Capital of Capital: Money, Banking+Power in New York City 1784

1929 – 1945

Albert Potter, Brother Can You Spare a Dime (detail), 1931–1935.

Berenice Abbott, Manhattan Skyline I, From Pier 11 (detail), March 26, 1936.

ON FRIDAY, OCTOBER 25, 1929,

the day after “Black Thursday,” on which the American stock market lost a crushing 11 percent of its total value, it looked like New York’s bankers had saved the stock exchange. As during the panic of 1907, 23 Wall Street—the headquarters of J. P. Morgan and Company—became home base for efforts to provide massive funds, quell widespread anxiety, and prevent further spiraling of stock prices and withdrawal of bank deposits. On Black Thursday a group of five executives had walked into the “House of Morgan” with the press hot on their tails. Thomas Lamont, senior Morgan partner, had gathered the men, whose cumulative assets totaled around $6 billion. They included Charles Mitchell, Chairman of the Board of the National City Bank; Albert H. Wiggin, Chairman of the Chase National Bank; Seward Prosser, Chairman of the Bankers Trust Co.; and William C. Potter, President of the Guaranty Trust Company. (J. P. Morgan had died 16 years earlier, and his son, Jack Morgan, was in Europe.) If the day’s prevailing image was chaos—millions of shares trading hands, crowds circling the exchange, and rumors of speculators committing suicide—Friday brought headlines about a small group who had steadied the course. “Bankers Halt Stock Debacle; 1,000,000,000 for Support,” reported The Wall Street Journal. And in that same issue, a Boston investment trust had taken out an advertisement that said, “S-T-E-A-D-Y Everybody! Calm thinking is in order. Heed the words of America’s greatest bankers.” The men had pooled their money, and Richard Whitney, acting president of the exchange and the younger brother of a Morgan partner, used it to buy up blue chip stocks (those perceived as sound investments), which led to a steady increase in purchasing throughout the rest of the day.1

But the following week, after the stock market crashed on “Black Tuesday,” October 29, Wall Street’s reputation, and that of its bankers, eroded along with the value of securities. Though the market rebounded briefly between November 1929 and April 1930, from there it headed downward until it reached its lowest point on July 8, 1932. The 1920s revolving door of credit had slammed shut. In the early 1930s, thousands of banks failed across the country, and for a period during 1933 there were 1,000 home foreclosures every day. New York’s skyscrapers, once symbols of capitalism’s might, had become partly empty, taunting promises, towering over people forced to move in with friends and relatives or to live in makeshift shacks.

In 1933 a new president, Democrat Franklin D. Roosevelt, elected by Americans desperate for a return of prosperity, initiated an array of federal laws and executive orders that became known collectively as the New Deal. Alongside legislation that created jobs, sponsored public works projects, and constructed social safety nets, the New Deal Congress passed laws to regulate the activities of banks, lessen risks for their customers, and eliminate perceived threats to the entire economy attributed to banking excesses. The Federal Banking Act of 1933 (also known as the Glass-Steagall Act) forced banks to choose between functioning either as commercial banks (accepting deposits and making loans) or as investment banks (sponsoring and selling issues of securities for corporations), not both; the separation, which remade Wall Street, was intended to keep banks from mixing activities that critics believed had spurred reckless speculation in the late 1920s and triggered the stock market crash. The same law protected ordinary bank customers and encouraged them to use banks by creating federal deposit insurance. Congress and the president also created a Securities and Exchange Commission to oversee the activities of investment banks, brokerages, and exchanges. Other new federal agencies and sponsored enterprises sought to stabilize and expand the nation’s housing market by fashioning incentives and protections for home buyers and mortgage lenders, including banks.

These innovations transformed banking in America, imposing an unprecedented set of government rules, limits, and controls on how banks and bankers could run their businesses and make money. In an era when millions of Americans attributed their economic misery to “Wall Street” and to banks both far and near—to the local bank that foreclosed on a mortgage, or the large urban bank that failed and dragged down customers’ savings with it—the New Deal laws promoted a return of financial confidence and symbolized a reining in of what was widely viewed as reckless and unfair economic power. In his inaugural address on March 4, 1933, Roosevelt himself assailed “the money changers [who] have fled from their high seats in the temple of our civilization,” thus implicating bankers alongside securities brokers and speculators as the culprits who had brought on the depression.2

Ticker tape, October 24, 1929.

Museum of American Finance, New York City

New Deal legislation ushered in several decades of relative stability and greater security for American bank customers. Spurred by the depression emergency, banking reforms formed part of a new “mixed economy” in which government expanded its presence in and over private enterprise. Henceforth, federal agencies, regulations, and programs would play an unprecedented role in citizens’ daily lives and business affairs. But the laws also would frustrate bankers who bridled under their restrictions. While liberals, leftists, and labor unions lauded the New Deal as the dawn of an era of social progress and justice, many conservatives and businessmen—including bankers—decried this new regulatory environment (and Roosevelt’s reelection in 1936 and 1940) as the death knell to economic freedom. New Yorkers were among the most vocal combatants on each side of New Deal political battles.

But rather than simply being an assault on the prerogatives of conservative bankers by “big government” liberals, the new reality was more complex. A prominent New York banker, Winthrop Aldrich, played a role in fashioning the new federal rules, while others, including James Perkins, conspicuously endorsed them; as in past moments of economic and political crisis such as the Bank War and the creation of the Federal Reserve System, some New York financiers saw the need for reform and change. Yet unmistakably, Washington (aided by its agents in the Federal Reserve Bank of New York on Liberty Street) now oversaw and largely controlled banks’ activities.

Following in the wake of the depression and the New Deal, World War II would affirm the continuing reliance of Washington on Wall Street as a source of financial help. But even as massive government military spending revived the American economy and provided New York City banks with healthy reserves and profits, the legacy of the turbulent 1930s persisted. New Deal regulations would remain dominant in a new postwar era of renewed American prosperity and unmatched global primacy, prescribing and limiting what banks could and could not do.

Crash and Depression

Widespread confidence in the stock market and the health of New York’s banks persisted right up to and beyond the October 1929 crash. From Wall Street, Thomas Lamont spoke frequently via telephone with Republican President Herbert Hoover, reassuring him that the nation’s economy was on a sound footing. On October 19, 1929, Lamont sent a memo to the president saying: “Since the war the country has embarked on a remarkable period of prosperity. … The future appears brilliant.” Charles Mitchell of National City Bank similarly assessed the markets while sailing home from Germany in mid-October, asserting that they were “now in a healthy condition … values have a sound basis in the general prosperity of our country.”3

Confidence in the men on Wall Street further fueled stock speculation. As Professor Charles Amos Dice wrote in his 1929 book New Levels of the Stock Market, “The common folks believe in their leaders. We no longer look upon the captains of industry as magnified crooks. Have we not heard their voices over the radio? Are we not familiar with their thoughts, ambitions, and ideals as they have expressed them to us almost as a man talks to his friend?” But by Tuesday, October 29, Wall Street’s bankers were neither friends nor heroes. On October 24, 12,894,650 shares had been sold, and on Black Tuesday, 16 million shares were traded, the volume so high that the stock tickers lagged 2.5 hours behind the share values they were reporting. The total value of the security offerings, meanwhile, fell by about half each year between 1929 and 1931: from $9.4 billion in 1929 to $5 billion in 1930 and $2.4 billion in 1931.⁴

A crowd of depositors gather in the rain outside the Bank of United States after its failure, 1930.

Library of Congress, Prints and Photographs Division

The failure of the Bank of United States in December 1930 was one of the most debilitating due to the number of customers it affected and the further panic it generated among depositors across the country.

Although the days and weeks after the crash produced an atmosphere of panic, economists argue that it was the rash of bank failures across the country a year later, aggravated by the Federal Reserve’s missteps in raising interest rates and tightening credit, that started the Great Depression. The closing of banks and the withdrawal of deposits meant there was less money for banks to lend and circulate, which in turn meant Americans stopped spending and businesses had neither capital nor demand for their goods. The number of failures in 1930 escalated from 60 per month at the beginning of the year to 344 in December, producing a “contagion of fear” across the country. One of the most significant failures was that of the New York City-based Bank of United States (despite its name, a private, not a government-connected bank) in December 1930. Founded in 1913 on the Lower East Side and popular among Jewish immigrants, it had 62 branches throughout the city by 1930 and was New York City’s third largest bank, with $212 million in gross deposits. On December 10, 1930, rumors that the bank was in shaky financial health led some 25,000 people to besiege its branch on Southern Boulevard in the Bronx. By the end of the day, about 3,000 depositors had withdrawn $2 million from the branch. The suspension of the bank on December 11, as The New York Times noted, “came as a shock to an already discouraged financial community.”5

The number of bank failures in 1930 escalated from 60 per month at the beginning of the year to 344 in December.

That one of New York’s largest banks could suddenly collapse (although in reality it had been mismanaged for some time) spread suspicion and panic farther throughout the country. Even those New York banks that did not close had customers withdraw vast amounts in deposits. J.P. Morgan and Co.’s deposits, for example, decreased from $503.9 million in 1931 to $319.4 million in 1932 and Kuhn, Loeb’s went from $88.5 million to $15.2 million between 1929 and 1932. With banks unable or unwilling to lend money, the entire economy slumped. By 1932, almost 24 percent of the entire American workforce was jobless (as compared to 4.2 percent in 1928).

Living the Depression

In the years of the Great Depression, the city of boundless energy and optimism seemed to grind to a halt. “Everywhere there seemed to be a spreading listlessness, a whipped feeling … I find them all in the same shape—fear, fear … an overpowering terror of the future,” wrote the journalist Martha Gellhorn. Many men and women who had surged from the subways and buses to their jobs in factories, stores, and banks stood nearly motionless on the city’s dozens of breadlines. Some scavenged garbage dumps near Riverside Park around 96th and 125th Streets or searched baskets near commuter hubs where those better off left them produce. Children dropped out of school because their clothing was too tattered or their parents could not give them money for transportation or lunch. By 1931, the Great Lawn of Central Park, a place where the wealthy had once flaunted their furs and status, was filled with makeshift homes that showed “civilization creaking.” Men, women, and children lived in caves and shacks sardonically named “Hoovervilles” after the country’s president. And the sheep that had grazed Sheep Meadow were even moved upstate out of fear that these new residents might eat them. New Yorkers may have prayed for something better, but many avoided church because they had neither the proper attire nor money for the collection plate. One out of every three workers who had been gainfully employed in New York City in 1930 was jobless in 1935; many were surviving with the help of “relief” programs subsidized by the federal government.6

Particularly hard hit were members of racial minority groups. Harlem’s African Americans—most of whom had migrated from the South within the previous two decades—entered the depression with fewer gains from the boom years and thus suffered more than other groups in the city. Racial discrimination had blocked blacks from entire categories of jobs before the depression; whites now drove them out of even the lowest-paying occupations. Although African Americans achieved some gains in employment when Mayor LaGuardia urged their hiring for municipal jobs, the city’s median income for working black families in 1932 was $30 lower than the median for all employed families in New York. And those with the least money paid the city’s most inflated rents. Though rent was similar for well-maintained apartments in Harlem and other parts of the city, those apartments in Harlem deemed “unacceptable” by a WPA study rented for substantially more.⁷

William Gropper, Profits, ca. 1935.

The Gropper Family/Tamiment Library & Robert F. Wagner Labor Archives, New York University

In New York and throughout the country, banks and bankers became the target of bitter jokes, angry invective, and a revived political insurgency that drew on both the Populist tradition and the socialism that was strong among some labor unions, especially Gotham’s garment trades unions. The idea that bankers, especially those on Wall Street, were at least partly to blame for the speculative excesses that had triggered the stock market crash of 1929 was popular. More immediate was the animosity of depositors who had lost savings in failed banks or homeowners whose properties were foreclosed by banks when they could not pay their mortgages. A widely shared gallows humor now pervaded routines on New York’s vaudeville and burlesque stages. Eddie Cantor, the son of Jewish immigrants who had become a popular actor, singer, and comedian on Broadway and the radio, had invested in the stock market as a Goldman, Sachs client in the 1920s and sustained big losses during the 1929 crash. Cantor now performed a routine in which a “stooge” walked across the stage vigorously twisting a lemon. “Who are you?” Cantor asked the stooge. “I’m a margin clerk for Goldman, Sachs,” came the reply. Another joke took a jab at National City. “Nearly all of us made promises we can’t keep on account of the turn in Wall Street,” it went. “I promised my wife a rope of pearls. I can’t get the pearls but I have the rope—and I’m thinking of using it myself. … Take what is left of your bankroll and go out and buy yourself plenty of National Casket.”⁸

Nat Norman, [“Hooverville” in Central Park], ca. 1932.

Museum of the City of New York, Gift of Nat Norman, 81.114.49

This photograph depicts a shantytown erected in Central Park by impoverished New Yorkers during the depression. By September 1932, 17 houses fanned out across the park’s former reservoir site.

In the eyes of the most radical critics, the depression showed that the entire capitalist system, reliant on the lending and underwriting provided by bankers, was a fraud and a failure that had enriched a few at the expense of the many, now hungry and jobless. The New Masses, a New York-based magazine affiliated with the Communist Party, whose national circulation rose from 6,000 in 1933 to 25,000 in 1935, made bankers a recurring target of its critique of capitalism, picturing them as ruthless (but well-dressed) thieves.

Banks on Trial

Albert Potter, Brother Can You Spare a Dime, 1931–1935. Linoleum cut print.

Museum of the City of New York, Gift of Irving Potter, 87.62.4

Albert Potter evoked the despair of the depression years in New York with the figure of a beggar; Death hovers above.

Pecora’s first witness was National City Bank’s Charles E. Mitchell. Nobody had better exemplified the confidence and success of Wall Street bankers during the Roaring Twenties. To many during that decade, “Sunshine Charlie,” as he was known, personified the idea that commercial banks could safely and profitably lend depositors’ money to speculators in a perpetually rising stock market. As president and board chairman of the First National City Bank and head of its security affiliate, the National City Company, Mitchell had become one of Wall Street’s brightest stars. By 1929 he and his associates had transformed First National City into the nation’s largest bank, with over $2 billion in total resources, second in the world only to London’s Midland Bank. (In 1930, Chase National Bank’s acquisition of the Equitable Trust Company made Chase the world’s largest bank, but Mitchell’s institution remained its nearest rival in America.) Further, the National City Company was the world's largest distributor of securities, and in January 1929, Mitchell had been chosen as a director of the Federal Reserve Bank of New York.

Pawnbroker store brass balls, Sobel Brothers, 1886–1981.

Brass with iron rings.

Museum of the City of New York, 81.111.1-.3

During the depression, as during other economic crises, some New Yorkers resorted to pawnshops rather than banks to obtain loans in exchange for personal possessions that served as collateral. The original meaning of the traditional three-sphere pawnbroker’s sign, first used by medieval Italian bankers, is debated. This example hung over the Columbus Avenue storefront of Sobel Brothers, founded in 1886.

Berenice Abbott, Rothman’s Pawn Shop, May 18, 1938.

Museum of the City of New York, 89.2.1.269

This pawnshop at 149 Eighth Avenue replaced the actual brass balls with a symbol on its façade.

Now, in 1933, he became an icon, and arguably a scapegoat, for everything that had gone wrong. In reality, Mitchell in 1928 had warned the chairman of the Clearing House Committee—the self-governing body of New York City commercial banks that set important policies for its members—that the New York banks were facilitating a “dangerous trend” by assisting their depositors en masse to make call loans to brokers buying shares in the stock market. Mitchell ultimately did not take sufficient action to curb bank vulnerability to such a crisis, but neither had the Clearing House, the Federal Reserve, or anyone else. Seeking evidence of illegal activity, not just poor judgment, Pecora focused on a transfer of personally owned stock that Mitchell had made to his wife in the late 1920s, which allowed them to evade income taxes on Mitchell’s $25,000 annual salary and his yearly bonus of over $1 million.10

Pecora was also able to implicate the National City Company in shady practices that had victimized investors. Testimony showed that company salesmen had sold bonds for foreign and domestic clients—the Brazilian state of Minas Geraes, a Cuban sugar company, a Chilean nitrate company, the Anaconda Copper Company, and others—to American customers without revealing their doubts about the dubious financial prospects of these enterprises. A Pennsylvania man testified that the company’s bond salesmen had advised him to take his money out of safe investments and to buy, in Pecora’s words, “a bewildering array of Viennese, German, Greek, Peruvian … and Irish government obligations” and corporate bonds, most of which later became worthless. Moreover, while the bank and its security affiliate were nominally separate entities, the bank had steered its depositors and customers into the affiliate’s risky bond sales; the bank had also transferred bad loans to the affiliate without making shareholders aware that they were being so burdened. When the bank’s officers and directors lost money on bonds they had bought, the bank created a secret “morale loan fund,” using stockholders’ money to bail them out. Mitchell’s failure to see anything unethical in many of these practices endeared him neither to Pecora nor to the American public. He resigned as head of the National City Bank and Company on February 28, 1933. Subsequently arrested and tried for federal income tax fraud, Mitchell was acquitted. In 1935 he joined the investment firm of Blyth & Co., his glory days on Wall Street now a thing of the past.¹¹

William Gropper, The Lousy System. Published in New Masses, May 21, 1935.

The Gropper Family/Tamiment Library & Robert F. Wagner Labor Archives, New York University

William Gropper, artist for the Communist magazine New Masses, sardonically depicted the leaders of the American “ruling class,” including President Roosevelt, a banker, a conservative labor leader, politicians, and a Supreme Court justice scratching one another’s backs.

Pecora subjected Chase National Bank, now the nation’s largest, to similar scrutiny. He also found evidence of wrongdoing and impropriety that confirmed the suspicions of millions of Americans. Pecora’s investigation disclosed that Chase employees had evaded income tax and earned inflated salaries. The most egregious abuses of power came from Chase’s highest-ranking officer, Albert H. Wiggin, previously known as “the most popular banker in Wall Street.” Wiggin’s base salary was already extremely high—$275,000, or over $3.7 million in 2013 dollars. He additionally received compensation from some of the 59 other corporations he directed, most of which were current or potential bank clients. Armour and Company, for instance, paid him a $40,000 salary, while the Brooklyn-Manhattan Transit Corporation paid him $20,000 a year.12

Another offense was Wiggin’s willingness to sell Chase’s stock “short” in order to make massive profits off a decline in the stock’s value following the crash. Concealing his transactions in private companies he named after his daughters, Wiggin borrowed 42,506 shares of Chase stock and sold them. He then paid back the lender with 42,506 Chase shares purchased at a lower price following a decline in their value, thus gaining a personal profit of over $4 million on the difference between the lower and higher prices. Wiggins did this at a time in the early depression when millions of Americans were losing their livelihoods and his own job was supposed to help stabilize markets, not profit from their decline. At the end of 1932, the 65-year-old Wiggin, already under investigation, asserted that he did not want to be reelected chairman of the bank’s governing board, that his “heart and energies [had] been concentrated for many years in promoting the growth, welfare, and usefulness of the Chase National Bank.” Under Pecora’s questioning, Wiggin, like Mitchell, became a public face of the failure and rapacity of New York’s bankers.¹³

Pecora also called Wall Street investment bankers to testify. Senior partners of J. P. Morgan and Co.; Kuhn, Loeb; and Dillon, Read & Co. arrived in Washington to challenge Pecora’s charges that the big investment banks unfairly monopolized and controlled the nation’s largest railroads and corporations, much as their partners had protested similar allegations at the Pujo Committee hearings two decades earlier. Pecora charged that the big New York investment banks had contributed to the 1929 crash by creating large holding companies in electricity, railroads, and food production in order to sell their securities and thus profit off the stock craze. The fact that Morgan and Kuhn, Loeb had offered stock in these companies not to the general public but to “preferred lists” of desirable customers—including former president Calvin Coolidge, President Hoover’s Secretary of the Navy, and various influential Republican and Democratic politicians—smacked of favoritism and perhaps an effort to bribe powerful men into doing whatever the House of Morgan wanted them to do. Additionally, during the 1920s Kuhn, Loeb and Dillon, Read had created holding companies and investment trusts that sold “voting-trust certificates” and nonvoting shares to investors—securities that denied their owners any control over the holding companies’ affairs, while empowering the company presidents and directors to make all decisions. Though Kuhn, Loeb partner Otto Kahn tried to reassure Pecora that he had come to view such certificates as “inventions of the devil,” the damage to the public reputations of these Wall Street firms was done. Even The New York Times, in this era a conservative paper sympathetic to banks and businessmen, lamented how the “preferred lists” tainted the integrity of J. P. Morgan and Co. “Here was a firm of bankers,” the Times editorialized in May 1933, “perhaps the most famous and powerful in the whole world, which was certainly under no necessity of practicing the small arts of petty traders. Yet it failed under a test of its pride and prestige.”14

The New Deal Arrives

As the Banking and Currency Committee hearings continued, Franklin Roosevelt declared in his inaugural address on March 4, 1933: “Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. … They only know the rules of a generation of self-seekers.” Confronting a renewed wave of “runs” on banks by depositors as he took office, Roosevelt issued an executive order on March 6 declaring a national “Bank Holiday,” closing all banks to calm fears and end the rash of failures. The Emergency Banking Act passed by Congress on March 9 permitted banks to reopen after the president licensed them as in satisfactory condition, at the same time that the Federal Reserve agreed to provide unlimited loans of currency to licensed banks. On March 13 the first licensed banks, including more than 100 in New York City, reopened for business. “In contrast with ‘runs’ to withdraw funds …,” the Times reported, “there was a general ‘run’… to deposit or redeposit money.”¹⁵

Roosevelt’s and Congress’s measures were not the first federal efforts to deal with the bank crisis that had precipitated the nation into depression. Although many Americans excoriated President Hoover for seemingly doing nothing to end the recession, the Reconstruction Finance Corporation (RFC) that his administration and Congress set up in 1932 sought to remedy the shortage of liquidity by lending billions of dollars in federal funds to banks, mortgage companies, businesses, and state and local governments; indeed, Roosevelt continued to use the RFC to try to revive American lending, and the agency existed until 1941. But the RFC had not ended the depression, and the Pecora revelations increased pressure for Congress and the president to take action.

The result was the Federal Banking Act of 1933, also known as the Glass-Steagall Act for its two Democratic sponsors, Senator Carter Glass of Virginia and Representative Henry Steagall of Alabama. The law forced banks to choose between being commercial banks, dedicated to taking deposits and making loans, or investment banks, devoted to issuing and marketing securities. This was to prevent commercial banks from repackaging bad loans and foisting them onto the customers of their financial affiliates, a practice the Pecora hearings had revealed, and more broadly to get commercial banks out of the business of issuing or selling risky stocks, which had hurt their ability to protect the money entrusted to them by their depositors. The act also forced the big investment banks to relinquish their deposit business, thus reducing their monolithic power in the eyes of reformers.

A New York banker had been instrumental in ensuring this separation. Winthrop Aldrich, Wiggin’s successor as chairman of Chase National Bank (and son of Senator Nelson Aldrich, who had organized the Jekyll Island conference in 1910 that helped produce the Federal Reserve System), prevailed on President Roosevelt to make sure this requirement was included in the bill’s final version. Aldrich may well have been motivated by a belief that the nation needed the separation to stabilize its economy and get past the stigma of the Pecora hearings, but he also understood that the new measures would weaken Chase’s rival, J. P. Morgan and Co., by forcing Morgan to choose between commercial and investment banking.

Clifford Kennedy Berryman, National Capital Circus Season, May 31, 1933.

Library of Congress Prints and Photographs Division

Senator Carter Glass, cosponsor of the Glass-Steagall Act, found the Pecora interrogation of Jack Morgan to be such an offensive spectacle that he said, “We are having a circus, and the only things lacking now are peanuts and colored lemonade.” This newspaper cartoon shows a disgusted Glass looking on as Pecora makes Morgan jump through a hoop.

Other features of New Deal banking reform changed American banking in far-reaching ways. The Glass-Steagall Act’s “Regulation Q” prevented commercial banks from paying interest on demand deposits (checking accounts) and gave the Federal Reserve the authority to regulate and cap the rate of interest that banks could pay on time deposits (savings accounts). These measures were designed to remove incentives for banks to dabble in risky securities markets in order to earn funds to pay high interest rates to depositors. At the same time, the new law permitted commercial banks to continue selling municipal, state, federal, and certain other categories of bonds. Crucially, the act also created the Federal Deposit Insurance Corporation (FDIC) to provide government insurance for up to $1,500 of the money ordinary Americans deposited in the nation’s banks, thereby ending “bank runs” in which panicking depositors besieged (and emptied) local banks.

In 1934, Congress created the U.S. Securities and Exchange Commission (SEC), a new federal agency tasked with overseeing and regulating the nation’s securities exchanges, the issuance of stocks by corporations, and the role played in stock underwriting by American investment banks. Roosevelt named Wall Street investor and speculator Joseph P. Kennedy, father of future President John F. Kennedy, to be the SEC’s first chairman. (When asked why he had chosen a man notorious as a manipulator and inside trader to clean up the stock market, Roosevelt quipped, “It takes one to catch one.”) Other federal laws of the mid-1930s strengthened the Federal Reserve’s control over commercial banks’ reserve requirements, thereby regulating the amount of lending they could do, and prohibited savings and loans institutions from offering checking accounts or otherwise functioning like commercial banks.16

As with all legislation, lobbying and behind-the-scenes horse trading characterized the passage of these reforms as interest groups jockeyed for the best possible outcome. Small rural banks, for example, rallied to the Glass-Steagall Act’s reaffirmation of a federal ban on most banking across state lines, viewing it as a protection against large urban banks encroaching on their territories. J. P. Morgan partners and New York Stock Exchange president Richard Whitney employed lawyers who rented a Washington townhouse nicknamed “the Wall Street Embassy” to lobby vigorously (though unsuccessfully) against creation of the SEC as an illicit government attempt to interfere with legitimate private businesses. Participants and observers recognized that the larger political symbolism of the New Deal reforms was to purge the nation of “Wall Street’s” errors and to punish bankers for their role in bringing on economic catastrophe, thereby appeasing voters and the general public. As J. P. Morgan partner Russell Leffingwell conceded in 1934, “there is so much hunger and distress that it is only too natural for the people to blame the bankers.”17

President Franklin D. Roosevelt signing the Banking Act of 1933, June 16, 1933.

© Bettmann/Corbis

Senator Carter Glass, in the light suit, watches as President Roosevelt signs the Federal Banking Act of 1933.

“There is so much hunger and distress that it is only too natural for the people to blame the bankers.”

Russell Leffingwell

Banks Survive the Depression

New York’s banks responded to the depression and the New Deal by retrenching and adapting. Commercial banks complied with Glass-Steagall by liquidating or severing their ties to their security affiliates. Winthrop Aldrich’s Chase National Bank disbanded its affiliate, Chase Harris Forbes, in 1933, and James H. Perkins, Charles Mitchell’s replacement at the National City Bank, followed suit by closing the National City Company in 1934. Investment banks phased out their deposits or split them off into separate and now autonomous institutions. The most dramatic example was the division in September 1935 of the House of Morgan into a commercial bank that continued to be called J. P. Morgan and Co. and a new investment banking firm, Morgan Stanley. About 20 members of the 425-odd Morgan staff left their offices at 23 Wall to start new careers a few yards away in Morgan Stanley’s headquarters at 2 Wall Street.

Meanwhile, federal deposit insurance played a major role in persuading New Yorkers and other Americans to trust their savings to commercial banks again. By guaranteeing bank accounts up to $1,500, the FDIC effectively ended the waves of bank runs and bank closures. Yet, although New Deal programs helped to revive the economy between 1933 and 1937, reducing the national jobless rate to 14.3 percent, banks and their customers remained hesitant actors in the economy’s continuing struggles. Many banks, along with their corporate clients and ordinary retail customers, were wary about new borrowing and lending. Leery of incurring new debts in the face of an unpredictable and still weakened economy, many corporations relied on accumulated cash and marketable securities to meet their expenses, rather than on loans from banks.

Commercial banks themselves, afraid that another economic downturn might leave them holding unpaid and uncollectible debts, lent with extreme caution. “It is almost impossible to lend money to anybody from whom you have a reasonable chance of getting it back,” wrote the National City Bank’s James Perkins in March 1934. Nonetheless, banks did continue to lend, creating relationships with new clients who needed outside capital and whose success seemed to outweigh the risk; thus National City Bank became a major creditor in the mid-1930s to the company United Parcel Service as it bought more delivery trucks and expanded geographically.18

Some bankers saw an opening for expanding loans to ordinary retail customers as well as to companies. During the 1920s, commercial banks had served consumers indirectly through finance companies (see Chapter Four). In 1928, however, National City Bank had opened the country’s first personal loan department, which was so successful that in just the first year it issued more than 28,000 loans totaling $8 million. During the depression, other banks followed its lead; in 1935 and 1936, 396 personal loan departments opened up across the country, and they would continue to spread when World War II brought a period of renewed prosperity. In New York City, the consumer loans extended by National City Bank and Manufacturers Trust Company were most often for consolidation of debt, paying medical and dental bills, purchasing clothing and home furnishings, and making education and mortgage payments.

Consumer loans mainly benefited a very particular demographic: middle-class white professionals. With the assistance of large credit bureaus that opened in New York in the 1930s, banks denied loans to African Americans, unmarried women, workers, and poor applicants, classifying them as poor credit risks. For those applicants deemed creditworthy, banks streamlined the process of borrowing. At Manufacturers Trust Company, for example—which had 67 branches throughout New York City by 1944—clerical staff processed loans in the evening so that the following morning, other clerks could make calls to verify such information as employment and address, and cut checks by the afternoon. Those the bank denied were left to rely on higher interest rates from riskier lenders, including loan sharks.

Despite their success at creating a new middle-class market for loans, banks remained worried that skittish depositors might panic and withdraw their savings (despite federal deposit insurance), thereby forcing banks to stop lending or even close. Thus many banks focused less on lending than on maintaining liquidity (the ability to convert their assets quickly and easily into cash) in order to survive until a more prosperous day in the future. Commercial banks raised their ratio of government securities, such as Treasury bills and other easily cashed assets, to deposits. Such a cautious strategy also helped banks to shed their lingering image as reckless gamblers, left over from the 1929 crash. As Perkins wrote to National City Bank shareholders in December 1933, “in these times the obligation of a commercial bank to its depositors, customers and shareholders is to pursue a conservative policy, maintain an adequate degree of liquidity, reduce expenses, and increase reserves.” Such conservatism seemed vindicated when a severe and unforeseen recession hit the American economy again in 1937. Thus, without intending to prolong the depression, banks, companies, and consumers—along with the Federal Reserve, whose policies regulating bank reserves and lending repeatedly exacerbated rather than improved conditions—all, to some extent, acted to dampen economic growth, even as Roosevelt’s New Deal pumped disposable income into the pockets of millions of Americans through federally funded work and relief programs. Important as the new trend in consumer lending was, it would not become a driving engine of the economy until the postwar era.¹⁹

The depression and New Deal also transformed two fields that had boomed during the 1920s: investment banking and foreign loans. Separated from commercial banking activities by the Glass-Steagall Act and monitored by the new Securities and Exchange Commission, Wall Street investment banks were limited in how much capital they could invest in a stock issue. Nonetheless, New York firms such as Goldman, Sachs; Kuhn, Loeb; and Lehman Brothers survived. By the late 1930s, Morgan Stanley, which had merchandised $1 billion in securities during its first year, was organizing syndicates to underwrite stocks and bonds for the New York Central Railroad, General Motors, Standard Oil of New Jersey, and other big clients, much as its parent firm, the House of Morgan, had done before 1929.

Berenice Abbott, Manhattan Skyline I, From Pier 11, March 26, 1936.

Museum of the City of New York, 89.2.2.14

Berenice Abbott took this photograph of the Wall Street financial district from the East River waterfront.

Although domestic underwriting rebounded, more troublesome for both New York investment and commercial banks was the array of loans they had made during the 1920s to foreign governments and businesses. Facing their own depressions, the governments of Peru, Chile, and Brazil all defaulted on their foreign debts in the early 1930s; in 1931, National City Bank was left holding $20 million in nearly worthless Chilean bonds and other paper, equal in value to almost 10 percent of the bank’s total capital. In total, the bank had to write off $77 million in unpaid debt owed to its foreign branches between 1929 and early 1934. The slumping sugar industry in Cuba also drove National City Bank to close 12 of its branches there. Although New York banks continued to make new international loans during the 1930s, they did so far more selectively and cautiously, and ordered the branches they had established in Asia and Latin America to lend conservatively to tried-and-true customers and to build their liquidity, much as the home banks were doing. Nonetheless, a revival of world trade in the late 1930s benefited New York banks; profits from National City Bank’s foreign division, for example, which totaled $1.9 million in 1935, had increased to over $4 million in 1939.

Banks and New Deal Housing Legislation

While bankers contended with regulations and sought to salvage bad loans, the federal government was shaping New York City’s social geography through policies on housing and mortgage lending, but in ways that ran counter to the liberal thrust of much of the Roosevelt administration’s agenda. No single industry’s decline during the depression had a more devastating impact on banks—and indeed the entire economy—than that of housing. As the number of new American homes built annually dropped from 500,000 in 1925 to 22,000 in 1934, manufacturers of glass, wood, nails, appliances, pipes, and stone closed their doors. At the same time, carpenters, architects, real estate agents, contractors, masons, and construction laborers found themselves unemployed. To revive this sector of the economy and encourage renters to embrace the “American dream” of home ownership, Congress, with Roosevelt’s approval, created the Home Owners Loan Corporation (HOLC, 1933) to refinance home mortgages in danger of foreclosure and the Federal Housing Administration (FHA, 1934) to insure mortgage loans and to make them affordable by regulating interest rates home buyers had to pay. The Federal National Mortgage Association (Fannie Mae), established in 1938, bought mortgage loans issued by savings and loans institutions, thereby replenishing the thrifts’ capital so they could issue additional mortgages. This meant that banks, including those in New York, now had a ready, powerful buyer for the mortgage loans they made.

The Amalgamated Bank

Financier of “Labor’s City”

While most commercial banks expanded their personal lending business for middle-class professionals in the 1930s, the Amalgamated Bank of New York aimed its services at the working class. Amalgamated was a labor bank, one of numerous kinds of savings institutions founded in New York in the 1920s, which included credit unions as well as ethnic banks. During the 1920s, unions founded 36 cooperative labor banks across the country.

As befitted New York’s role as “labor’s city,” the de facto capital of the national labor movement, the most durable of these proved to be the Amalgamated Bank of New York, opened in 1923 on 14th Street by the Amalgamated Clothing Workers of America, a union founded by Jewish and Italian socialists in 1912. The union’s head, Sidney Hillman, and its members envisioned the bank as part of a broader vision the labor movement. It was not merely a bargaining mechanism but a multifaceted community offering cultural, social, and economic amenities to the entire working class. As a commercial bank, the Amalgamated mimicked the credit policies of its profit-oriented rivals, but it did so with a difference. The bank offered low-interest loans and financial services to working people and particularly to strikers, eventually becoming the city’s first bank to provide personal loans unsecured by collateral and free checking with no minimum balance. In 1927 the bank also helped finance the first limited-equity residential cooperative in the country, the Amalgamated Housing Cooperative in the Bronx, in order to provide affordable housing to union members. At the same time, the Amalgamated Bank’s investments enabled it to weather the Great Depression fairly well. The bank avoided the risky securities that drew other New York institutions in the late 1920s, and survived to become the last remaining labor bank in the city.

Wurts Bros., Amalgamated Housing Cooperative, Sedgwick Avenue and Gun Hill, Bronx, 1929.

Museum of the City of New York, Wurts Bros. Collection, x2010.7.1.6790

Reflecting the decline of the labor movement in America, the Amalgamated was in recent years the nation’s only bank wholly owned by a union. In 2011, two private equity firms became part owners. Nonetheless, the Amalgamated Bank became an unofficial repository of funds that year for the Occupy Wall Street movement, making the bank a symbolic bridge between different generations of New Yorkers seeking alternatives to conventional capitalist finance.

—Daniel London + Steven H. Jaffe

In creating these programs, however, the federal government ended up collaborating with banks, realtors, and others in reinforcing racially discriminatory patterns of residential segregation in New York and many other cities. To be sure, the HOLC and the FHA did not invent these patterns. The notion was well established before the 1930s that African Americans moving into “white” districts automatically lowered the neighborhoods’ real estate prices and desirability. Repeatedly, black New Yorkers had been denied, pressured, or harassed when they sought to integrate city neighborhoods; in 1925, for example, a black woman faced overt opposition to her purchase of a brownstone at Classon Avenue and Madison Street in Brooklyn when an interdenominational group organized by a Catholic priest protested outside the city’s Building Department. The 1927 Brooklyn Real Estate Board’s Code of Ethics advised “a Realtor should never be instrumental in introducing into a neighborhood a character of property or occupancy, members of any race or nationality, or any individuals whose presence will clearly be detrimental to property values in that neighborhood.”20

Now, in the mid- and late 1930s, the HOLC and the FHA gave residential segregation a government seal of approval—ironic at a time when most African American voters, including New Yorkers, abandoned the Republican Party, “the party of Lincoln,” for Roosevelt’s Democratic coalition. In turn, the federal agencies enlisted the nation’s banks to help prevent blacks from buying homes in “better” neighborhoods and to deny them mortgage loans in their own increasingly segregated districts, such as Harlem and Bedford-Stuyvesant.

The HOLC established a practice called “redlining,” which in effect denied mortgage loans to blacks more than to any other segment of the population. The name came from the color-coding that accompanied letter grades for high-risk loan areas on elaborate maps produced by the HOLC. To create these maps, the corporation relied on local banks, other lenders, realtors, and appraisers to evaluate the neighborhood conditions of 239 different cities across the country. Among the consultants for the “Brooklyn Security Maps” were Bowery Savings Bank, Dime Savings Bank, East New York Savings Bank, Emigrant Industrial Savings Bank, Franklin Society for Home Building and Savings, Greater New York Savings Bank, South Brooklyn Savings and Loan, Lincoln Savings Bank, and Williamsburgh Savings Bank. These agents evaluated such variables as what percentage of a neighborhood’s population was foreign-born, what percentage was black, and whether either was “infiltrating” the area, in addition to compiling statistics on residents’ occupations, income, and age distribution; types of construction; and market demand for housing. Though black neighborhoods were rated lowest, Jews and Italians also made areas bad security risks. As a result, the Manhattan Beach neighborhood, for example, got a B rating because of the “slow infiltration of somewhat poorer class Jewish” residents, while Kensington received a D as a “very undesirable neighborhood of mixed races” that included Italians, Danes, Poles, Swedes, and Jews.21

“Credit Unions—the People’s Banks” (cover and interior spread), 1940.

Tamiment Library & Robert E. Wagner Labor Archives, New York University

Alternative systems of credit proliferated in the wake of the Great Depression and the bank collapses that attended it. Credit unions—cooperative, not-for-profit organizations that offered deposit accounts and credit to members—were not new in the United States, but became increasingly popular. By the end of the decade, thousands had been formed in workplaces and sponsored by membership organizations and churches. Members of Congress hoped that credit unions would remedy the shortage of credit and demand in the economy, and in 1934 they acted to encourage their formation by passing legislation to grant credit unions federal charters.

These maps helped set federal and bank lending patterns for decades, ultimately denying home loans not only to central city black neighborhoods but also sometimes to entire cities (such as predominantly black and Latino-inhabited Camden and Paterson, New Jersey as late as the 1970s). Thus the federal government, with the willing cooperation of urban banks, drew invisible lines, concealed from the general public. Together they subsidized the building of single-family homes for whites in preferred neighborhoods and suburbs; confined black and Hispanic families to increasingly overcrowded and decaying “ghettos”; denied them access to credit that could have improved conditions in those neighborhoods; and reinforced the effects of poverty and racism. In this way, New York City bankers and New Deal bureaucrats helped maintain the boundaries of inequality in the nation’s largest African American metropolis, the city some blacks bitterly came to label “Up South” in the decades to follow.

Residential Security Map for Section 1, Uptown Manhattan, Homeowners’ Loan Corporation, April 1, 1938.

National Archives, Washington, D.C.

The “riskiest” neighborhoods on federal mortgage “security maps,” marked in red, typically indicated racially or ethnically “undesirable” populations, most often African American. In 1940, two years after the HOLC created this map of Upper Manhattan, the census showed most of the redlined area above Central Park to have predominantly black residents.

War Clouds on the Horizon

Far from the home mortgage markets of Harlem and Manhattan Beach, the foreign loans that New York banks had made during the 1920s increasingly brought them into confrontation with dictators as well as defaulting debtors. In 1924 and 1930, American banks had loaned hundreds of millions of dollars to Germany’s postwar Weimar Republic, money largely earmarked to pay Germany’s ongoing reparations to the Allies under the terms of the Versailles Treaty that ended World War I. British and French officials in turn used the reparations money to repay Washington’s wartime loans, bringing the money full circle back to the United States. J. P. Morgan and Co. alone had provided half of the 1924 loan and one-third of the 1930 loan. After Adolf Hitler became German chancellor in 1933, his economics minister and president of the central Reichsbank, Hjalmar Schacht, repudiated much of the debt; Nazi officials continued to decry Germany’s alleged “debt and interest slavery” to Wall Street’s Anglophile and Jewish bankers down to the outbreak of World War II in 1939. J. P. Morgan and Co. partner Thomas Lamont, who had trotted the globe making foreign loans during the 1920s, now retraced his steps in efforts to get Morgan’s foreign client to pay up. Lamont was only partly successful, gaining an agreement from Nazi Germany in 1935 to repay about 70 percent of the interest due to Morgan from the two loans.22

Lamont continued to play the part of unofficial diplomat in conversations with other totalitarian regimes. Once an avid fan of Fascist Italy (Lamont had arranged a $100 million Morgan-sponsored loan to dictator Benito Mussolini’s government in 1926), by 1939 he was meeting with Mussolini in Rome on behalf of President Roosevelt, trying to dissuade the Italian dictator from joining Hitler in sparking another world war. Though unsuccessful, his effort showed how useful Wall Street’s bankers remained as international experts and emissaries, even in the eyes of the president who had denounced them as “money changers” in his first inaugural address six years earlier.

European loans had turned into both financial and political liabilities for New York bankers. In the mid-1930s, as Hitler remilitarized Germany and Fascist Italy invaded Ethiopia, the international connections of New York’s banks, especially those of J. P. Morgan and Co., became the target of new hostile scrutiny in Congress. Isolationists—those bent on keeping the United States from intervening in another foreign war—believed that the House of Morgan had precipitated the nation’s entrance into World War I in 1917 in order to protect the bank’s massive loans to the European Allies and the wartime sales of American munitions to England, France, and Czarist Russia.

The actual political reality of American entry into World War I was far more complex than this “merchants of death” conspiracy scenario suggested, and Morgan loans had not been the deciding factor. But isolationists in Congress used the accusation to warn Americans against placing their foreign policy in the hands of wealthy industrialists and Wall Street bankers who would entangle the nation in the Old World’s bloodbaths in order to guarantee their profits. A Wisconsin congressman, Thomas O’Malley, proposed a bill to draft the richest men first if they managed to drag America into another foreign conflict: “It will be Privates Ford, Rockefeller, and Morgan in the next war,” O’Malley warned. More serious was the investigation from 1934 to 1936 by Republican Senator Gerald P. Nye of North Dakota, who accused big bankers and industrialists of entangling the nation in World War I for personal profit. Although the Nye Committee took testimony from Lamont, Jack Morgan, and others, it failed to unearth evidence to prove its charges. But Nye’s kindred spirits in Congress passed Neutrality Acts between 1935 and 1939 that prevented American banks from underwriting the kind of private wartime loans that Morgan had orchestrated for the Allies in 1914–1915.23

Many New York bankers, however—and none more so than the Morgan partners—remained committed internationalists and Anglophiles, and they concurred with President Roosevelt in trying to circumvent isolationist sentiment and send aid to England and France after World War II began in September 1939. By the end of that year, J. P. Morgan and Co. was helping the White House and the British government by supporting Roosevelt’s public “cash and carry” program, in which Britain and France could legally buy American armaments provided they paid immediately and transported them. The bank sold American securities held by the British government in order to provide London with the “cash” it needed to buy and “carry” American supplies. J. P. Morgan also collaborated with the smaller investment bank Lazard Freres, which had offices in both New York and Paris, to provide similar aid to the French government. The British Treasury posted an agent at 23 Wall Street, Morgan headquarters, to oversee the program. Thus the White House and Wall Street once again worked together, this time to circumvent the isolationists and aid England and France in their war against Nazi aggression in Europe.

Harris and Ewing, Capital and labor leaders leaving the White House after a conference with President Roosevelt. Left to right: A. A. Berle, former brain truster of the New Deal; Philip Murray, C.I.O. leader; John L. Lewis, C.I.O. chief; Owen D. Young, head of General Electric Co.; and Thomas W. Lamont, partner of J. P. Morgan, January 14, 1938.

Library of Congress, Prints and Photographs Division

The importance of Wall Street banker Thomas Lamont in Washington affairs is indicated by his presence in this group of union leaders, business executives, and presidential advisors.

John Albok, Billboards, “War Bonds in Action”/Bowery Savings Bank, 1943.

Museum of the City of New York, 82.68.28

Rather than spend their money on inflationary consumer goods, New Yorkers were urged to deposit their wartime pay in banks and invest in war bonds.

Arthur Rothstein, photomural to promote the sale of defense bonds, 1941.

Library of Congress, Prints and Photographs Division

War bond promotions were ubiquitous in New York. This mural in Grand Central Terminal was designed by employees of the Farm Security Administration, a New Deal federal agency founded in 1937.

World War II

The Japanese attack on Pearl Harbor on December 7, 1941, and the subsequent declarations of war against the United States by Hitler and Mussolini brought the United States, New York City, and the city’s banks directly into the war. Following the attack, the New York State Superintendent of Banks seized the assets of the Yokohama Specie Bank, the Japanese government’s fiscal agent in the United States, located at 120 Broadway. For safekeeping during the war, foreign governments and entities (including the Vatican) shipped their gold to New York, where it filled the vaults of the Federal Reserve Bank of New York. Meanwhile, the main task for New York’s banks for the war’s duration was to help the U.S. Treasury by buying, selling, and promoting war bonds and Treasury bills.

By doing so, the banks helped to provide the government with the money it needed to win the war. New York banks were not alone in this mission; the government also sold its securities directly to the public in eight massive bond drives over four years. But in fact, aiding the government was one of the few profitable courses of action open to banks during the war. Primed by the New Deal’s expansion of federal responsibility into virtually every facet of the nation’s economy, the wartime government centralized economic decision making in ways that further circumscribed how banks could function. Rather than borrowing from banks to prepare their factories and workshops to supply the armed forces with armaments and provisions, businesses in New York and across the country relied on direct government payments to convert to a war footing. Wartime restrictions prohibited companies from taking out business loans, while the Federal Reserve’s “Regulation W” prevented individuals from borrowing, lest such loans divert capital from being invested in war bonds. For the same reason, rules prohibited corporations from issuing most new stocks and bonds, making the years from 1942 to 1945 a sleepy time for Wall Street’s investment banks.

Meanwhile, however, war production finally lifted the city and the nation definitively out of the depression. By 1943, New York City, which as recently as 1941 still had some 400,000 jobless adults, had reached full employment. By 1945, 1.7 million New Yorkers out of the city’s total population of 7.5 million were working in factories, shipyards, and other war-related industries. Prevented by rationing and War Production Board restrictions from buying cars, homes, or appliances, war workers put their money into bank savings accounts, swelling the deposits and liquidity of New York’s banks, which in turn plowed millions of dollars into war securities, just as Washington had intended.

Consequently, banks accumulated large deposits and blocs of government securities, some of which they sold, some of which they held on their own account. The Federal Reserve abetted this process, loosening reserve requirements in ways that gave banks incentives to buy more government bonds and bills, which they could also sell easily if they needed liquidity. Allan Sproul, president of the Federal Reserve Bank of New York, reminded member banks in 1942 that “by investing their funds more fully through purchases of Treasury securities, they will be assisting in the war effort without sacrificing their ability to meet any demands for cash which may be made upon them.”24

The banks responded. By mid-1945, for example, National City Bank owned $2.5 billion in government bonds, equal to two-thirds of its total domestic earning assets; over the previous four years, its loans for the purchase of securities, mostly Treasury issues, had increased from $71 million to $678 million, and the bank’s profits after taxes and other deductions had increased 29 percent.

As during World War I, New York banks served as U.S. Treasury agents selling bonds as well as buying them, participating in open-air Victory Loan rallies on Wall and Broad Streets in front of a flag-draped New York Stock Exchange. Flush with deposits and war securities, New York banks built up their reserves and hoped that the postwar era would bring continued prosperity, not a renewed depression.

The Age of Regulation

Chastened by the depression, resented by millions, and regulated by an unprecedentedly powerful federal government, New York’s banks by and large survived the worst economic crisis in the nation’s history. On the eve of the depression in 1929, few federal laws constrained banking activities; the Federal Reserve System was in place as the nation’s central bank, but ironically, the Fed helped to precipitate and worsen the depression rather than remedy it. Within a few short years, however, economic hardship had brought about a revolution in attitudes about the role of government in controlling finance and spurred legislation that intervened in every realm of banking endeavors. Indeed, the new expectation by voters and officials that Washington was entitled to make such interventions, whenever and wherever the public welfare required it, may have been the most far-reaching American response to Wall Street’s activities in the late 1920s and early 1930s.

As angry and adversarial as banking politics became, New York bankers, New Deal functionaries, and politicians repeatedly shaped each other’s agendas and actions. The Glass-Steagall Act’s federal deposit insurance provision arguably rescued commercial banking by assuring millions of ordinary Americans that their savings would be safe as bank deposits. At the same time, through “redlining,” federal bureaucrats, bankers, and others collaborated in denying credit on the basis of racial and ethnic bias, reinforcing the separate but unequal social geography of New York and other cities for decades to come. World War II brought new government controls but also a return of prosperity, transforming New York’s banks into Washington’s patriotic allies and servants and erasing much of the stigma of the depression years. On Wall Street and throughout the country, banking had definitively entered an era of regulation, a circumstance that most bankers accepted and sometimes even welcomed when government rules appeared to shield their institutions from the risks and uncertainties of recession and war. A new generation of bankers, many of them veterans of that war like Walter Wriston and David Rockefeller, would seek to loosen and overturn such regulations as an age of scarcity gave way to a postwar era of plenty.

Endnotes

1 “Bankers Halt Stock”: Vincent P. Carosso, Investment Banking in America: A History (Cambridge, MA: Harvard University Press, 1970), 303; “S-T-E-A-D-Y Everybody!”: in John Kenneth Galbraith, The Great Crash, 1929 (New York: Mariner Books, 2009), 107.

2 “the money changers”: Franklin D. Roosevelt, First Inaugural Address, March 4, 1933, in John Grafton, ed., Franklin Delano Roosevelt: Great Speeches (Mineola, NY: Dover, 1999), 30.

3 “Since the war”: Ron Chernow, House of Morgan: An American Banking Dynasty and the Rise of Modern Finance (New York: Simon & Schuster, 1991), 315; “now in a”: Galbraith, The Great Crash, 94.

4 “The common folks”: Galbraith, The Great Crash, 170.

5 “came as a”: “The Bank Failure,” The New York Times, December 13, 1930, 17.

6 “Everywhere there seemed”: in Robert Caro, The Power Broker: Robert Moses and the Fall of New York (New York: Vintage, 1974), 324; “civilization creaking”: Thomas Kessner, Fiorello H. La Guardia and the Making of Modern New York (New York: Penguin, 1980), 170.

7 “unacceptable”: Cheryl Lynn Greenberg, Or Does It Explode? Black Harlem in the Great Depression (New York: Oxford University Press, 1991), 184.

8 “Who are you?”: Chernow, House of Morgan, 320; “Nearly all of”: www.newyorker.com/online/blogs/movies/2012/02/eddie cantor is depressed.html.

9 “‘to make a thorough’”: Carosso, Investment Banking, 323.

10 “dangerous trend”: Harold van B. Cleveland and Thomas F. Huertas, Citibank, 1812–1970 (Cambridge, MA: Harvard University Press, 1985), 131.

11 “a bewildering array”: Phillip L. Zweig, Wriston: Walter Wriston, Citibank, and the Rise and Fall of American Financial Supremacy (New York: Crown, 1995), 44; “morale loan fund”: Carosso, Investment Banking, 334.

12 “the most popular”: Carosso, Investment Banking, 346.

13 “heart and energies”: Galbraith, The Great Crash, 149.

14 “inventions of the”: Carosso, Investment Banking, 343; “Here was a”: Chernow, House of Morgan, 373.

15 “Practices of the”: Roosevelt, First Inaugural Address, 30; “In contrast with”: “135 Banks Reopen Here,” New York Times, March 14, 1933, 1.

16 “It takes one”: in William D. Pederson, ed., A Companion to Franklin D. Roosevelt (Chichester, UK: Blackwell, 2011), 212.

17 “Wall Street Embassy,” “there is so”: Chernow, House of Morgan, 379, 376.

18 “It is almost”: Cleveland and Huertas, Citibank, 204.

19 “in these times”: Ibid., 199.

20 “a Realtor should”: Craig Steven Wilder, A Covenant with Color: Race and Social Power in Brooklyn (New York: Columbia University Press, 2000), 182.

21 “slow infiltration of,” “very undesirable neighborhood”: Ibid., 190, 192.

22 “debt and interest slavery”: Chernow, House of Morgan, 433.

23 “merchants of death,” “It will be”: Ibid., 409, 437, 527, 399.

24 “by investing their”: Cleveland and Huertas, Citibank, 214.