The Hellhound of Wall Street: How Ferdinand Pecora’s Investigation of the Great Crash Forever Changed American Finance
The Penguin Press (US), 352pp
Review by Christopher Silvester
Winner of the Spear’s Book Award for Financial History of the Year
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Michael Perino, a law professor and former Wall Street litigator, has produced a humdinger of a first book. Like another first book, Lords of Finance by Liaquat Ahamed, The Hellhound of Wall Street is a dazzling example of how to write financial history that is thick with drama and atmosphere, expertly placed in its historical context, and scrupulously fair-minded in assessing the merits of its hero.
Pecora, the son of a Sicilian-immigrant cobbler, was a former DA from New York City. He was made chief counsel for the Senate Committee on banking and currency in what seemed likely to be the last days of its investigation of the causes of the 1929 stock market crash. Over ten days in February and March 1933, against the backdrop of President Roosevelt’s inauguration and a nationwide banking crisis, Pecora set Wall Street’s bankers back on their heels, forcing the resignation of Charles Mitchell, also known as ‘Sunshine Charlie’.
Mitchell was the Dick Fuld of his day, driven and seemingly invincible, though ultimately he was toppled from his plinth by Pecora’s irreverent and penetrating questions. ‘In terms of rapt public attention, economic impact, and long-lasting, legislative achievements,’ Perino writes, ‘Pecora’s investigation must rank as the most successful inquiry in the more than 200-year history of congressional probes.’
Pecora had a reputation as a brilliant cross-examiner with a powerful memory for details and a well-developed sense of theatre. J P Morgan Jr, one of Pecora’s victims, said that he ‘has the manner and manners of a prosecuting attorney who is trying to convict a horse thief’. Needless to say, this tenacious approach played well with Main Street, which had coined a new term for Wall Street’s bankers in the age of Al Capone: ‘banksters’.
Charles Mitchell was a super-salesman, a former $10-a-week clerk who had worked his way up through National City Bank, acquiring all the social trappings of a white-shoe Wall Street banker. An adviser to presidents, he was included in a list of the 59 bankers and industrialists who ‘by virtue of their ability’ ruled the United States. With offices overseas, City Bank was the largest investment bank in the world. Throughout the Twenties it marketed itself as a byword for reliability when it came to investment advice.
But in a classic conflict of interest, its enormous overhead meant that City Bank speculated in its own stock and sold it to the bank’s depositors through its securities affiliate, the National City Company. It had also made bad commercial loans in Cuba and dumped them into the affiliate to be packaged and sold as supposedly safe investments, and it had sold Peruvian and Brazilian bonds to investors without giving adequate information about risks of which it was aware. ‘The standpoint of the investor was something that did not seem to enter his consciousness or affect his conscience,’ Perino notes.
The press did not expect much from Pecora. He was criticised for his Tammany connections (though his political career in New York had been remarkably free of corruption) and there was an implied racism in comments about his Sicilian origins (though, interestingly, he was a Protestant). He had precious little time to prepare — only a couple of weeks. Perino admits that Pecora was not perfect. He was not as well versed in securities law or the practices of the stock market as perhaps he should have been, which led him to pursue some red herrings along the way.
Nonetheless, Pecora skewered Mitchell and his fellow ‘banksters’, not by showing they had broken the law, but by showing that abuses required new laws to be enacted. What followed from this was the Glass-Steagall Act, which banned banks from having securities affiliates, and the introduction of laws regulating the sale of securities — laws that had already been enacted in Britain.
Perino deserves applause for disinterring a forgotten hero and illuminating a transformational moment in American financial history with tremendous brio.