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

On September 30, 1930, Thomas Lamont celebrates his 60th birthday at J.P. Morgan. He and his wife have established a weekend routine at their New Jersey estate from where Lamont commutes on his yacht. Earlier in 1930, Morgan sold stocks purchased during the crash for a modest profit. Lamont remains publicly upbeat but, privately, partner Russell Cornell Leffingwell knows recovery is distant. On Lamont’s birthday, the market plunges to its yearly low. Writer Matthew Josephson emerges as a critic of Wall Street excess. A new author, Julian Sherrod, a former National City bond salesman, writes Scapegoats: By One of Them after being wiped out financially. The book, which refers to Mitchell only as “Chairman,” reveals that, while salesmen pushed Anaconda Copper stock in August 1929, Mitchell was selling his own shares. Scapegoats becomes a bestseller, damaging Mitchell’s reputation.

On October 28, 1930, John Raskob delivers a radio address to counter articles exposing his work with Michelson to run a covert campaign against President Hoover. The articles reveal how Michelson planted anti-Hoover stories with Democratic congressmen, attracting disapproval. Some editorials blame Raskob for the crisis because he encouraged speculation. In his address, Raskob calls the attacks “childish” and promotes his ideas: the five-day workweek (rather than six days), moving legal holidays to Mondays, and eliminating capital gains taxes. He implies that Hoover and Republicans are to blame for the crisis.

On November 5, 1930, James MacLafferty reports grim midterm results to President Hoover: The Democrats have gained significantly. Hoover’s refusal to engage the press makes him vulnerable to criticism. Unemployment has tripled to over 8 million; over 1,300 banks have failed. Hoover stops calling the crisis a “panic,” using “depression” instead. The market has fallen to 20% below its 1929 low. The results confirm Hoover has lost the national confidence. Franklin Delano Roosevelt wins easy reelection as New York governor, positioning himself for the 1932 presidential run. On December 10, 1930, a rumor sparks a massive run on the Bank of United States in the Bronx. That evening, top bankers meet at the New York Federal Reserve to attempt a rescue, but their compromise collapses. The Bank of United States, with 400,000 depositors, fails, demonstrating that even combined Wall Street power cannot now stop the contagion.

On February 2, 1931, Charles Mitchell testifies before Senator Glass’s subcommittee. National City has lost its largest-bank status to Chase. Mitchell blames the crash on outside credit. Glass retorts that bankers were shifty and complicit. The hearing ends without major confrontation. A “Hooverville”—a makeshift encampment for people without homes—appears in Central Park near Mitchell’s mansion. The market rallies 25% by March 1931. In the spring, Germany threatens to default on debts. On June 5, Lamont urges Hoover to propose a debt-payment holiday. Hoover announces the moratorium June 20. Relief is short-lived. The Bank of Pittsburgh collapses after Treasury Secretary Mellon, asked to contribute to a rescue, demands majority public ownership. From April to August, 563 more banks fail. On September 21, Britain abandons the gold standard; the Dow drops 37% for the month. On October 4, Hoover holds a secret meeting with 40 executives, demanding a $500-million emergency fund, warning that refusal means Congress will impose reforms “ending capitalism as they know it” (315). On December 13, Winston Churchill is struck by a car in New York and undergoes surgery.

In February 1932, President Hoover removes Treasury Secretary Andrew Mellon, replacing him with Ogden L. Mills. Hoover creates the Reconstruction Finance Corporation for debt relief. He appoints Charles Dawes to head it, freeing an ambassadorship for Mellon in Britain. On February 10, Hoover warns Senate leaders the US may abandon the gold standard. Senator Glass and Representative Henry B. Steagall co-sponsor a bill. The Glass-Steagall Act of 1932 passes quickly, allowing the Fed to lend more freely. Hoover believes wealthy Democrats are organizing short-selling pools to sabotage his presidency. He demands action from the Stock Exchange, but president Richard Whitney dismisses his concerns. Hoover enlists Senator Frederic Walcott to launch an investigation and hearings begin on April 11, 1932. Whitney easily deflects questioning. Testimony from market operators produces no revelations. In May, Mitchell testifies about Anaconda Copper but denies wrongdoing. The investigation stalls. In June, Hoover is renominated while Roosevelt secures the Democratic nomination. Hoover dismisses Roosevelt as too sick to handle the presidency.

On election night, November 8, 1932, a poll delivered to Hoover correctly predicts his defeat. Roosevelt wins by 57% to 40%; Democrats take control of Congress. Public apprehension returns over fears Roosevelt will abandon the gold standard. House Speaker Garner forces the RFC to reveal its loan recipients. The revelation that large banks were primary beneficiaries causes new cash hoarding by the public. Senator Norbeck restarts the dormant Senate Wall Street investigation to damage incoming Democrats. Unable to find counsel, Norbeck hires Ferdinand Pecora, a little-known former New York prosecutor. On January 22, Pecora accepts. He decides to focus on the well-known Mitchell and National City Bank to capture attention. At Pecora’s urging, Norbeck announces Mitchell will testify February 21. Pecora’s office receives letters from people who lost savings with National City. Pecora has until March 4, when authorization expires.

On February 18, 1933, President-elect Roosevelt covertly receives a letter from President Hoover warning of a critical situation and urging a joint statement on bank closures and capital flight. Roosevelt appears untroubled. His first choice for treasury secretary is Senator Glass, who is hesitant due to age and health: Glass seeks assurances and formally declines on February 19. The crisis deepens as Michigan declares a bank holiday. Roosevelt refuses to make public statements, determined not to take any responsibility before inauguration. On February 21, Roosevelt names William Woodin as his treasury secretary. By allowing the crisis to worsen, Roosevelt ensures a clean slate. In response, Hoover acknowledges Roosevelt is avoiding ratifying Republican programs and that responsibility for any debacle will be Roosevelt’s.

On February 21, 1933, Charles Mitchell testifies before Ferdinand Pecora and the Senate Banking Committee. He is secretly in deep financial trouble. The hearing begins slowly. Pecora questions Mitchell about National City’s executive bonus pool and Senator James Couzens suggests the bonus system encouraged reckless selling, which Mitchell denies. Pecora forces Mitchell to describe how bonuses paid in July 1929 were later designated as advances, allowing executives to avoid income tax. In the afternoon, Pecora asks about Mitchell’s 1929 stock sales. Mitchell acknowledges selling a large block late in the year for tax purposes. Senator Smith W. Brookhart aggressively questions this sale. Mitchell explains that the buyer lost money and he bought the stock back. Brookhart scoffs at Mitchell’s professed sympathy. Pecora establishes the sale allowed Mitchell to claim a loss of nearly $2.8 million, enabling him to avoid paying any income tax for 1929. Pecora asks if the sale was to a family member. Mitchell confirms it was. The identity of the family member, his wife, is not revealed.