FDR’s Financial Market Reforms Are on the Ballot in 2024

CHRISTIANE AMANPOUR, CHIEF INTERNATIONAL ANCHOR: And now, many speak of a new deal type rebuild for post-war Ukraine. So, next, we take a look back at the 1930’s in America, and the extraordinary story of how President Franklin Roosevelt accomplished the new deal. His plan to end the economic damages of the Great Depression. That is the focus of the new book, “Taming the Street, The Old Guard, The New Deal, and FDR’s Fight to Regulate American Capitalism.” Author and financial journalist Diana B. Henriques joins colleague Walter Isaacson to talk about the benefits that Americans still wreak today because of the new deal.

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WALTER ISAACSON, HOST: Thank you. And Diana Henriques, welcome to the show.

DIANA B. HENRIQUES, AUTHOR, “TAMING THE STREET”: Thanks for having me, Walter.

ISAACSON: Now, this great book, “Taming the Street,” it’s a wild ride about Franklin Roosevelt and his regulation of the securities industry. But one thing I in light was how you have to start with the jazz age. You have to start in the 1920’s to get what it’s all about. Tell me why 100 years ago we were laying the groundwork for what Franklin Roosevelt had to do.

HENRIQUES: Well, it’s important to know that that was the world of Wall Street that Franklin Roosevelt and his new deal allies grew up with. That’s the world they knew, the world of the 1920’s. And it was not a safe place for ordinary American investors. Stock market prices were routinely rigged. Bonds and stocks were sold with deceptive material, false promises. Banks failed with great regularity, and when they failed, you lost all your savings almost overnight. Mutual funds, main stay of our current investment life were basically private piggy banks for the brokerage firms that sponsored them. So, that was the world that FDR knew. Beyond the world of Wall Street though, it was a world of almost seamless corruption, Walter.

ISAACSON: You know, these respectable lawbreakers, as they seem to be in the book, the ones who were doing all that financial shenanigans. They seem to so to be the close cousins, almost the, you know, the image of some of the rum runners and gangsters and scoundrels of the jazz age.

HENRIQUES: And they did. In fact, it was some journalists at WAG who termed them banksters, instead of gangsters. And that name, unfortunately, stuck.

ISAACSON: How important was all of these shenanigans in causing the great crash of 1929?

HENRIQUES: The pundits of the day thought that the stock market crash would be a nonevent for ordinary Americans because a very small percentage of them owns stocks. Those stock market had become in the jazz age quite the popular game. You know, it was covered in the newspapers and all the celebrities have their favorite stocks. But ordinary Americans were not deeply involved in terms of having their wealth at risk in the stock market. But what those pundits had not allowed for was the fear that would induce people to start tightening their belt from the very top-level right on down. So, as rich people stopped spending, they stopped hiring maids, they stopped buying luxury products, they cancelled the order on the new condo. They shrunk their spending and that rippled down in an — in a vicious circle down to the lowliest of Americans.

ISAACSON: How much did Franklin Roosevelt’s time as the governor of State of New York help lay the groundwork for what he does with the new deal?

HENRIQUES: Well, I lay out in “Taming the Streets”, some of his really instructive foxhole experiences as he was governor of New York. He presided over in December of 1930, what was then the largest bank failure in U.S. history. The eighth largest bank in the country. A bank called the Bank of United States in New York City failed almost overnight despite desperate efforts by Roosevelt’s banking superintendent and his Lieutenant Governor, Herbert Lehman, to try to rescue the bank. And when it failed, the damage it did to small merchants, all through the garment industry in New York City and beyond was devastating. And that experience was a shock. It was a wake-up call to FDR. Previous to that, he had presided over two other bank failures, much smaller. But he had, kind of, let the banking interest who controlled the legislature in Albany persuade him that bankers could regulator themselves, no great changes and laws were needed. And if he would just leave them alone, they’d work this out. So, when the Bank of the United States failed, it was a splash of cold water in the face that showed him that no, more was needed.

ISAACSON: In 1932, he runs for president. Touting his new deal policy to – – after the stock market crash and after it’s now ignited the what becomes the Great Depression. You write mainly about his regulation of the financial industry. How important was that type of promises to his 1932 campaign, or did people quite get the need for financial regulation?

HENRIQUES: Well, I think in my thesis in the book is that these financial reforms were the heart and soul of the new deal as Roosevelt presented it in the campaign of 1932 and in 1936 as well when he ran for reelection on the strength of what he’d done. And he laid out the specific financial reforms that he intended to implement. You know, there’s a lot of conventional wisdom that no one really knew what he planned to do in the new deal. He was kind of vague. And that really all he had to do was not be President Herbert Hoover and he would get elected. But the evidence from the newspaper coverage of his campaign just does not support that at all. He was explicit. He was going to regularity stock changes. He was going to improve the regulation of banks. He was going to make sure that securities were sold with honesty and truth, not with deception. He was going to make sure giant holding companies couldn’t stuff all sorts of overhead cost on the backs of their consumers. He was very explicit. So, you know, I think we — because of so much that happened in Roosevelt’s career as president, one of the most eventful, probably in this country’s history, the role of financial reform in the very early days of his campaigning and of his presidency has been, kind of, obscured. And part of what I wanted to do with this book was correct that. To show how central financial reform was to Roosevelt’s thinking and for a good reason, Walter, that’s still ran today. He was firmly convinced that a healthy democracy required a healthy economy.

ISAACSON: One of the colorful characters in your book, of course, is Joseph Kennedy, the father of President Kennedy and Senator Kennedy. And sort of intertwines quite a bit with the life of Franklin Roosevelt. Tell me about that relationship and what Joseph Kennedy saw in Franklin Roosevelt.

HENRIQUES: Well, it was — and I agree, it was a strange, kind of, relationship. There’s nothing on the surface of it that made it look plausible. Joe Kennedy was a buccaneer. He was a squash buckling speculator who is committing many of the crimes that Franklin Roosevelt later wanted to eliminate. But he saw in Roosevelt the man for a moment. And the moment that Joe Kennedy saw, and perhaps more clearly, because of the world he occupied, was an America that was just about to come apart between the angry demands on the left, a rising interest and communism and socialism, and even scarier forces on the right. People who were looking at fascist authorities in Germany and in Italy and saying, maybe that’s what we need right now. Stamp out these labor unions, you know, get business in charge. And Kennedy saw all of that is adding up to a time of, perhaps, terminal unrest in the United States. He felt it was essential that democracy show it could work in this moment. It could address this economic crisis. He said once, I would — I decided in those days I would give half of what I had to be able to enjoy the other half under law and order. He felt that the society was falling apart and that Roosevelt was the man who could fix it.

ISAACSON: So, Roosevelt in his — one of his early acts creates a security and exchange commission. A key thing in your book. And so, then the SCC to run it, he appoints Joe Kennedy. I mean, it’s like Joe Kennedy was a stock speculator and all.

HENRIQUES: Right.

ISAACSON: Wasn’t that like putting the fox in charge of the hen house?

HENRIQUES: Washington exploded, Walter. I mean, it absolutely exploded when — now, there were some journalists who said, I don’t believe it. I just don’t believe that this rumor is true. But in fact, FDR was very, very savvy to name Joe Kennedy. First of all, Wall Street which had fiercely fought not only this bill creating the SCC but the early one that had required truth in the sales of securities. And, you know, they could hardly say, well, you know, this guy doesn’t know anything about Wall Street. You know, you’re putting an idiot in charge of our marketplace. No one knew Wall Street better than Joe Kennedy did. So, FDR saw it as a way to disarm Wall Street’s, you know, predictable objections. But he knew, as most of the American public did not, that Joe Kennedy have always been an outsider on the street. He played a loan game. He kept his cards very close to his chest. And he was no more beholden to those Wall Street titans than Roosevelt was.

ISAACSON: So, how well did he do?

HENRIQUES: It was a masterpiece of public service, Walter. It really was. And given the rest of Joe Kennedy’s career, it seems odd to say that, but it really was as I reviewed in great detail the daily workings, the minutes of the meetings he ran, the appointments he made, the people he hired. It was truly a remarkable act of public service. He took a bunch of words on paper. And in a few months, turned them into a watch dog agency that was on the street. That was on the job right away.

ISAACSON: Franklin Roosevelt has an incredibly active first hundred days, as it was called. That’s all sorts of things to try to tackle the Great Depression. Tell me about some of the other things besides in addition to financial regulation and how those who were connected to his Wall Street regulations.

HENRIQUES: Well, the — one we know best, of course, is his banking reform, and I consider that as well part of his financial reforms. As you know, Walter, when Roosevelt was sworn in on March 4, 1933, we were in the midst of the most serious banking crisis the country had ever experienced. Around 3:00 in the morning on the day Roosevelt was sworn in, New York became the final state to shut its banks. The — they were being shuttered across the country to protect them from panicky runs by their customers. And with the banks shut, particularly the money center banks, the stock exchange closed, the commodity exchanges closed. The financial machinery of the country had come to a dead stand still by dawn on in inauguration day. So, job one for Roosevelt was to get those banks open again. And the tale of how he did it, to me, is one of the best bits of the book. It was really remarkable. The lessons he brought from his governorship were brought to bear. He understood that the banks were in trouble not because people didn’t trust the new deal, they were in trouble because people didn’t trust the banks. And so, his idea was to intervene a bank moratorium, to give regulators in every state and in the Treasury Department time to sort which banks were strong, which were weak, which needed new capitol. What could be done to rescue them. And then he had a fire side chat, the first of those radio addresses to the American public that became so famous was on the banking crisis. And he explained to them in just every day kitchen table language how the banking system worked. How it had gotten in trouble. What he was doing to try to fix it. And what they should do when their banks reopen. And he assured them that any bank that reopened after this moratorium could be trusted. And so, within 10 days, banks started to reopen. And in defiance of Herbert Hoover’s predictions, people lined up to put money back in. So, it was a remarkable display of how much in the infusion of confidence could matter just as much as an infusion of capital.

ISAACSON: One of the things always said about Roosevelt is that his style was to just try anything, to keep trying, to make sure you were seen trying.

HENRIQUES: Yes.

ISAACSON: That can lead to some missteps. What failures, do you think, happened in the new deal?

HENRIQUES: Well, there were — no doubt the National Recovery Act which was struck around — down by the Supreme Court very early in the new deal, I think, was a wrong-headed idea. And the National Recovery Act was an effort to allow industry to work together, to coordinate together, supposedly to support prices and wages. What it was devolving into was, you know, price fixing and wage suppression. And by the time the Supreme Court struck it down, the rest of the new dealers had basically said, this is not working. We need something else. So, that was a misstep. Perhaps his worst failings on the financial reform front, however, was the handling of the 1937 recession, which I deal within the book. It’s hard for someone I admire as much as Roosevelt for me to say, he really flubbed it. But he really flubbed it. He was getting a lot of advice from more conservative new dealers, Joe Kennedy among them, that he needed to balance the budget. OK. We were out of the emergency, we’ve cured the depression, things are on the rebound. Now, we’ve got get — got to get back to brass tax, to the old pail (ph) and party truisms of a balanced budget. So, he cuts spending in 1936 and in — going into 37, long before the economy was ready to absorb that kind of cut.

ISAACSON: You say it’s so urgent that we understand this today. Well, we’re having a crisis of democracy, and sometimes a crisis of confidence when it comes to the financial sector. Explain why you think this is urgent now.

HENRIQUES: Well, in a very real sense, Walter, these reforms that we’ve inherited from FDR, which we take so much for granted today, they’re on the ballot in 2024. One of the major candidates likely to be running for president has an open track record of hostility to financial regulation. He bragged — President Trump bragged in his 2018 state of the union that he’d done more than any administration in history to reduce financial regulation. And that’s not just Trump hyperbole, he did, and he will again. His track record was to put appointees in charge of regulatory agencies who were openly hostile to the mission of those agencies. He appointed pro-business anti-regulatory judges every time he could. So, another Trump term would mean further destruction of the financial regulatory machine that served us pretty darn well for nearly 90 years.

ISAACSON: But aren’t there some regulations that you think need to be revisited?

HENRIQUES: Oh, absolutely. And more than revisited. Another way that financial reform is on the ballot in 2024 is we’ve got to elect people to Congress and the Senate who can get to work wisely and quickly, modernizing the financial regulatory system that’s grown up around the core of Roosevelt reforms and prepare it for a new century. So, we’ve got to have people who are committed to financial protection, to investor protection, but who are going to work together to produce with industry. A modernized financial reform that can continue Roosevelt’s work to have a Congress full of people ready to tear all this stuff down would be disastrous. Because we’ve got our 401(k) plans, our pensions are tied up in the stock market. Our mortgages are important to our financial security. We are — Americans today are so much more engaged with the world of finance that they would be so much more at risk if the rules of that world devolved back to what they had been in the jazz age.

ISAACSON: Diana Henriques, thank you so much for joining us.

HENRIQUES: Thank you, Walter.