The Pecora Investigation was an inquiry begun on March 4, 1932, by the United States Senate Committee on Banking and Currency to investigate the causes of the Wall Street crash of 1929. The name refers to the fourth and final chief counsel for the investigation,

Ferdinand Pecora Ferdinand Pecora (January 6, 1882 – December 7, 1971) was an American lawyer and New York State Supreme Court judge who became famous in the 1930s as Chief Counsel to the United States Senate Committee on Banking and Currency during its invest ...

. His exposure of abusive practices in the financial industry galvanized broad public support for stricter regulations. As a result, the U.S. Congress passed the Glass–Steagall Banking Act of 1933, the

Securities Act of 1933 The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and afte ...

, and the

Securities Exchange Act of 1934 The Securities Exchange Act of 1934 (also called the Exchange Act, '34 Act, or 1934 Act) (, codified at et seq.) is a law governing the secondary trading of securities (stocks, bonds, and debentures) in the United States of America. A land ...

History

Following the 1929 Wall Street Crash, the U.S. economy had gone into a depression, and a large number of banks failed. The Pecora Investigation sought to uncover the causes of the financial collapse. As chief counsel, Ferdinand Pecora personally examined many high-profile witnesses, who included some of the nation's most influential bankers and

stockbroker A stockbroker is an individual or company that buys and sells stocks and other investments for a financial market participant in return for a commission, markup, or fee. In most countries they are regulated as a broker or broker-dealer and ...

s. Among these witnesses were Richard Whitney, president of the

New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is the List of stock exchanges, largest stock excha ...

;

investment bank Investment is traditionally defined as the "commitment of resources into something expected to gain value over time". If an investment involves money, then it can be defined as a "commitment of money to receive more money later". From a broade ...

ers Otto H. Kahn,

Charles E. Mitchell Charles Edwin Mitchell (October 6, 1877 – December 14, 1955) was an American banker whose incautious securities policies facilitated the speculation which led to the Crash of 1929. First National City Bank's (now Citibank) controversial act ...

, Thomas W. Lamont, and Albert H. Wiggin; and celebrated

commodity In economics, a commodity is an economic goods, good, usually a resource, that specifically has full or substantial fungibility: that is, the Market (economics), market treats instances of the good as equivalent or nearly so with no regard to w ...

market speculators such as Arthur W. Cutten. Given wide media coverage, the testimony of the powerful banker J. P. Morgan Jr. caused a public outcry after he admitted under examination that he and many of his partners had not paid any income taxes in 1931 and 1932.

Investigations (1932-34)

The investigation was launched by a majority- Republican Senate, under the Banking Committee's chairman, Senator Peter Norbeck. Hearings began on April 11, 1932, but were criticized by Democratic Party members and their supporters as being little more than an attempt by the Republicans to appease the growing demands of an angry American public suffering through the

Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...

. Two chief counsels were fired for ineffectiveness, and a third resigned after the committee refused to give him broad

subpoena A subpoena (; also subpœna, supenna or subpena) or witness summons is a writ issued by a government agency, most often a court, to compel testimony by a witness or production of evidence under a penalty for failure. There are two common types of ...

power. In January 1933, Ferdinand Pecora, an assistant

district attorney In the United States, a district attorney (DA), county attorney, county prosecutor, state attorney, state's attorney, prosecuting attorney, commonwealth's attorney, or solicitor is the chief prosecutor or chief law enforcement officer represen ...

for New York County, was hired to write the final report. Discovering that the investigation was incomplete, Pecora requested permission to hold an additional month of hearings. His exposé of the National City Bank (now Citibank) made banner headlines and caused the bank's president to resign. Democrats had won the majority in the Senate, and the new president,

Franklin D. Roosevelt Franklin Delano Roosevelt (January 30, 1882April 12, 1945), also known as FDR, was the 32nd president of the United States, serving from 1933 until his death in 1945. He is the longest-serving U.S. president, and the only one to have served ...

, urged the new Democratic chairman of the Banking Committee, Senator Duncan U. Fletcher, to let Pecora continue the probe. So actively did Pecora pursue the investigation that his name became publicly identified with it, rather than the committee's chairman. The Pecora Investigation uncovered a wide range of abusive practices on the part of banks and bank affiliates. These included a variety of conflicts of interest, such as the

underwriting Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liability ...

of unsound securities in order to pay off bad bank loans, as well as "pool operations" to support the price of bank stocks. The hearings galvanized broad public support for new banking and securities laws. As a result of the Pecora Commission's findings, the United States Congress passed the Glass–Steagall Banking Act of 1933 to separate commercial and investment banking, the

to set penalties for filing false information about stock offerings, and the

, which formed the SEC, to regulate the stock exchanges. The Banking Committee's hearings ended on May 4, 1934, after which Pecora was appointed as one of the first commissioners of the SEC.

Impact

Historian Michael Perino argues that Pecora's investigation "Forever Changed American Finance'' by its impact on the financial laws of the

New Deal The New Deal was a series of wide-reaching economic, social, and political reforms enacted by President Franklin D. Roosevelt in the United States between 1933 and 1938, in response to the Great Depression in the United States, Great Depressi ...

. In 1939, Ferdinand Pecora published a memoir that recounted details of the investigations, ''Wall Street Under Oath''. Pecora wrote: "Bitterly hostile was Wall Street to the enactment of the regulatory legislation." As to disclosure rules, he stated that "Had there been full disclosure of what was being done in furtherance of these schemes, they could not long have survived the fierce light of publicity and criticism. Legal chicanery and pitch darkness were the banker's stoutest allies." In 2010, a similar investigation was launched by the U.S. Congress into the causes of the

2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...

and the

Great Recession The Great Recession was a period of market decline in economies around the world that occurred from late 2007 to mid-2009.

References

External links

* ttp://www.sechistorical.org/collection/papers/1930/1934_06_06_Intro_to_Pecora_C.pdf Introduction to the Banking Committee's Report
Damnation of Mitchell
''

Time Time is the continuous progression of existence that occurs in an apparently irreversible process, irreversible succession from the past, through the present, and into the future. It is a component quantity of various measurements used to sequ ...

'' magazine 1929.
Pecora Investigation Hearings
Also known as ''Stock Exchange Practices. Hearings before the Committee on Banking and Currency Pursuant to S.Res. 84 and S.Res. 56 and S.Res. 97.'' The full-text of these hearings are posted on the FRASER website of the Federal Reserve Bank of St. Louis in searchable pdf format. {{United States congressional committees Reports of the United States government Reports on finance and business Defunct committees of the United States Senate 1932 establishments in Washington, D.C. 1936 disestablishments in Washington, D.C. United States national commissions Wall Street crash of 1929 History of banking in the United States Separation of investment and retail banking

History

Investigations (1932-34)

Impact

See also

References

Further reading

External links