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From the Vol.1,No.3 issue of Electronic Intelligence Weekly
This Week in History

March 25-March 31, 1933

This is the week that President Franklin Delano Roosevelt introduced two landmark pieces of emergency legislation: first, the Federal Emergency Relief Administration (FERA), and second, the Securities Bill of 1933. Both were baby steps toward the policies of protecting the general welfare which FDR's Administration ultimately fashioned, in that they inserted the Federal government into the process of providing emergency relief (in the case of the FERA), and of supervising the banking industry (in the case of the Securities Act), without providing any enforceable standards, or entitlements.

The FERA was devised to address the fact that local governments had literally run out of money to aid the unemployed, and the destitute. It was intended to provide a pool of money—$500 million, to be precise—that could be disbursed in relief grants to states. In addition, it gave the Federal Relief Administrator, who would be New York's Henry Hopkins, broad supervisory power over the states' use of the grants—a provision that caused a total uproar among those who were still crazy enough to think that the Federal government didn't have to take charge of bringing the country out of depression.

The FERA funds were divided into two types. Half was to be disbursed to states as matching funds, with $1 being given out for every $3 of state money spent for relief during the preceding three months. This was a rather limited form of aid since, obviously, the poorer states would have spent less money for relief, and therefore would be eligible for less in matching funds. The other half was available to be given out wherever the states were unable to meet the requirement of $3 for $1.

FERA spent money for all kinds of necessities—food, clothing, fuel, shelter, and medicine. Administrator Hopkins, who went on to run job-creation programs later in the Roosevelt Administrations (which he greatly preferred), said: "We can only say that out of every dollar entrusted to us for lessening of distress, the maximum amount humanly possible was put into the people's hands. The money, spent honestly and with constant remembrance of its purpose, bought more of courage than it ever bought of goods."

The FERA passed the U.S. Senate in 10 days, and the House over several weeks, going into effect after the President signed it on May 12.

On March 29, Roosevelt sent to Congress his bill for the regulation of the sale of investment securities in interstate commerce. In his message to Congress, Roosevelt continued his attack on the corrupt financial practices of the private banking houses and securities brokerages, as well as the commercial banks, which dealt in securities. The message, which met with virulent attacks by the banking community, said:

"Of course, the Federal Government cannot and should not take any action which might be construed as approving or guaranteeing that newly issued securities are sound in the sense that their value will be maintained so that the properties which they represent will earn profit. There is, however, an obligation upon us to insist that every issue of new securities to be sold in interstate commerce shall be accompanied by full publicity and information, and that no essentially important element attending the issue shall be concealed from the buying public. This proposal adds to the ancient rule of caveat emptor, the further doctrine 'let the seller also beware.' It puts the burden of telling the whole truth on the seller. It should give impetus to honest dealing in securities and thereby bring back public confidence."

The bill introduced in accordance with this message, was called the Thompson Bill, and it was introduced a few days later. It gave the Federal Trade Commission power to supervise issues of new securities, required each new stock issue to be accompanied by a statement of relevant financial information, and made company directors civilly and criminally liable for misrepresentation.

The political climate was favorable to the introduction of this bill, because, from January on, the Congress had been sponsoring hearings on corruption in the banking sector, in particular an investigation of the New York commercial banks. Roosevelt has approved the Senate Banking Committee's hiring as its special counsel Ferdinand Pecora, a fiery New York former District Attorney who had a reputation for fearlessness. Pecora stated that it was his belief that usury was a sin. While an Assistant District Attorney, Pecora had earned the wrath of both Tammany Hall and Wall Street for his probes of bank corruption and rackets, and was passed over. In 1930, he was told that his services were no longer needed, and he went into private practice.

In the opening hearings on the commercial bankers, Pecora had established that some of the most powerful bankers, such as Charles Mitchell of National City, and Albert Wiggin of Chase, had lied to their shareholders, had manipulated stocks for their own benefit, and had made and taken profits beyond anything reasonable, without so much as blushing. Pecora had refused to allow them to be vague or evasive, and with his questioning, often made them look ridiculous. The public, led by Roosevelt's speech on "the moneychangers" who had destroyed the nation for their profit, now had some concrete "evidence" to sink its teeth into.

In early March, Pecora fired off a series of detailed and embarrassing questions about the operations of the House of Morgan and its relationship to other banks, corporations, and "clients," which its counsel, former Democratic Party 1924 Presidential candidate and former Ambassador to Great Britain John W. Davis, declared to be outrageous. But Morgan was forced ultimately to answer the questions, and then to submit to hearings in May and June.

Pecora and his staff spent most of the months of February, March, and April in New York, working from early morning until 6 at night in the offices of J.P. Morgan and Company, pouring over its records of financial dealings since the war (World War I).

In this climate, the President was able to provide enough pressure on the Senate and the House of Representatives to pass this first step toward banking regulation. It was a "done deal" by the end of May.

—Nancy Spannaus

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