The Hellhound of Wall Street

The Saturday morning newspapers made no one feel any more secure. Although editors everywhere had done everything they could to downplay the news of bank failures, hoping not to inflame fears even further, there was no way to suppress this story. Maryland’s banks would be closed for the next three business days. Governor Albert Ritchie had been pleading for calm in radio address after radio address, but to no avail. It wasn’t just the small depositors in the lines snaking through the streets of downtown Baltimore; many of the banks’ largest customers, including the Baltimore and Ohio Railroad and the city and state governments, yanked all their money, further destabilizing the already wobbly financial institutions. A dozen Baltimore banks had no money at all. The moratorium, state officials said, was the only way to prevent the complete collapse of every bank in the city. Maryland was now the second state to declare an official bank holiday, and the closure of its banks virtually ensured that more states would follow.²

In Washington, Hoover and Mills were still trying to manage the crisis, but other governmental officials had all but given up. The Federal Reserve chairman, Eugene Meyer, hated going to the office and thought the efforts to prop up the banking sector futile. He was, his wife Agnes wrote, “too wise to try to conduct an earthquake.” His colleagues at the Federal Reserve were far harsher; they said Meyer seemed “dazed,” that he “had nothing to offer” in terms of solutions, and that he “acted like a whipped dog!” Meyer may not have known how to stop the crisis, but he was sure about what he thought of the testimony coming out of Room 301 that week. Mitchell, he concluded, had grievously injured the Federal Reserve System. That Saturday Meyer confided to a colleague that the previous June he had, without the board’s knowledge, tried to have Mitchell removed as chairman of City Bank, an effort that obviously went nowhere.³

Agnes Meyer could see that Hoover was growing despondent, and she thought the dénouement appropriate for Hoover’s failed presidency. “Hard on H to go out of office to the sound of crashing banks,” she wrote in her diary that Saturday. “Like the tragic end of a tragic story. . . . Looking back it seems like nothing but blunder after blunder. He has been perversely and stubbornly wrong and short-sighted from start to finish.”⁴

In the midst of the banking crisis—what Roosevelt had already called an “inferno”—some argued that the committee’s decision to continue hearings was more than just pointless. Showing this kind of deep-seated wrongdoing at one of the nation’s largest banks at a time when the banking system was in free fall amounted to pouring gasoline on the flames. The conservative New York Evening Post said that Congress had “done nothing to restore public confidence” and had “chosen the worst of all possible times to throw further doubt upon banks.” Pecora and the committee had broken “the faith of the people in their financial leaders”; but even the Post concluded that the revelations “could not be ignored.”⁵

The Evening Post wasn’t alone in urging the committee to proceed with more caution than it had demonstrated in the first week; business leaders were also worried. The president of the Chicago and North Western Railway warned Norbeck that the investigation was leading to panic: “The disclosures to date are causing the rank and file out through this country to distrust all banks, the good along with the bad; hoarding is starting in again; withdrawals are becoming very heavy; the whole financial structure seems to be sitting on dynamite.” Perhaps, he wrote Norbeck, it might be better to adjourn the hearings for a short time “to give people an opportunity to quiet down, and possibly relieve the situation.”

It was not terribly surprising that business leaders were upset by what Pecora was doing in Washington, but less august citizens also urged restraint. A New Yorker named William Purnell told Norbeck that the disclosures were frightening the people, and would soon create outright panic. Purnell thought that the country had its hand “in the lion’s mouth, we should be very cautious and not stick him or make him bite us before we get our hand out of his mouth.” There would be, he thought, plenty of time later to “convict the criminals.”⁶

Many agreed that the disclosures heightened public fear about the solidity of the banking sector, but thought it was better to reveal those problems than to cover them up. “Only with knowledge of what is being done,” the Washington Herald editorialized, “can it be hoped that legislation will be devised which will lift the tone of prevailing business methods and make impossible the continuance or recurrence of such practices as are now being unfolded to us. Indeed, it is a period of tragic disillusionment through which we are now passing!” The disclosures, an editorial in another paper claimed, were “highly salutary. . . . The small depositor will get over his apprehension and cheer up—[a] better order and greater safety for depositors can come only through a wholesome purging.” Norbeck heard that same view directly from his constituents as well. “Feel that your exposure of malpractice by banks is doing great good,” one person wired him. “Must come sooner or later. Keep it up. To discontinue now would be unfair to public.”⁷

To the extent that there were Mitchell defenders—and they were getting harder and harder to find—they took pains to point out that however unseemly the disclosures might appear to be, they were common, if not accepted, practices in the 1920s. James Paul Warburg, a member of the Warburg banking dynasty who worked closely with Roosevelt early in his administration, said that Mitchell and other bankers “made money hand over fist for themselves and did things which are now considered immoral, but which, in the days when they did them, were not uncommon. We were still living in pretty much the jungle rule in Wall Street.”⁸

It was more than just a change in standards, however; the truth was that none of the acts that were causing so much anger were illegal. That was certainly true as far as City Bank’s banking and securities-selling practices were concerned. Affiliates were permissible under federal law, no federal laws required disclosures in securities offerings or prohibited participation in pools, and the bank had broken no laws in paying bonuses. Financing the affiliate’s trading in the bank’s stock skirted the line, but it too was probably technically permissible. Even Mitchell’s tax sale may have been lawful. This kind of wash sale was apparently quite common at the time and, if it was shown that Mitchell acted in good faith, relying on the advice of his lawyer in structuring the transaction, he would not be criminally liable for tax evasion. Trying “to inflate such a charge to the heights of dastardliness,” one financial newspaper noted, “is overdoing things in a fanatical sense.”⁹

That defense, however, was really no defense at all. “The reason there are no laws against such things,” Business Week explained, “is that no lawmaker ever imagined such laws might be necessary.” Indeed, the magazine wondered “if the imagination of Congress ever can anticipate all of the queer things certain types of bankers can think of during the infection of a boom.” From day one, Pecora said he was trying to provide a sound framework for necessary federal legislation. Doing that required the investigator to show just where current law was inadequate. “If some of the practices disclosed are not in violation of the law,” the editors at the Baltimore Sun wrote, “then so much the worse for the respect in which law should be held. The country would like the practices and the law to be examined jointly. . . . The Senate’s committee should plug away until the whole story is unfolded.”¹⁰

The continuing furor over the City Bank testimony was fueled in part by Senator Burton Wheeler, who took his scathing attack on bankers from the Senate floor to the national radio waves. Mitchell and his colleagues, he said, “shocked the moral conscience of the entire nation.” The investigation wasn’t destroying public confidence, he argued, not for the long haul anyway. “[N]othing will restore confidence in our banking structure,” Wheeler told his audience, “more promptly than demonstrated proof that we have a government that has the courage and integrity to prosecute with equal vigor these malefactors of great wealth as well as the humbler offenders.” After the crash, Mitchell had been derided for his foolish optimism, but the week’s revelations were more than simply an attack on his judgment. “An adventurous American people,” Wheeler explained, “will not criticize too harshly mistakes of judgment, or even unwise speculation, but they will not condone the violation of a fiduciary trust. These men, trusted by their depositors, stockholders and investment clients, traded on that sacred confidence to their own profit and to the ruin of those who trusted them.”¹¹

The attention the City Bank hearings garnered was hardly surprising, what with Wheeler’s continuing attacks and the week’s dramatic revelations unfolding as they did against the backdrop of that ever worsening banking crisis. Room 301 had become the crucible in which the American economic system was being tested. “Capitalism,” the editors at the St. Louis Star-Times wrote on Friday, “is on trial for its life.” As compelling as that story line was, there was more to the media’s fascination with the hearings. It was the man who was prosecuting capitalism. Reporters already were captivated by Pecora, who they viewed as simply “splendid.” The first week of hearings, Newsweek wrote, was “four packed days of crackling testimony on the boom-time practices . . . pieced together by the Committee’s sharp-witted counsel, Ferdinand Pecora.” With a nod to the ongoing Japanese invasion of China, the Washington Herald remarked that “Mr. Ferdinand Pecora goes through the National City Bank like a Japanese tank through the Great Wall of China. How vulnerable the famous ‘Wonders of the World’ are, after all!”¹²

Part of the fascination was simple novelty. An Anglo-Saxon Protestant lawyer conducting the same examination as Pecora would not have been nearly so compelling. Nor would there be anything particularly unusual about a stellar performance by a Jewish lawyer. Although anti-Semitic views were likely far more durable at the time than anti-Italian ones, Jewish stereotypes tended to coincide with legal aptitude. There were plenty of precedents for outstanding Jewish lawyers. Samuel Untermyer, after all, had cross-examined Morgan twenty years earlier and remarkably, given Pecora’s commanding performance, Untermyer continued to lobby to take over as committee counsel. On Saturday, he wired Norbeck claiming (inaccurately) that in those earlier hearings he had “uncovered” City Bank’s affiliate and that he “repeatedly denounced [affiliates] as unlawful and dangerous and vainly sought to suppress them in their infancy.” In a national radio speech, Untermyer delivered a “scathing indictment” of the Stock Exchange and the House of Morgan. It seems amazing to think that after that first week, Untermyer could have seriously believed he still had a shot at becoming counsel once the new Congress was in session, but Pecora was in fact far from assured of keeping his job. One Democratic member of the committee reportedly reached out to the incoming administration to tell them that if Roosevelt requested it, the committee would retain Untermyer.¹³

Other Jewish lawyers, like Max Steuer, had established nationwide reputations as courtroom magicians. Steuer was considered the greatest trial lawyer of the day, the man to call when you were really in trouble. He had just obtained convictions as a special prosecutor in the Bank of United States scandal, and that victory led Norbeck’s staff to float his name as a potential replacement for Gray. Some columnists, in fact, were still spreading rumors that Steuer, who was looking to take on more public-oriented work now that he was near the end of his career, was interested in the job and would take it once the new Congress convened. A blockbuster performance by Steuer would have surprised almost no one, although there is little doubt that his appointment would have engendered a fair number of anti-Semitic letters to the committee. But who had ever heard of an Italian lawyer?¹⁴

Pecora’s performance was surprising not only because there were so few Italian lawyers but because it played so strongly against the prevailing stereotype of Italian Americans as lazy, unintelligent, and ungovernable criminals. There was no shortage of irony in the public spectacle of a theoretically lawless Sicilian demonstrating the pervasive lawlessness and chicanery of the Anglo-Saxons who ruled the banks and investment houses. It was an irony that reporters were not shy about discussing explicitly. One called the lawyer a “Sicilian immigrant boy.” Another remarked on the “primitive faunlike quality in this native of the Italian soil, brought face to face with many scions of the Anglo-Saxon socially [sic] elite.” And when politicians as diverse as Montana’s progressive senator Burton Wheeler and President Hoover searched for an analogy to explain their outrage over Mitchell’s behavior, they almost invariably invoked the symbol of Southern Italian lawlessness—Al Capone.

However ironic in the context of the Pecora-led hearings, the analogy was natural at the time. Capone was the criminal archetype of the day; for many he was the representative Italian American, and he was a rhetorical favorite of politicians and writers everywhere. One magazine said that Capone was a “bungler by comparison” to Mitchell. When, later that year, Hugh Johnson was promoting the National Recovery Act, he derided the businessmen who opposed it. “Al Capone,” he told his audience, “was a poor ignorant Sicilian piker next to these rugged individualists who wanted to prolong the dark ages of human relationships.” In reality, Capone was born in Brooklyn, the son of Neapolitan parents, but those facts hardly mattered. Johnson, no doubt, assumed Capone was from Sicily, just one more indication of the durability of the stereotype of Sicilian lawlessness.¹⁵

The ethnic role reversal brought glee to some, but engendered anger in quite a few others. An outraged citizen wrote to the committee: “In ‘his country’ that he brags so much about, this Sicilian peasant would be clapped in jail for the part he has played in undermining the price of peoples [sic] stocks. Why such scum is allowed among decent men shows the low hirelings who are paying him.” When J. P. Morgan Jr. famously came before the committee in May and June 1933 he was publicly polite, but in private he excoriated Pecora as a “dirty little wop” and “2nd-rate criminal lawyer.” Thomas Lamont, Morgan’s partner and the real leader of the firm, complained that the hearings were just a “Spanish Inquisition” run by a “young native Sicilian counsel, Ferdinand Pecora.” Even the senators weren’t immune. Two of Carter Glass’s former assistants at Treasury were Morgan partners, and Glass and Pecora had a very public and very heated row over the lawyer’s tactics during those hearings. “Glass is a Virginia aristocrat,” Business Week wrote about the spat, “though he lacks the tolerance and urbanity supposed to go with it. And this young Italian immigrant heckling the loved and revered partners of two of his best friends does not sit at all well with him.”¹⁶

Ultimately, Pecora’s masterful performance did little to purge those lingering stereotypes. While much of the press coverage of his work as counsel was complimentary, it remained laced with the stereotypes of the day. A Barron’s profile of Pecora opened with the line “Ferdinand Pecora is a Sicilian who brought to American citizenship that dramatic instinct characteristic of the Latin race; but added to it in a somewhat larger measure than is frequent—a good brain.” Untold articles described him as “swarthy.” The Boston Globe noted that he had “all the vivacity of his race,” and many others wrote about his “sunny” disposition, which, according to the Christian Science Monitor, did “not have any of the Anglo-Saxon somberness or severity.” One commentator offered that his mixture of Sicilian birth and Protestant religion was “a good combination of potential vindictiveness and austerity.”

Maybe it wasn’t surprising that newspapers traded in those stereotypes, but Pecora couldn’t even change the views of those who saw him up close. Even Pecora’s former boss and good friend, Joab Banton, in an effusive article praising Pecora’s legal abilities, treated Pecora as something of an anomaly. “Pecora,” he wrote, “is a splendid example of the salutary effect of American life upon the artistic temperament of an Italian-born person.” Norbeck never really got past his preconceptions of “Latins” as lackadaisical and unintelligent. Pecora had been putting in sixteen- to eighteen-hour days under brutal time pressures, but Norbeck still confided in a colleague that the lawyer was “a man who does not work in an orderly way in his office, but is very good in presenting things when he gets them thoroughly in his mind. . . . I knew he was phlegmatic and took life rather easy—that is apparent from his looks, considering his age.” The stereotypes were simply too hard to shake in such a short time.¹⁷

Many in the Financial District were quite naturally angry, not at Mitchell and Baker, but at their accusers. Quite a few Wall Street denizens thought that the men had been handled too roughly and there was more than a little empathy for the fallen bankers. Many said, at least off the record, that they thought the Washington investigators made Mitchell the scapegoat for the crash and the Great Depression. It was a claim that would get repeated over the years by a host of Pecora’s critics. But it wasn’t Pecora who drew that causal link; the media had been critical of Mitchell’s unalloyed optimism for years. And if anyone in Washington was scapegoating Mitchell, it wasn’t Pecora. Senator Carter Glass, the man who took such pains to keep personal accusations out of his own hearings on banking reform, was the first to hurl that charge against Mitchell. “That man more than forty others,” Glass charged shortly after the crash, “is responsible for the present situation.”¹⁸

Pecora was certainly not shy about showing all the reckless, inappropriate, and imprudent actions that Mitchell and others at City Bank had taken, but he always treated Mitchell and his ilk as prime examples of what was wrong in commercial and investment banking, not as the single cause for the dire state of the economy. That was certainly the way that most commentators at the time understood the testimony. No one seemed to view the City Bank disclosures as isolated incidents that in and of themselves caused the crash or the Depression. Mitchell was not an aberration; he was representative of bankers as a class.

“This is a sample,” the Philadelphia Record opined, “of the scruples exercised by the group that whooped up the stock market boom, diverted credit from legitimate business, exercised a controlling hand at Washington, and took the American people for the greatest buggy ride in their history during the last decade.” Mitchell was emblematic, according to a St. Louis newspaper, of the “dominant type of American financial overlord. He is one of those upon whom the United States has relied for guidance, for ethical standards. He is one of the handful for whom our laws are written, by whom our institutions are moulded. He is an owner of America. What Mr. Mitchell has done, others have done.” Mitchell’s testimony condemned “the whole superstructure of American finance.”

Pecora had shown that the problems in banking were not limited to smaller banks like the Bank of United States; they went right to the top of the banking structure. That tone at the top, some argued, was actually what caused the problems in the other financial institutions. Out in South Dakota, a paper called Public Opinion argued that Mitchell, “as the executive head of one of the greatest banks in the world, was presumed to be of that type of banker and financier in which the public might place absolute confidence. . . . When the greatest of the great was indulging in this sort of manipulation, it is small wonder that exaggerated and aggravated examples of the same scheming were undertaken by thousands of little fellows throughout the nation. The force of example is tremendous.”¹⁹

Everywhere people were shocked at the portrait of Wall Street callousness, of bankers’ grasping indifference to ethics. “There is the weakness of America,” one paper lamented, “wealth without responsibility, wealth without duty, wealth without a heart-beat.” And they were, to be sure, angry at Mitchell in particular. Heywood Broun found Mitchell’s conduct particularly galling given the stern warnings the banker gave New York City about cutting its expenses if it wanted to borrow money to ease its financial crisis. “If I were a school teacher,” he wrote that Saturday, “and my salary had been cut in order to meet the ideas of civic economy propounded by the big bankers of New York City, I would be a little sore as I read the testimony which is being given before the Senate investigating committee.” But he too noted that the testimony had implications beyond Mitchell. “Until a few years ago a fiction went rounds [sic]. High finance, we were told, was an elaborate undertaking carried on by men wholly dedicated to the public weal. That myth has gone.” It had been replaced by a more durable conception of Wall Street. The Street wasn’t a place that provided capital to help build great companies and fund the American economy; it was a gambling den, and a rigged one at that. “It seems to me,” Broun wrote, “that the only thing some of our great financial institutions overlooked during the years of the boom was the installation of a roulette wheel for the convenience of depositors. And, of course, it would have been a wheel with four zeros.”²⁰

Even the staid and Wall Street-friendly Commercial & Financial Chronicle found the City Bank disclosures “depressing.” The “ready way in which millions of dollars were passed back and forth between the National City Bank and the National City Company during the period of the speculative craze reveals banking practices which cannot be considered conducive to sound and safe management.” The disclosure of Mitchell’s wash sale when combined with his enormous bonuses did “not look well taking the most tolerant view of the matter.” For a paper that wrote about nothing but the financial community and that had constantly criticized the hearings, it was quite a rebuke, and it reflected a broader outrage that boded well for legislative reform. “Because now also,” one young lawyer wrote, “conservative elements are lined up against the bankers: every industrialist whose program for development was retarded by lack of credit facilities; every rentier to whom the National City Co. sold sour bonds; every professional man who lost his shirt in the market; every diehard who took a trimming (& most of them did) will be solidly lined up against the ‘money power.’”²¹

Savvier observers saw past the pervading anger. The problem they thought was not so much the scruples of these particular bankers as the ability of anybody to wield so much power with nary a regulatory check. “I don’t think I have any animus against Mitchell,” the Roosevelt intimate and future Supreme Court justice Felix Frankfurter wrote to Walter Lippmann, probably the most influential columnist of his day. Writing with Roosevelt’s approval, Frankfurter, who would go on to a role as a behind-the-scenes architect of New Deal legislation, assured the conservative columnist that he did

not believe that vice inheres in the rich and virtue in the poor. But for too long we have been largely operating on the assumption that the converse is the truth, and more particularly that the rich are the guardians of wisdom and should control affairs. . . . The crux of the business is not the wickedness of the Mitchells but the power which is wielded by concentration of financial power which they are wholly unworthy—no matter who they are—to wield because of the obfuscations and the arrogances which power almost invariably generates.

Roosevelt had to that point only vaguely and indirectly come out in favor of continuing the hearings, but Frankfurter’s letter confirms what the public already seemed to think. Pecora was a harbinger for the incoming administration, a signal that power was indeed shifting from the canyons of Lower Manhattan to the corridors of Washington. Although the hearings did not yet bear the new president’s imprimatur, Pecora the New Yorker was certainly part of the urban immigrant coalition that had helped bring his party into power. Agnes Meyer saw the same thing when she came to the Morgan hearings a few months later, and something more as well. She was impressed with Pecora, who was “very controlled, patient, sure of his goal.” And she chided the Washington elite who tried to discount the significance of the investigation. “The very aspect of this Italo-American immigrant putting J. P. Morgan [Jr.] through his paces has a new American note that papers seem to overlook. . . . Washington is modern America in essence. The new stock showing up the hollowness of the old stock.” One reporter, Thomas L. Stokes, thought the “leveling process was never better exemplified.”²³

N orbeck couldn’t have been happier. After a year of largely unremitting criticism, after the personal attacks from Wall Street, and after his lonely battle to keep the investigation going, he was “immensely gratified” about the reaction the hearings were finally getting. On Saturday, it became absolutely certain that the investigation and the leveling process would continue past March 4, 1933. On Friday, just before heading back to New York for the weekend, Pecora emphasized that because of the severe time constraints under which he was operating, he would have to limit his questioning to “the main highway of Wall Street irregularities without going down any of the side streets.” The public, in light of everything that had come out that week, was certainly not going to be satisfied with that kind of cursory inquiry. Pecora, like Untermyer, knew how to work the press to his advantage.

Earlier in the week, Senator Edward Costigan, a Colorado Democrat, introduced a resolution to continue the investigation into the next session of Congress. Now Senator Duncan Fletcher, the man who, with Roosevelt’s encouragement, would assume control of the committee in the new Congress, introduced a similar resolution. Resolutions like these are routine under ordinary circumstances. Given the public outcry over the City Bank hearings and Roosevelt’s tacit approval for their continuation, there was no way they would fail. On Monday morning, before the Senate’s formal vote had even taken place, the committee met in executive session with Pecora to plan its strategy for the new congressional session.²⁴

It was a titanic scandal, one that had finally touched the upper echelons of Wall Street, the boardrooms and offices of the men who had largely set financial policy for the nation. A member of the club that ruled the Street was now the subject of a federal criminal investigation. No bank executive, even “the greatest bond salesman who ever lived,” could weather that kind of storm. Mitchell did what the banker’s code required; he tendered his resignation, as did Hugh Baker. Mitchell’s letter to the bank’s board was hardly conciliatory. He wrote that his offer to resign was prompted, not by his own impropriate behavior, but by the “public misunderstanding” of his testimony before “ex-parte hearings.” Mitchell’s letter downplayed the significance of the disclosures that week and tried to discount the connection that nearly everyone had made between the boom of the 1920s and the Depression. His testimony involved “a period which has passed into history . . . and [which] had little relation to the conditions of the present day.” Nonetheless, he did what he thought a gentleman should do: “I personally have been brought under a cloud of criticism from which I conceive that the institution should not be permitted to suffer by my continuance in office.” There was no contrition, no recognition that he had done anything wrong, and certainly no apology. It was no wonder that one paper accused Mitchell of “moral obtuseness.”²⁵

Right after the crash, Percy Rockefeller had ridiculed the notion that Mitchell should resign from the bank, but no one was jumping to Mitchell’s defense now. Still the board hesitated, worried that accepting the resignation might further erode already weakening customer confidence in the bank. City Bank’s directors reached out to both the current and incoming administrations for advice about what to do with Mitchell, and for once Hoover and Roosevelt found something on which they could agree.

Neither the outgoing nor the incoming president shared Mitchell’s surprise or the directors’ trepidation. Hoover thought that accepting Mitchell’s resignation would almost certainly increase customer confidence in City Bank, not destroy it, as the directors feared. The conduit to the president-elect was William Woodin, the Treasury secretary designate who had sat on the board of the New York Federal Reserve with Mitchell. Roosevelt told Woodin that it was patently obvious that Mitchell should resign immediately and he was surprised that the bankers could even ask the question. Roosevelt had been imbued from an early age with the idea that the well-off had a duty to serve the less fortunate and he was contemptuous of “the grasping speculator.” The City Bank scandal had also hit close to home for the incoming president, who had a long personal banking relationship there, and he felt personally aggrieved by the “scandalous” outsize bonuses. “My gosh,” he said shortly after he took office, “I feel Charlie took my money.” Nor was he sympathetic to the claim that Pecora’s investigation was destroying public confidence in the financial sector. “The bankers should have thought of that,” he observed, “when they did the things that are now being exposed.”

Roosevelt would eventually grow weary of the attacks he received from business leaders as the New Deal progressed. Just a few years into his first term, he lashed out at them, complaining in private that businessmen “were generally very stupid.” Their core problem, he concluded, was that they, like the New York newspaper editors, lacked any sense of “moral indignation” about the sins of their colleagues. “Did they denounce Charles Mitchell?” he asked in frustration. “They did not!”

The seeds for Roosevelt’s ultimate verdict on the business and banking communities were apparently nurtured that February day in 1933 when he advised Woodin that the bank should accept Mitchell’s resignation. After hanging up, the president-elect shook his head in disbelief at the board’s hesitation and remarked privately to his aides: “These New York bankers haven’t any more notion of public psychology than a chicken.”²⁶

At midnight on Sunday, Pecora was working in his room at the Hotel Continental trying to prepare for the next day’s hearings when the phone rang. It was Guy Cary, the Shearman lawyer and City Bank director. The City Bank board had accepted Mitchell’s resignation a half hour earlier, Cary told Pecora. In truth, the board would not meet until the following morning, but after the feedback from Hoover and Roosevelt, acceptance of Mitchell’s resignation was a foregone conclusion. Indeed, the next morning’s meeting lasted all of ten minutes. James H. Perkins, the president of City Bank’s trust affiliate and “an old time banker,” would be taking over for Mitchell. It was clear that Perkins had his work cut out for him in trying to restore the bank’s now sullied reputation, although he had one important qualification that would help him right the bank and which likely weighed heavily with the City Bank board—he was a personal friend of the president-elect. Even with that link to the new president, “nobody could possibly envy James H. Perkins,” the Nation wrote. “There has been dumped upon him a mess which was once a great banking institution.”

For Perkins, the cleanup started with a significant retrenchment of the bank’s mission. Gone was talk of a financial department store and an investment banking powerhouse; his plan was “to conduct things in the most conservative way possible.” The bank’s primary business, he immediately announced, “is to serve the domestic and foreign commerce and industry of the United States in the field of commercial banking.” Perkins was not quite ready to pull the plug on the securities affiliate, but his comments forecast that the National City Company was not long for the world. Pending “legislative determination of the status of securities affiliates, the bank’s policy would be to confine the company’s activities to government, State, municipal and corporate bonds of the highest character.” That conservative note was telling. Pecora had made much of the affiliate’s inappropriate trading of the bank’s stock. Perkins’s statement, however, was more far-reaching. By focusing on the character of the securities the affiliate would underwrite in the future, it seemed to imply that many of its past offerings were unsound. It was a point that neither Mitchell nor Baker had been willing to concede. Both insisted that the staff at the affiliate vigorously reviewed all proposed securities offerings to ensure that they were suitable for investment. With all the ground Pecora had to cover that first week, it was a point that he had not yet probed in detail.²⁷

Cary argued that there was no more need for Mitchell to testify because he was no longer connected with either the bank or the company. Cary seemed to be suggesting that this was simply about the senators getting a scalp, a sentiment that was echoed in the popular press. “The U.S. Senators got their man,” read the caption under one picture of Mitchell that week. Pecora, however, still believed that the hearings were about legislation, not trophies.

“I don’t see that that makes any difference at all,” Pecora responded. “Let me suggest to you, Mr. Cary, this investigation is not a head hunting expedition; it’s a fact-finding expedition. I want to continue to examine Mr. Mitchell to get all the facts I can presented to the committee, consistent with the committee’s authority to make an inquiry. Of course, he’ll have to resume the stand. . . . I shall look for him tomorrow morning.”²⁸