1929: Inside the Greatest Crash in Wall Street History--and How It Shattered a Nation - 39

On March 3, 1933, the day before Roosevelt’s inauguration, he and his family visited the White House, as was customary, to pay their respects to the outgoing president. Sometimes, when the same party stayed in power, this meeting took the form of a celebratory dinner. In more recent years it had been an afternoon tea. Hoover was initially disinclined to offer either, but he relented and invited the Roosevelts to tea. It wasn’t the warmest affair. When they arrived, Hoover made them wait for half an hour and then roped Roosevelt into an unscheduled meeting with Treasury Secretary Ogden L. Mills to make one final plea for joint action on the economy.

Roosevelt didn’t much want to be at this gathering, either. For the past seventy-two hours he had been huddling with his advisors at the Mayflower Hotel, writing and rewriting his inauguration speech, while Hoover had been a few blocks away at the White House, still doing everything he could to try to stem a bank run. Hoover’s own press secretary, Theodore Joslin, had pulled his money from his checking account earlier in the week despite feeling “unpatriotic” about it. “ Don’t hoard it, Ted,” Hoover told Joslin. “Put it in another bank that is safe.”

That same day, the New York Stock Exchange had stopped trading, with no indication of when it would resume. The economy was slipping into paralysis.

Roosevelt received a letter from Lamont suggesting he did not fully appreciate how rapidly the economy was deteriorating, not just in rural areas but increasingly in cities, and how quickly it was infecting the banking system. Lamont described the panic as “far more critical than I had dreamed. I believe in all seriousness that the emergency could not be greater.” He urged Roosevelt to collaborate with Hoover to create confidence in the banking system before the American populace sank under the strain. “ Urban populations cannot do without money. It would be like cutting off a city’s water supply. Pestilence and famine would follow; with what consequences who can tell?”

Aides at the Federal Reserve Board and Treasury shared Lamont’s anxiety and had called Hoover asking him to declare a national banking holiday and shut down all the banks in the country.

“ How horrible it is for me to have such a proposal made on the eve of my leaving office!” Hoover told an aide about the request. “To do so would be passing on to my two sons an inheritance which I would not countenance doing. You should know what my answer would be. No, no, no!”

In the intervening hours Hoover had crafted a nuanced request to his successor that he believed could prevent the banking system’s collapse without having to close them all. He suggested that Roosevelt make a proclamation of emergency powers that would enable him to restrict the outflow of currency and gold. Such powers, he explained, were embedded in a section of an old statute called the Trading with the Enemy Act.

“ Like hell I will!” Roosevelt responded. “If you haven’t the guts to do it yourself, I’ll wait until I’m president to do it,” he replied. He told Hoover to invoke the emergency powers himself as one of his last presidential acts, if he so chose, and added, “I shall be waiting at my hotel, Mr. President, to learn what you decide.”

Back at the Mayflower, Roosevelt huddled with his advisors, including Woodin, Jesse Jones, Cordell Hull, and Carter Glass, who argued resolutely against closing the banks. “ I think the president of the United States had no more valid authority to close or to open a bank in the United States than had my stable boy,” Glass said.

Roosevelt fielded many calls that night—from bankers, Fed officials, and one particular person from the House of Morgan.

“ Lamont called from New York to recommend that no action be taken: It was thought by the leading bankers there that the banks could pull through to the next noon and possibly, then, with Roosevelt in office, a sweeping change in psychology would take place before Monday,” Raymond Moley, Roosevelt’s advisor, recounted. “We were all, by then, indescribably tense—even Roosevelt.”

At 11:30 p.m. Roosevelt got the last call of the evening—a final plea from Hoover. Glass, who was still present, could hear one side of the conversation. Hoover made one last effort with Roosevelt to declare a bank holiday to buy them some time. Roosevelt replied that both he and Glass were opposed. He told Hoover that Glass “ believed the country should go temporarily onto a clearing-house scrip basis”—meaning that banks would issue an emergency currency in lieu of cash.

At this point, they had just about run out of ideas and prepared to adjourn. Just before leaving, Glass asked Roosevelt what he expected he would do about the banks when he became president. “ Planning to close them, of course,” Roosevelt replied.

On March 4, Roosevelt and Hoover rode together under a gray sky in an open car to the Capitol grounds, where Roosevelt would take the oath of office. The mood was like that of the inauguration ride four years earlier, only now in reverse: Instead of a cheery Hoover and a morose Calvin Coolidge, it was now a beleaguered, stone-faced Hoover and an ebullient Roosevelt, wearing a confident smile.

That smile, however, masked a deep sense of foreboding. Just before the inauguration had begun, the governor of New York, Herbert H. Lehman, declared a bank holiday in the state, effectively shutting down every major bank to avoid a run. Illinois followed suit. One by one almost every bank in the country had closed by the time Roosevelt took the podium.

After being sworn in, facing the crowd of 150,000, the new president laid out his vision for the new era—one that put Wall Street, the banks, and all of American business firmly under the thumb of Washington. Inspired in part by Mitchell’s downfall and Lamont’s pleas, Roosevelt’s speech used the corruption of bankers as the rationale for an unprecedented assertion of federal authority.

“ Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men,” he said. “Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.

“The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.”

Roosevelt spoke for not even twenty minutes, short by historical standards, striking a tone of defiant optimism.

That same afternoon the newly inaugurated president directed Senator Duncan Fletcher, who would take over the chairmanship of the banking committee the next day, to broaden its investigation “ to include all ramifications of bad banking so that the government will be able to guard against their continuance and prevent their return.”

Wall Street lawyers responded by insisting the committee had no such authority and advised their banking clients to simply refuse Fletcher’s subpoenas. The committee then sought and received broad authority from Congress to allow it “to make a thorough and complete investigation of the operation by any person, firm, co-partnership, company association, corporation, or other entity in the business of banking, financing and extending credit.”

On Sunday, March 5, the second full day of his presidency, Roosevelt ended the epidemic of bank runs by declaring a national bank holiday and shutting them all down, the first time the entire banking system was shuttered at once. What would’ve been viewed as a desperate measure if carried out by Hoover was instead received as a bold executive action. The Mellon National Bank in Pittsburgh, owned by the former treasury secretary Andrew Mellon, briefly defied the order and remained open for business, but that was the exception. Without access to banks, people improvised and cooperated. In Buffalo, the winner of a prizefight was paid in potatoes and tomatoes. Yale psychologist Edward Robinson had predicted that “when the banks close, everybody will feel relieved. It will be sort of a national holiday,” and he was largely right.

Along with the bank closure came a temporary embargo on the hoarding and export of gold—which some viewed with alarm as tantamount to giving up the gold standard. Woodin immediately moved to silence critics. “ It is ridiculous and misleading to say that we have gone off the gold standard,” he said.

Closing the banks proved easy compared to what came next—reopening them. Roosevelt had decreed that only sound banks would reopen, but how would the line be drawn between sound and unsound institutions? There was hardly a lending institution in the world that wasn’t hurting to some degree. Various schemes were designed that divided the banks into three broad categories: those that could stand on their own, those that needed to be reorganized but could survive, and those that had to be liquidated. The situation was unmanageable—even with the more than five thousand bank failures since 1931, the sheer number of banks overwhelmed the regulatory capacity. There was little choice but to err on the side of keeping as many banks open as possible.

On March 13, American banks began to reopen. New York’s were among the healthiest in the nation. Of the hundreds of banks operating in New York City, all but nine were active immediately. The New York Stock Exchange had also been closed during the bank holiday; after missing seven full trading days, it gained 15 percent when it reopened. Wall Street may have had its power and its pride cut sharply, but it was ready to see what it could do with the “Roosevelt market.”

Roosevelt took advantage of his honeymoon to push through a flurry of bills in his first one hundred days, creating the Civilian Conservation Corps, the Federal Emergency Relief Administration, and the Tennessee Valley Authority. But despite all the excitement about the dawning of a new era, Senator Carter Glass found himself struggling to gain his own party’s attention and put Wall Street in its place once and for all.