1929: Inside the Greatest Crash in Wall Street History--and How It Shattered a Nation - 11

Carter Glass was in the hospital again.

Virginia’s senior senator was seventy-one years old and in chronically poor health. Sometimes it was his weak heart that landed him in Baltimore’s Johns Hopkins, the finest hospital in the country; other times it was his chronic indigestion. He used to walk on his tiptoes because he believed it helped relieve his symptoms. On this occasion, he was battling a terrible tooth infection that sent relentless jolts of pain through his jaw, while the deep, twisting agony of gallstones gnawed at his insides.

As a legislator, Glass had two passions. The first was segregation; Glass, like most Southern Democrats, fought tirelessly for Jim Crow laws during the entirety of his career. Once, when he was asked whether certain measures in the Virginia constitution, such as a poll tax and a voter literacy test, discriminated against Black people, he shot back: “Discrimination! Why, that is exactly what we propose. To remove every Negro voter who can be gotten rid of, legally, without materially impairing the numerical strength of the white electorate.” The Southern states, Glass said in an interview he gave in 1928, “spit upon the Fifteenth Amendment”—the 1870 amendment that granted equal voting rights to Black Americans. The South, he added, has “no intention of letting the Negro vote.”

Glass’s second passion as a lawmaker—and here he was a singular force—was the banking system. Though self-taught, nobody in Congress or the White House knew more about the intricacies of banking than Glass. As his good friend Russell Cornell Leffingwell wrote in a letter to Glass, who was undergoing medical tests by the Johns Hopkins doctors: “ Few men in public or private life have studied our banking system more thoroughly or have a better right to express opinions about it. Your service in…defending the Federal Reserve system in the United States Senate entitles you to be regarded as a high authority on this system.” Glass could not have agreed more.

As he waited on his doctors at the hospital, Glass scoured each day’s financial news with growing fury as the market continued higher—the Dow had already jumped another 3 percent since Charles Mitchell’s intervention—his penetrating blue eyes glaring from beneath his unruly brows and above his beak of a nose. Always ready to pick a fight, Glass had already decided that he was not going to let Mitchell’s perfidy go unchallenged. Indeed, his anger was already public knowledge. Two weeks earlier, Glass had successfully browbeaten the Federal Reserve Board into raising the rates it charged to Wall Street for lending money to stock investors, a long-running crusade on his part. He believed that Wall Street was diverting a grossly disproportionate share of the country’s available credit for its own unproductive uses and he was going to put a stop to it, if it killed him.

To Glass, Mitchell’s decision to bolster the call loan market with an injection of $25 million was in direct defiance of the Fed board. Glass believed that Mitchell’s actions, as well as the Fed’s silence in response to them, went beyond merely political differences and amounted to malfeasance. Not to mention a galling personal challenge.

Because of his sickly nature, Glass was never one for making a lot of speeches or even using the phone. His weapon of choice was the letter, which he would sometimes dictate, often from his hospital bed at Johns Hopkins or from the Raleigh Hotel, where he’d stay when he was in Washington, DC. “ It has seemed to me that a man occupying Mr. Mitchell’s station in the Federal Reserve system should not refuse to cooperate, as president of the largest member bank in the United States, with the administrative authorities of the system to abate a menacing misuse of credit in the stock market,” he wrote to his friend Leffingwell, who, with Lamont, was also a partner at J.P. Morgan. He added, “Whether the Board has been sound in its resistance of this effort to re-adjust rates I am not prepared to say. I am, however, always prepared to condemn mutiny, such as I think may be directly charged to Mr. Mitchell…There are many reasons for the flowing of credit into the wildly speculative New York market which need to be taken into account and very carefully considered. About these matters men may differ; but never about insubordination nor about the vice of avowing one’s obligation to stock gambling as superior to one’s sworn obligation to his country.”

Carter Glass had just declared war on Charles Mitchell.

If the nation’s financiers and speculators had one enemy above all others, it was Carter Glass. And if Glass had one enemy above all others, it was Wall Street. He was born in 1858 in Lynchburg, a town of about seven thousand people, 180 miles southwest of Washington, just down the road from Appomattox, where the Confederate Army surrendered to the Union.

The youngest of five children, he lost his mother when he was two. His older sister, Nannie, who was twelve years old at the time of their mother’s death, tried to take her place, raising him as best she could. Their father, Major Robert H. Glass, served as an officer in the Confederate Army, and though Glass was a young boy when the war ended, the memory of the Civil War was always present, searing the humiliation of defeat deep within his soul. His earliest memory, from the age of five, was going to the banks of the James River to view the coffin of General Stonewall Jackson, draped in the Stars and Bars, as it floated by on a packet boat. Two years later, in Lynchburg, Glass encountered a group of Union soldiers on horseback and refused to cede the path to the “blue-coated devils.” Amused, one soldier grabbed the boy and took him for a ride, playfully asking what he intended to be when he grew up.

“A major, like my father, and shoot Yankees,” Glass shot back.

Shooting Yankees, in a manner of speaking, is exactly what Glass grew up to do. With not even a high school education, he followed his father into the newspaper business, no field for gentlemen. He built a political following with a fervent belief in free enterprise—for white men, that is—and in curtailing the voting rights of Black people. When first elected to the House of Representatives in 1902, Glass asked to be on the Committee on Foreign Affairs. Instead, he was appointed to the House Banking and Currency Committee. “I don’t know anything about banking, but I guess I can learn,” Glass said. Once he started attending committee meetings, the topic gripped his imagination, and he immersed himself in literature on banking and finance.

In his maiden speech to Congress he denounced a Republican proposal to establish a commission to study the feasibility of setting up a central bank. In his speeches and writings, he called Eastern bankers “money devils” and played up his image as an underdog taking on the colossus of Wall Street. His core belief was that Wall Street speculators did nothing to help the country’s economy but rather siphoned off capital that should go to building manufacturing plants and providing jobs. Glass served on the Pujo Committee, before which J. Pierpont Morgan made his historic appearance in 1912; however, he maintained a certain admiration for the House of Morgan, and particularly for Thomas Lamont. Glass later recommended Lamont to President Wilson as a valuable participant in the war reparations negotiations.

In 1913, Glass was appointed chairman of the House Banking and Currency Committee, where he remained the bane of the financial industry. But at the same time, he was instrumental in the creation of the Federal Reserve system. In 1910, an elite group of bankers and politicians met on Jekyll Island, off the coast of Georgia, to design a superbank to better manage the U.S. currency and put an end to the financial crises that regularly took down the economy. Their banker-friendly plan, conceived in secrecy, stood little chance of passing muster in Congress until Glass was brought in and offered a solution: He wrote a bill calling for a decentralized structure that would let every region in the country have a say in setting monetary policy and thereby assure skeptical voters that New York would not be single-handedly running the economy. With the strong support of the Woodrow Wilson administration, Glass’s bill became law and the Federal Reserve was born. Is it any wonder he felt so protective of the Federal Reserve system? Up to that point in his career, it was his greatest achievement.

Glass’s refusal to submit to Wall Street earned him the admiration of Woodrow Wilson, who appointed him secretary of the treasury in 1918. In 1920, the same year he was appointed to the U.S. Senate, he was put forward as a potential Democratic presidential candidate by a fellow member of the Virginia congressional delegation. In 1927 he published a self-congratulatory memoir, An Adventure in Constructive Finance , which solidified his status as an elder statesman, albeit a combative one who had plenty of battles ahead of him.

Impatient, often sarcastic, sometimes intentionally rude, Glass was an enigma. On the door of his office he hung a sign indicating visiting hours from 10 a.m. to 4 p.m. every day, though he could rarely be found there at those times or any other. If someone were to track him down, Glass was likely to ignore the person completely. When focused on a problem, whether at home in Lynchburg or in the halls of the Capitol, Glass could be shockingly aloof. He would pass by colleagues, even dear friends, without acknowledging them.

When Glass rose to speak on the floor of the Senate, which wasn’t often, his penetrating Southern drawl, flinging attack after attack at his target, emerged from the right corner of his mouth. “ He did all that with one half of his mouth,” observed President Wilson after one such Glass performance.

As the stock market boom accelerated through the late 1920s, Glass watched with growing alarm as the Federal Reserve became, in his view, a servant of Wall Street funneling the nation’s resources to bankers in New York. To Glass this was nothing short of thievery, and he was determined to halt it.

“ I unhesitatingly declare,” Glass said, “that the use of the Federal Reserve facilities for stock speculation is textually in violation of the law and that Mr. Mitchell, having aided and abetted such violation of the law and having flouted the authority of the Federal Reserve Board, should be properly disciplined.” Mitchell had “ slapped the board in the face.”

Someone needed to teach him a lesson.