A century ago, amid the Roaring Twenties, three Republican presidential administrations devoted themselves to the interests of the wealthy, promoting union-busting and slashing regulations. The result was the nation’s most pronounced wealth inequality in its 150-year history—levels we see again today. We all know what happened next. The stock market’s precipitous slide began in the autumn of 1929, wiping out more than half its value and ushering in the Great Depression. The Dow Jones Industrial Average would not return to its pre-Black Friday high until 1954.
The story of how President Franklin D. Roosevelt pulled the country out of its misery through quick action and a prescience bordering on the clairvoyant—the ballyhooed first 100 days—is well-told by Diana B. Henriques, the author and veteran New York Times financial correspondent. Taming the Street: The Old Guard, the New Deal, and FDR’s Fight to Regulate American Capitalism sheds light on a less-trodden piece of this era, recounting how Roosevelt harnessed the ruthless impulses of Wall Street by establishing the Securities and Exchange Commission. She uses the lens of two larger-than-life figures FDR chose to lead the new financial watchdog—financier, bootlegger, and father to a Democratic dynasty, Joseph Kennedy, and William O. Douglas, who would become a liberal lion on the Supreme Court and was almost tapped as FDR’s vice president.
The early maneuvers of a regulatory agency, particularly one overseeing complex financial practices, wouldn’t immediately conjure high drama and colorful characters. But Henriques delivers. Taming the Street unfolds through the perspectives of four main characters—the patrician but haunted Roosevelt, the backslapping Kennedy, the driven Douglas, and Richard (Dick) Whitney, the embattled WASP president of the New York Stock Exchange and a walking apotheosis of the financial old guard if there ever was one.
In 1932, FDR, then governor of New York, accepted the Democratic presidential nomination in Chicago with a galvanizing promise and a rebuke to Herbert Hoover’s laissez-faire approach to the economic calamity that had befallen the nation: “I pledge myself to a New Deal for the American people…a new order of competence and courage,” he vowed. Throughout the fall campaign, he decried a plutocratic economic vision—one still espoused today—in which the wealthy claim to, in Roosevelt’s words, “let a part of their prosperity trickle down to the rest of us.”
Roosevelt’s March 1933 inauguration coincided with a crippling month-long bank run in which Americans withdrew their deposits after losing faith in the financial system. His first presidential act was, famously, to temporarily shut down the nation’s banks, allowing regulators to examine their finances and shore them up with fresh capital if necessary. When the banks opened just a few days later, Americans lined up “to make deposits, not withdrawals,” Henriques writes. The stock market rose 15% on the reopening, impressing “even the princes of Wall Street.”
With banks stabilized Roosevelt turned his attention to the scandalous practices of Wall Street, which had been on flagrant display that winter through a series of congressional hearings. At one, the chairman of Citibank’s precursor offered testimony that led to revelations that the bank’s securities arms had underwritten suspect issues, manipulated stock prices (including its own), and purposely sold investors over $100 million of worthless Peruvian and Brazilian bonds. He resigned in a matter of days after testifying. Another hearing with executives from the House of Morgan uncovered a “preferred list” of influential insiders, including pols in both parties, to buy securities at below-market prices.
Demands to safeguard the public against Wall Street’s insider practices gathered strength, and just over a year after his term began, Roosevelt signed the Securities and Exchange Act, the law authorizing the new regulator. Roosevelt quickly tapped four New Dealers deeply involved in drafting securities legislation to be commissioners on the five-member panel. When picking a chair, FDR showed his cunning with a choice that would satisfy both reformers and Wall Street.
Kennedy, the father of John Fitzgerald and Robert Francis, had developed a reputation as an enterprising man about town—a businessman, Hollywood producer, and liquor distributor once Prohibition ended. He was intimately familiar with Wall Street and its shady practices. In one particularly innovative yet disreputable scheme, Kennedy and his cadre decided to run up prices on stocks that could be confused with those expected to rise on the repeal of Prohibition. So, instead of driving up a glass bottle manufacturer called Owens-Illinois Glass Company, they bought the similar-sounding Libbey-Owens-Ford Glass Company, which produced plate glass. Kennedy earned $60,000 from the deception, a princely sum in the 1930s, which he then plied into actual “repeal stocks,” tripling his investment.
To most New Deal acolytes, the appointment of Kennedy to SEC chair was akin to putting a fox in charge of the henhouse. “To FDR’s New Dealers and much of the general public, Kennedy was one of Wall Street’s own—but to Wall Street, Kennedy was what he had always been: an outsider who kept his secrets and played a solitary game,” Henriques writes, noting that Kennedy knew the practices he would be regulating. “Set a thief to catch a thief,” Roosevelt jibed.
In his new role, Kennedy became every bit the New Dealer Roosevelt would have hoped, ironically declaring, “The days of stock manipulation are over. Things that seemed all right a few years ago find no place in our present-day philosophy.” Kennedy steered the new regulator through its first year with prodigious energy against unrelenting resistance from Wall Street. The SEC chair wanted to show that regulation could work, as the author writes, by “restor[ing] the “public’s faith in the marketplace and level[ing] the playing field for honest professionals, without stifling the necessary work of capitalism.”
The SEC’s third hard-charging chairman, William O. Douglas, was a Yale Law School professor and the country’s top expert on corporate bankruptcy. After serving as one of the five SEC commissioners, Douglas assumed the chair a few months into Roosevelt’s second term, in which the president won 46 out of the 48 states. “As Maine goes, so goes Vermont,” went the old saw about the two states that supported Alf Landon. This kind of mandate emboldened the president and his appointees, including Douglas, who Henriques sees as an urban cowboy, a western marshal delivering justice. She describes the child of Washington State as “being in the grip of irreconcilable passions.” Raised in Yakima, she writes, “he loved the Western mountains, but he longed for the fame he found only in the concrete canyons of the urban East.”
Douglas’s determination to reform the New York Stock Exchange by persuading it “to trade its private-club traditions for professional management and clear safeguards for public investors” faced implacable opposition. Its most formidable foe was Dick Whitney, who, even after he stepped down as NYSE president after five years in 1935, continued to exert a powerful influence over its members, particularly among the intransigent old guard. “Tall, a bit beefy but impeccably dressed, he still moved with the grace of the Ivy League athlete he once was,” Henriques writes.
Despite his social status and membership in one of America’s most prominent families, Whitney had been embezzling millions for years from his own bankrupt company, a turn of events that only reinforced the need for government regulation. The two chapters detailing Whitney’s downfall read like a thriller. Whitney is not only charged and sent to prison for his crimes but found no supporters among the NYSE’s members: “There was no mercy in this room for the man who made their long crusade against federal regulation look like the self-serving maneuvers of a common thief.”
It is fitting that Henriques concludes her tale with Whitney’s undoing at the end of Roosevelt’s second term. His ruin is a bold marker in the administration’s fruitful attempts to regulate an intractable Wall Street. “Dick Whitney’s final gift to the New Deal was his confession,” she summarizes. “Whitney’s arrogant candor helped peel away any illusions that the public have had about the ability of Wall Street to police itself or its most powerful players.” Henriques’s triumph is her ability to narrate with drama and verve the early days of the Securities and Exchange Commission, a 90-year-old institution whose rules we now take for granted. It’s also a reminder that regulators and those looking to protect investors and keep the markets fair and transparent need the full support of presidents like Roosevelt, warriors like Douglas, and sly insiders like Kennedy—not to mention fraudsters like Dick Whitney (and their modern-day equivalents like Sam Bankman-Fried), whose contempt for regulation end up only reinforcing its urgency.
