1929: Inside the Greatest Crash in Wall Street History--and How It Shattered a Nation - 14

On Sunday evening, April 14, William Durant arrived at Steinway Hall, the sixteen-story headquarters of the famous piano maker, just across from Carnegie Hall on Fifty-Seventh Street. He ascended to the penthouse, where WABC had a broadcast studio.

Columbia Broadcasting System president William S. Paley had just purchased WABC late last year, and Durant had paid a healthy sum for fifteen minutes of airtime to vent his frustration about the Federal Reserve Board. CBS was among the most powerful broadcasters in the world, reaching thirty-five million Americans.

Over two weeks had passed since the market’s late March drop, which had scared Wall Street and hadn’t let up until Mitchell had made his announcement about lending to speculators. Investors were still jittery.

If he couldn’t convince Hoover to intercede with the Federal Reserve’s board in Washington directly, he thought that perhaps a public pressure campaign might do the trick. Inside the New York Fed, word had gotten back to them that while “the president is concerned” about the Washington Fed constraining the markets, “ I understand he prefers to remain hands off at this juncture,” as George Harrison told Owen Young. “We might only embarrass him by seeking an audience right now.”

At exactly 11 p.m., after being introduced by a mellifluous-voiced announcer, Durant pursed his lips and leaned into the microphone.

“ In this peaceful country today, a great battle is being waged—a battle between the business interests and the Federal Reserve Board,” Durant began in a calm, authoritative voice.

“At a time when this country was enjoying the greatest prosperity ever known, the Federal Reserve Board, by tactless handling and spectacular methods, succeeded in creating a panic costing the people of this country hundreds of millions of dollars.”

Durant, reading from his script, told the audience of another poll he had personally conducted: “A few days ago I submitted through the Chambers of Commerce to 500 industrial leaders in twenty industrial centers the following question: ‘Are you in favor of the policy of the Federal Reserve Board in restricting credit and compelling banks to discriminate against stock exchange collateral?’ To this question I have received 463 replies—451 opposed and only 12 favored the policy of the Federal Reserve Board. Ninety-seven and one-half percent could almost be considered unanimous.”

Durant pointed out that in 1928, Americans had purchased $10 billion worth of new securities outright or on installment plan.

“It may surprise you to know that five years ago…there were less than three million people in the United States owning stocks in industrial enterprises,” he said, going on to argue that the great prosperity of recent years was due to the flood of new shareholders into the stock market. “And still the Federal Reserve Board would announce to the world that these securities, some of which are as sound as the securities of the government itself, cannot be accepted by our banks as collateral.”

Durant contended that the Fed’s efforts to curb speculation was hurting all American businesses. “The cotton planter, the farmer, the merchant, the manufacturer, and businessmen in all lines requiring capital for their undertakings are paying an outrageous and unnecessary penalty as the result of the determination of the Federal Reserve Board to regulate brokers’ loans.”

Durant knew that he and every serious market player, as well as hundreds of thousands of small investors, could go bankrupt if the Fed followed through with its plan to throttle lending to speculators. He called the March 26 plunge in the market a panic “ authorized, approved, and caused by the Federal Reserve Board,” which had sent out the order “liquidate and pay your loans.”

The Fed could have stopped the panic, he said, but “they sat and watched destruction rage.” He then praised Charles Mitchell, saying, “The panic was only stopped by the action of Mr. Mitchell of the National City Bank. For this patriotic offer he was threatened with excommunication by Senator Glass.

“I have been accused of being the bull leader of the market,” Durant said. “If this means that I am a bull on the United States of America, I am forced to plead guilty.”

Durant’s stinging speech was recounted on the front page of The New York Times the next morning. In the event Hoover missed the article, Durant arranged for a copy of his speech to be sent to the president. How serious was Durant about all this? In the moment, he always came across as deadly serious, fully committed to his argument. But then he’d find himself distracted, maybe with another deal, or another toy to play with.

Five days later William and Catherine Durant sailed first-class to Europe for a six-week vacation.

In Washington, Durant’s efforts were being ignored—or worse, his words were being viewed as taunts aimed at politicians who wanted to regulate the markets and banks.

“ When men like Durant, who have made their great fortunes by speculative methods, come out and find fault with whatever measures the Federal Reserve banks may take to suppress the orgy of speculation, it is perfectly obvious that he is doing it wholly for selfish reasons,” said Senator James Couzens, a Republican from Michigan.

One of the wealthiest men in the Senate, Couzens had made a fortune as a partner of Henry Ford, who bought out his shares of Ford Motor Company for $30 million in 1919. As an industrialist who had little use for Wall Street, he was no fan of either Durant or Mitchell. He denounced the Federal Reserve Board for “dumbness” in not curtailing the diversion of large funds to brokers’ loans used to “gamble” on the stock market.

He and Carter Glass shared similar views about Wall Street. It was nothing more than gambling and speculators were the culprits, siphoning off capital for their own greedy purposes. Glass said Durant, with his adventurous speculative forays, “ has lured more innocent amateur gamblers into the market than any other forty individuals in the United States.

“ The gamblers have run away with the money market in New York,” he said.

While Durant was on vacation abroad, the two senators began conversations about how they could rein in the financial industry.

They were both concerned about a pending bill that was soon to come up for debate called the Smoot–Hawley tariff bill, which Glass considered “economic insanity.” Senator Reed Owen Smoot of Utah, one of the bill’s sponsors, had been a key ally of Hoover’s during the campaign, and this bill was meant to fulfill their promise to protect American farmers from foreign competition. It was a protectionist effort that was publicly popular. But the early drafts of Smoot–Hawley included some economic stabilization measures to placate Wall Street, such as authorizing the Treasury Department to issue short-term loans and Treasury bills up to $10 billion in the event of a credit crunch. Glass saw this as a backdoor gift to Wall Street, believing that such short-term certificates could be used to fund “activity of stock gamblers.”

If the tariff bill were to move ahead—which he believed “ constitutes moral insensibility”—Glass had an idea that he knew Durant and Mitchell would hate, one that might finally tamp down the market: At the right time, he would insert an amendment in the tariff bill that would levy a tax of 5 percent on transfers of stock held for less than sixty days, aimed squarely at penalizing speculators. To Glass, if the Federal Reserve wasn’t going to step up and do its job, he was perfectly happy to do it for them.