistake with City Bank.

Naturally, none of this was news to City Bank’s lawyers, and it was certainly possible that Mitchell was lying; perhaps he had no intention of allowing Pecora’s staff to run untrammeled through City Bank’s books and records. The senator and later Supreme Court justice Hugo Black wrote that business executives at the time had “built up the fiction that they have a right to enjoy some special privilege of secrecy” from governmental investigations. Pecora decided he could wait and see, at least for a little while. On the off chance that Mitchell really was going to provide Pecora with exactly what he wanted, he would remain noncommittal. He told Mitchell that he “would consult with the Committee and take the matter under advisement myself.” He agreed to let Mitchell know by Thursday—two days later and two days before Mitchell was due to sail—about whether his appearance could be postponed.³³

Those two days let Pecora test Mitchell’s cooperation, and it quickly became clear that it was not forthcoming. When Pecora’s staff went to City Bank headquarters the next morning, they met with delay and dawdling. City Bank was not so shortsighted as to refuse outright. “While there was no abrupt or disagreeable obstruction,” Pecora informed Norbeck, “ways were invented to kill time by reason of objections to various lines of our inquiry.” It was much the same treatment that committee investigators received in the spring of 1932 when they investigated the bank’s participation in the Anaconda Copper stock pool. At that time they were told that they could look at selected documents, but only under the watchful gaze of a City Bank officer, and under no circumstances were they permitted to take notes. Why William Gray, the committee counsel at the time, would agree to such restrictions is a mystery, but it is some measure of the deference accorded to the theoretically omnipotent leaders of Wall Street. City Bank was trying the same tactics again. Now Garrard Winston, a partner from City Bank’s outside law firm, Shearman & Sterling, and a director of the securities affiliate, would have to review and approve all requests before the investigators could look at a single document. If there were any doubts about City Bank’s strategy, those doubts were now gone.³⁴

Norbeck wasn’t pleased with the delaying tactics and he decided to turn up the heat on the company. Right after getting off the phone with Pecora, Norbeck told reporters that the committee intended to focus its inquiry on how City Bank sold its own stock. That wasn’t quite right—Pecora wanted to examine all the stocks and bonds City Bank sold, not just its own. Norbeck then placed responsibility for the stock market bust—and by implication for the ensuing Depression—right at the feet of City Bank and Mitchell. The investigation showed that the participation of large banks in stock promotions was “highly responsible for the wild stock market boom.” The Federal Reserve tried to slow down the stock market, Norbeck argued, but Mitchell “defied the board and speeded up the boom. He took a ‘go-to-hell’ attitude toward the Board and got away with it.”³⁵

Norbeck’s press gambit backfired. Bank employees told Pecora’s staff that “the picture has now changed.” From there on in, they intended to focus on the precise language of the Senate resolution in analyzing document requests. The message was clear: City Bank would look for any basis on which to shield material from the committee.

After a day of fruitless attempts to gain access to the City Bank records, Pecora summoned Shearman’s managing partner, Guy Fairfax Cary, to his office. Sitting in Pecora’s tattered armchair, the patrician Cary, who had been a City Bank director since 1919, could not have been more out of place. Cary looked the part of the serious, formal, somewhat tightly wound Wall Street lawyer, with his down-turned mouth, bald head, and frameless pince-nez. Indeed, other than the fact that they were both New York lawyers of about the same age, it is hard to imagine two men with more different backgrounds. Cary was part of New York’s business and social elite. His maternal grandfather was a partner at one of the leading investment banking houses, Brown Bros. & Co. Cary attended prep school at Groton before going on to Harvard and Harvard Law. Now approaching his third decade of practice, he catered to the legal needs of large corporations and wealthy New Yorkers. Cary lived on Park Avenue, summered in Newport, was a fixture on the New York social scene, and belonged to some of the city’s most exclusive clubs, the kind of clubs that did not allow lawyers with vowels on the ends of their names to join.³⁶

For Cary to feel uncomfortable was just what Pecora wanted. He knew it was a “crude” psychological trick, but it was usually effective. Pecora would later use the same tactic in his initial meeting with J. P. Morgan Jr. Morgan famously went nowhere for meetings—if someone wanted to meet, he or she would invariably come to Morgan at 23 Wall Street. Pecora, however, insisted that he was too busy to make the trek down to Lower Manhattan; Morgan would have to come uptown. It had the desired effect. “I felt,” Pecora said, “it might be a good thing to do something which might convey to Mr. Morgan the impression that he was not going to meet Ferdinand Pecora, the individual, but that he was to meet a representative of the United States Government.”³⁷

Cary may have felt uncomfortable, but he remained recalcitrant. He told Pecora that according to his own reading of the resolution, the committee’s authority was severely limited; it could only investigate “listed securities.” That meant City Bank would not turn over any documents involving transactions in securities not listed on the New York Stock Exchange. Norbeck’s misstatement concerning the thrust of the committee’s interest—the issuance of the bank’s own stock—also gave Cary a big opening. If that was the case, Cary told Pecora, then the committee had no authority to investigate any matter involving the bank after January 11, 1928, the day City Bank had delisted from the New York Stock Exchange, ostensibly to prevent manipulation of its own stock.

Cary’s argument was aggressive; he was trying to excise from the investigation all of City Bank’s activities around the crash, effectively gutting the investigation. Unlike the supine Gray, however, Pecora wasn’t going to back down, and he wasn’t going to get hemmed in by every mistaken utterance that came out of Norbeck’s mouth. Pecora told Cary that his position was unsound. Yes, the resolution referred to listed securities, but it also authorized the committee to investigate the effect stock exchange trading had on “the operation of the national banking system and the Federal Reserve System,” of which City Bank was most certainly a part. The resolution also didn’t limit the committee to investigating listed securities; it authorized the committee to investigate buying and selling of listed securities. Whether City Bank was listed was irrelevant, because City Bank was clearly in the business of buying and selling listed securities. Pecora was right, but Cary wasn’t looking to be right. He only needed a plausible argument that would allow him to slow down Pecora’s investigators.

Not surprisingly, the two men decided nothing that evening, and the meeting ended with Pecora no closer to inspecting the bank’s records than he was before. The lines were drawn, and Pecora had no reason to believe that Mitchell or City Bank had any intention of cooperating. Now it was Pecora’s turn to turn up the heat. He immediately notified Mitchell that his appearance before the committee on February 21 was “imperative.” Il Duce was simply going to have to wait for Mitchell’s advice on the lira. The next day he told the press: “[T]he committee staff has encountered certain recalcitrants who are attempting to obstruct the inquiry. . . . I shall not hesitate to employ every legal means to ascertain all facts essential to the investigation.” There was little doubt who Pecora was referring to.³⁸

Pecora was still pursuing evidence from other sources, things like Mitchell’s tax returns and other documents in the hands of federal agencies, but he wasn’t going to get very far without the bank’s documents. And it wasn’t just documents relating to City Bank transactions. John Marrinan suggested getting “a line on salaries and bonuses paid to officers of the National City Company.” Cary and Garrard Winston clearly weren’t going to let them see those documents without a fight—even shareholders didn’t know what the officers made. On Saturday, Cary and Mitchell continued to duck Pecora’s calls, perhaps thinking that he, like Gray, would give up in the face of their stonewalling. They didn’t know Pecora very well.³⁹

Pecora asked Norbeck to issue a new set of subpoenas requiring the bank’s employees to produce everything in Washington the following week. If they failed to show or failed to bring all the documents, they would be held in contempt and thrown in jail until they complied. Norbeck readily agreed to issue the subpoenas. In truth, he was likely in a sour mood, particularly unwilling at that moment to be conciliatory toward a bunch of New York bankers. Not when the news from home was so disturbing. Protesting farmers in Sioux City had just shot and killed a sixty-eight-year-old man who had tried to run their blockade.⁴⁰

The subpoenas went out on Tuesday, February 8, and City Bank caved the next day, agreeing to give Pecora and his staff complete access to its books and records. Cary’s argument for limiting the scope of the committee’s inquiry didn’t prevail, but he bought his client a week. Now Pecora had only twelve days to get through City Bank’s documents while simultaneously trying to conduct an inquiry into the Insull utility collapse. To forestall any other attempted delays, Pecora would go to City Bank’s headquarters himself.⁴¹