After weeks of uncertainty and fear, the Great Crash finally arrives on October 24th, 1929. While America’s financial infrastructure burns, Jesse Livermore makes $100 million in a single week. Wall Street’s great cheerleader, Sunshine Charlie Mitchell, schemes and maneuvers to puff up the bull market and preserve his legacy. Amidst the wreckage of the Great Depression, a scrappy immigrant lawyer named Ferdinand Pecora leads a Federal investigation into Sunshine Charlie and National City Bank that shakes the very bedrock of American financial law.
After weeks of uncertainty and fear, the Great Crash finally arrives on October 24th, 1929. While America’s financial infrastructure burns, Jesse Livermore makes $100 million in a single week. Wall Street’s great cheerleader, Sunshine Charlie Mitchell, schemes and maneuvers to puff up the bull market and preserve his legacy. Amidst the wreckage of the Great Depression, a scrappy immigrant lawyer named Ferdinand Pecora leads a Federal investigation into Sunshine Charlie and National City Bank that shakes the very bedrock of American financial law.
Ahamed, Liaquat. Lords of Finance: The Bankers Who Broke the World. 2009.
Allen, Frederick Lewis. Only Yesterday: An Informal History of the 1920s. 1931
Blumenthal, Karen. Six Days in October. 2002.
Charles Rivers Editors. Jesse Livermore. 2021.
Charles Rivers Editors. Wall Street. 2020.
Galbraith, John Kenneth. The Great Crash 1929. 1955.
Galbraith, John Kenneth. A Short History of Financial Euphoria. 1990.
Geisst, Charles R. Wall Street: A History. 1997.
Klein, Maury. Rainbow’s End. 2001.
Morris, Charles R. A Rabble of Dead Money. 2017.
Nations, Scott. A History of the United States in Five Crashes. 2017.
Parker, Selwyn. The Great Crash. 2008.
Perino, Michael. The Hellhound of Wall Street. 2010.
Rubython, Tom. Jesse Livermore: Boy Plunger. 2016.
Thomas, Gordon. Morgan-Witts, Max. The Day the Bubble Burst. 1979.
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---- INTRO -----
Hello and welcome to Conflicted, the history podcast where we talk about the struggles that shaped us, the tough questions that they pose, and why we should care about any of it.
Conflicted is a member of the Evergreen Podcast Network, and as always, I’m your host Zach Cornwell.
You are listening to the third and final episode of a limited series on the Stock Market Crash of 1929. Now it goes without saying, if you haven’t listened to Parts 1 & 2, you’re gonna want to check those out first. In those first two installments, we laid the groundwork for a lot of narrative threads that are going to resolve in this final episode. Without that context, this episode might make sense, but it won’t make you feel anything.
But before we trip the disaster switch and watch this economic nightmare finally come to a head, let’s take a second to quickly remind ourselves what’s happened over the course of the series thus far, so we can press forward with confidence and clarity.
Way back in Part 1, we popped the cork on the Roaring 20’s and learned how Americans became so seduced by the Stock Market in the first place.
As is often the case, one man’s war is another man’s windfall, and so it was with World War 1. The United States of America got very, very rich selling supplies and lending money to its friends across the Atlantic. By the time it was all over in 1918, the US was swimming like Scrooge McDuck in an ocean of gold. That newfound wealth became a springboard for a new era of economic prosperity in the States.
London was officially old news; Wall Street was where the party was at.
Average Americans had dabbled in investing with Liberty Bonds during the Great War, but in the 1920s, they got hooked on the hard stuff. Stocks and securities. Fueled by ignorance and avarice, the stock market became a cultural phenomenon - a fad, a trend, a meme, in today’s parlance. As historian Maury Klein writes:
“The market replaced chatter about sex among the smart set, about books among the literati, and about baseball in cheap restaurants. “Wherever one went,” declared a broker, “one met people who told of their stock-market winnings. At dinner tables, at bridge, on golf links, on trolley cars, in country post offices, in barber shops, in factories and shops of all kinds.”
If you wanted to get rich, now was the time. And God help you if you missed your window of opportunity. As Liaquat Ahamed observed: “Watching other people become rich is not much fun, especially if they do it overnight and without any effort.” The problem was - most people had no idea what they were actually doing. As Karen Blumenthal writes:
Speculators didn’t care about dividends. They didn’t care about profits. They didn’t care whether a company’s business was healthy or feeble. They bought on tips or hunches. Thousands bought the stock of Seaboard Air Line assuming it was an aviation company. In fact, it was a railroad. Speculators bought stocks only because they believed they would go up.
And up they went. As Blumenthal continues:
Defying gravity and common sense, dozens of stocks had jumped from $20 or $30 to $200 or $300 a share. What was to keep them from going to $400 or higher?
If Part 1 was about establishing the mood and mania of the times, Part 2 was about the rot underneath it all. The sickness and dysfunction in the financial ecosystem that allowed the bubble to swell to such perilous proportions. Last episode, we met a lot of new faces. Most of them culprits in the perpetuation of that bubble.
We met Benjamin Strong and Montague Norman, the sad, strange pair of banking BFFs who sowed the seeds of the Crash in the aftermath of WW1. We learned how Ben Strong deliberately kept the Federal Reserve’s interests rates low in a misguided attempt to help his best friend Monty re-establish the British economy and return to the gold standard. But those low interest rates ended up incentivizing an orgy of credit-fueled stock speculation in the US, which quickly spun out of control. By 1929, 8.5 billion dollars was out on loan; at the time, that was more than the amount of currency in circulation in the entire country.
But the most important new addition to our cast, was Sunshine Charlie Mitchell – chief executive of the country’s largest commercial bank – National City Bank. Sunshine Charlie had a big hand in the Crash too. Although his deft touch was far more opportunistic and insidious than Ben Strong’s misguided altruism.
Charlie Mitchell was a master salesman and a visionary leader, and in the early 1920s he cracked the code on how to persuade Americans to invest their meagre savings in stocks and bonds, whether it was good for them long-term or not. In an unquenchable pursuit of profits for National City bank, Sunshine Charlie unleashed an onslaught of predatory salesmen and carefully-crafted advertising. Mitchell was banging on the front door of middle-class America, hawking shady investment opportunities by the billions, and he did not take “no” for an answer.
As a biographer wrote: “He saw himself as a man of destiny. If John D. Rockefeller had become the master of oil, he would become the master of money.”
Sunshine Charlie became a celebrity in his own right. His power and influence eventually swelled to such proportions, that he was tapped to be a director of the New York Federal Reserve Bank in January of 1929. And it was Charlie who gave the regulatory Fed Board back in Washington a stiff middle finger in March of that year, when they dared to suggest that he refrain from making Federal Reserve funds available to the public for stock speculation. He was accused by one congressman of “of slapping the Federal Reserve squarely in the face and of treating its policies with contempt.”
Sunshine Charlie didn’t create the stock market bubble, but he refused to let it deflate, virtually guaranteeing that it would pop in the most traumatic, destructive way possible.
There was one person, however, who saw this whole thing coming. And that is the deeply flawed protagonist of our story – Jesse Livermore.
In 1891, when Jesse’s mom stuffed a $5 bill in Jesse’s pocket and helped him sneak off the family farm…she had no idea that her 14-year-old son would end up becoming one of the most celebrated day traders of all time.
As a corn farmer’s wife, Laura Livermore could have never fathomed the kind of opulence her son would earn for himself. The yachts. The cigars. The canary-yellow Rolls Royce. The seaside vacation homes and waterfront mansions. All she knew was that she had a smart kid, and he deserved more out of life than decades of toil and a twisted back.
Over the course of the last two episodes, we watched Jesse Livermore transform from a baby-faced math whiz into a cigar-chomping, showgirl-spanking titan of Wall Street. He was an outsider, a savvy hot-blooded pleb in a stuffy world of calculating patricians. And unlike the JP Morgan types, Jesse didn’t inherit his fortune – he made it, using what was between his ears. Unfortunately, Jesse was also a slave to what was between his legs.
As much time as we’ve spent charting Jesse’s professional success, we’ve spent even more time examining his personal failures. Specifically, his turbulent marriage to his second wife, Dotsie.
Last episode, we spent an entire segment looking at things from Dotsie’s perspective; How she’d first fallen for Jesse as a 22-year-old showgirl. How he’d put a ring on her finger that said “forever and ever”. How they had two young boys who looked like carbon copies of their Dad.
But like all good things, that happiness couldn’t last. Dotsie became an alcoholic. Jesse cheated on her incessantly. And a ‘round and ‘round they went on a carousel of marital misery. Eventually Dots stopped feeling sorry for herself and started having an affair of her own, finally managing to scrounge some happiness back into her life. The Livermore marriage was clearly kaput, but as we will see in this episode, they would not disentangle from one another’s lives for many, many years – with tragic results.
But Jesse Livermore’s claim to fame is not a big house and a bad marriage. Livermore is famous because he not only predicted the Stock Market Crash of 1929, but profited lavishly from it. Last episode, we watched as Jesse assembled his jig-saw puzzle, gathering intelligence from all across the globe to piece together a rough timetable of when the stock market would start to slide. In September of 1929, his suspicions were confirmed as the market began to suffer a series of confidence blows - warning signs that built slowly and surely to a fever pitch of panic.
When we last left him, Jesse was $20 million dollars richer. But he was far from done. When the Crash finally did come, Livermore was going to make more money than God. And he was the only person in America, maybe even the world, smart enough to pull it off.
So now that we’ve refreshed our memories on where we’ve been, let’s talk about where we’re going. Today – we’re going to be looking at the actual Stock Market Crash of 1929, six horrific days that changed the course of history. As economist John Kenneth Galbraith writes:
“In the larger history of economics and finance, no year stands out as does 1929. It is like 1066, 1776, 1914, 1945, and now, perhaps, with the collapse of Communism, 1989— […] it ushered in for the United States and the industrial world as a whole the most extreme and enduring crisis that capitalism had ever experienced.”
There’s a slight misconception around the ’29 Stock Market Crash that it happened all at once, in a single traumatic hammer blow. But the reality was much more disorienting, as John Brooks writes:
“When the crash finally came, it came with a kind of surrealistic slowness–so gradually that, on the one hand, it was possible to live through a good part of it without realizing that it was happening, and, on the other hand, it was possible to believe that one had experienced and survived it when in fact it had no more than just begun.”
That said, once things start happening, they’re going to happen very, very fast. But we’ve done the hard work of establishing perspectives and characters that can help guide us through the disorienting catastrophe – Jesse, Sunshine Charlie, even the shoe-shine boy Pat Bologna. That said, we’ll be meeting some brand-new characters as well who will enrich the story even more.
But we won’t just be covering the Crash itself today.
We’ll also be looking at the Federal investigation that attempted to assign blame and accountability for the disaster in the years that followed. There will be courtrooms, cameras, and big revelations on the witness stand. It’s blockbuster stuff and frankly I can’t believe Hollywood hasn’t made it into a movie yet. I think you’re gonna love it.
So, with all that said, let’s jump in and land this bird properly.
Welcome to The Stock Market Crash of 1929, Part 3:
The Music Stops.
---- BEGIN -----
It’s 9:45 in the morning. Thursday, October 24th, 1929.
We’re on the floor of the New York Stock Exchange. In fifteen minutes, at 10 o’clock sharp, the opening bell would ring. And the trading day would begin.
We’re on the floor of the New York Stock Exchange. In fifteen minutes, at 10 o’clock sharp, the opening bell will ring. And the trading day will begin.
When that bell rang, an immense clockwork of human machinery would spring to life. 1,145 telephone operators. 500 page boys. 480 clerks. Like quick-firing synapses in a gigantic brain, the employees of the Exchange zipped to and fro across the cavernous trading floor, carrying the hopes and dreams of the entire world in their hands.
It was a sophisticated and modern system, as Gordon Thomas and Max Morgan-Whitts write:
A complex network of wires and cables, running under the floor and buried in the walls, ran to scores of brokerage houses in the financial district. They, in turn, were linked by telephone and private wire to thousands of cities, towns, and hamlets across America;
[…] Still other circuits tied in the rest of the world: A Japanese man in Tokyo could, if he wished, place an order and have it processed within three minutes. It took little over a minute for orders from London, Paris, or Berlin to be executed.
When the 10 o’clock bell rang each day, dozens of stock tickers – those iconic brass machines under their glass domes - would begin clicking and clacking the prices of stocks onto thin spirals of paper. One Exchange employee estimated that over 2,000 miles of paper would be printed on the trading floor in a single day.
In this immense, highly-choreographed system, the lifespan of a typical buy or sell order was miraculously short. When a new order crackled over the wires from as far away as Berlin or as close as Brooklyn, a telephone operator scribbled the order onto a paper slip. He then handed that slip to a waiting page boy, who bobbed and weaved like a QB through the surging crowd to place the order into a pneumatic tube. The tube would suck the order up and shoot it to one of twelve trading posts, where the it was then processed by the clerks. And just like that, stocks were bought and sold around the world. Over and over and over. The process only took a matter of minutes.
But the real stars of this intricate system - the real VIPs - were the stock brokers. The men who facilitated millions of trades on behalf of buyers and sellers - for a hefty fee, of course. In 1929, at the New York Stock Exchange, there were 900 brokers. And the best of them all was a guy named Mike Meehan.
If you looked up the phrase ‘Irish-American” in the dictionary, you might find a picture of Mike Meehan. The 38-year-old stock broker had fiery-red hair, a friendly, freckled face, and a tongue bristling with an encyclopedia of profanity. To the untrained eye, Mike looked like a pretty normal, unremarkable dude. He was short, with bad eyesight and a bit of a potbelly. Not to mention, deeply superstitious. As Karen Blumenthal writes:
“He wasn’t a fancy dresser and didn’t worry much about appearances, except to avoid the color green. His brother once had dared him to wear a green tie on the floor of the Stock Exchange. Mr. Meehan lost so much money with the tie on that he burnt the tie and swore off green forever. “The map of Ireland’s all over my face,” he said. “What do I need with a green tie?”
But Mike’s modest appearance stood in stark contrast to his professional reputation. The name “Mike Meehan” meant something on Wall Street. He was one of the most respected stock brokers to ever walk the floor. And the Roaring 20’s had been very, very good for his bank account.
Ten years earlier, Mike had been a Broadway ticket salesman, hawking cheap seats to musicals. But one day, he came home and told his wife he wanted to be a stock broker. It would be hard, he told her. The hours would be brutal, the competition merciless, and the stress unending. But if he played his cards right, he’d make their little family rich beyond their wildest dreams. After all, he hadn’t come all the way from Ireland on a boat with his parents at age 11, just to be poor in a different country.
His wife was hesitant, but after a stiff drink and a hard think, she relented. As she told her grandson years later: “If I’d ever said no, I’d have always been wondering ‘what if,”.
In those days, you couldn’t just waltz into the New York Stock Exchange and become a broker. You had to literally buy a spot on the trading floor. In 1923, they were going for about $76,000 a pop. By 1929, a seat on the exchange was worth well over a quarter million dollars. That seems like a lot of money to pay for the mere privilege of doing business, but the reason it cost so much, was that you stood to make many, many times more once you actually had your foot in the door.
Mike Meehan secured his spot in 1920. His biggest break came when he identified the up-and-coming Radio Corporation of America (or RCA) as a very good investment. At the time, most people looked at radio technology and saw a glorified parlor trick, a sideshow curiosity. Mike looked at radio and saw the future. It was like buying Apple in 1981 or Google in 2004. He got in on the ground floor of an emerging technology at the best time possible.
And he kept his promise to his wife. In a few years, true to his word, he was a very, very rich man.
To most casual observers, Mike’s rags-to-riches story was an inspiring fable. A testament to hard work and tenacity. The very definition of the American dream. But underneath the surface, was a less-than-honorable modus operandi. One of the ways Mike continued to grow and sustain his fortune, was a devious little racket called a “stock pool”.
Well, what in the hell is a “stock pool”?
Simply put, a stock pool is a conspiracy to artificially manipulate the price of a given stock. Stock pools are illegal today, but in the 1920s they were rampant. As John Kenneth Galbraith writes, “while it lasted, there was never more agreeable way of making money”.
As financial schemes go, it was simple, efficient, and best of all - easy.
Basically, you get a small circle of wealthy investors together. Think 5 to 10 guys. Each with millions of dollars at their disposal. And you say, “Okay gents, we all like money. We all want to make more money. But we don’t like risk and we don’t like surprises. So here’s what we’re going to do…
We’re all going to buy a bunch of stock in a particular company at the exact same time. We’re going to pool our buying power – millions and millions of dollars – to artificially raise the share price of that stock. Now here comes the good part. The public is going to see that share price rise and draw the conclusion that it’s a good buy. A solid investment. As excitement around the stock heats up, people buy more and more and more. Consequently, the price continues to rise.
We’ll pay off financial journalists to pump out articles to hype the stock even more. And just when the price seems like it can’t possible go any higher….we sell. Slowly at first. Little by little, bit by bit. We don’t want to spook anyone. It’ll just seem like a natural correction. But in reality, we have all made a huge profit, and left everyone else holding the bag.’
It was devious, it was unfair, and it worked. As historian John Brooks writes:
The point of a pool manipulation was simplicity itself: it was a way of inducing the Stock Exchange ticker tape to tell a story that was essentially false, and thus to deceive the public. “The tape doesn’t lie” was the sucker’s folk wisdom; but, in fact, the tape could be
made to lie.”
And no one was better at making the ticker tape lie than Mike Meehan. His seat on the New York Stock Exchange allowed him unprecedented access to the kinds of stocks that could be easily manipulated. After all, every pool needed a manager. Someone on the inside to carefully coordinate the conspiracy of buying and selling.
Mike managed dozens of pools throughout the 1920s. As long as he timed his transactions right and never wore his unlucky color – green - his cut of the profits was guaranteed to be very fat indeed. On one occasion, Mike pocketed $500,000 as compensation for his services as a pool manager. The price of admission to the New York Stock Exchange had been steep. But once you were in, the sky was your limit and the market was your own personal gold mine.
Yes, the Roaring ‘20s had been very, very good to Mike Meehan.
But on October 24th, 1929 – fifteen minutes before the opening bell rang, Mike was scared. All 900 brokers at the Exchange were scared, and anyone who said he wasn’t was lying. As the minute-hand inched closer to 10AM like an executioner’s blade, Mike tried to hide his anxiety. He joked and swore and encouraged his staff, but the truth was, when that bell rang….no one knew what was going to happen.
For weeks, the market had been acting strangely. There was a chill in the air. A sense of fear and uncertainty that even the old timers on the trading floor had never experienced.
As Mike replayed the events of the past several weeks in his mind, it was hard to pinpoint exactly when the vibe had changed. When it had all started to go wrong. But the Babson Break had been an undeniable turning point. On September 5th, the economist Roger Babson scared the market to death when he’d proclaimed that “sooner or later, a crash is coming.” The Dow had dropped 5% that day, many of Mike’s assets along with it. If Babson had been here on the Exchange floor, Mike could’ve decked him the mouth for that stunt.
Then there was the bad news from London, rising interest rates and the high-profile arrest of Clarence Hatry, the would-be steel magnate who had defrauded his backers out of millions. That headline-grabbing scandal had been, as one historian put it: the greatest single financial fraud of the century”. The system was starting to feel broken. If the global economy was a house, people were starting to pull up the floorboards and find swarms of termites writhing underneath.
To top it all off, there had been the utilities drama up in Boston. Edison Electric had wanted to split its stock at $400. The Massachusetts Public Utilities Board had responded that it was barely worth $200 – shocking the financial community and all but proclaiming that Wall Street was sitting on top of a speculative bubble like some kind of well-dressed Humpty Dumpty. As the air turned cold and October wore on, Mike had noticed he was processing more orders to sell than to buy. People were scared. And every day the market seemed less and less secure.
Like a starving man rapidly losing weight, the market seemed to slip a little each day. Three percent there. One and a half percent there. Up half a percent one day, down two percent the next. Two steps forward, one step back. It was a slow, attritional agony for investors. Hoping and praying for a surging recovery where there was none to be found.
By October 23rd – yesterday, thought Mike – the Dow Jones had dropped 20% from the previous month. And Radio Corporation of America, the company that had made Mike so rich in the first place, their stock was down 40% from its all-time high that summer. As one Karen Blumenthal observed: “Stock prices seemed to melt. Out of nowhere, everyone seemed to want to sell at the same time.”
All over America, margin calls were starting to come in. Brokers like Mike were calling investors who’d bought as much as 90% of their stocks on credit and telling them that if they couldn’t cover their loan, the shares would be liquidated. Many people were realizing that the stock market was a double-edged sword. And it could cut deeply.
And today - Thursday, October 24th – today might be the day the dam finally broke wide open. Mike checked his watch. It was 9:55 now. Just five minutes until the opening bell.
Outside the Exchange, just a few blocks down Wall Street, 19-year-old Pat Bologna was at his shoe-shine stand, and he was getting nervous too. If you’ll recall, we met Pat Bologna last episode; he was the sweet-talking bootblack who shined shoes and doled out hot stock market tips. A local celebrity who boasted famous clients like Joe Kennedy and Sunshine Charlie Mitchell.
Pat Bologna always had a joke or a tip or a zinger for every customer that walked up to his stand. But today, his tongue was tied. Something was happening on Wall Street. Something bad. Crowds were beginning to form in front of the Exchange. As Bologna remembered: “People just stood there, stopped talking, and looked towards the Stock Exchange. It was like the silence before the off at a big race.”
Adding to the unease were the four hundred policemen who had arrived on Wall Street that morning. They blocked traffic and fanned out in every direction, pinpricks of blue in a black mass of scared, anxious investors. “The financial district was said to resemble an armed camp,” wrote one historian. When a passerby asked one cop why the force was here in such numbers, the policeman answered: “in case there’s trouble.”
Pat Bologna closed up his shoe-shine stand early that morning. Maybe today wasn’t the best day to be cracking jokes and shining shoes. It’s not like he didn’t have skin in the game. Bologna had $5000 invested in the stock market - his entire life savings - and he was just as anxious as anyone about what would happen to it when the 10 o’clock bell rang.
Back inside the New York Stock Exchange, Mike Meehan was already preparing to process orders that had come in overnight across the wires. Some were for RCA, others were for General Electric, other were for U.S. Steel, but they all had one thing in common. A single word, a four-letter word worse than all the other four-letter words Mike knew. One that he would see over and over and over that day. “S-E-L-L” .
At 10AM the bell rang.
The market opened, as one broker remembered “like a bolt out of hell.” Within minutes stock prices were dropping vertically, in a “absolute free fall”, another said. Historian Maury Klein describes the sudden financial violence:
The dreaded tsunami of selling crashed down at once. Never had so many orders poured in so fast from so many places; 1.6 million shares changed hands in the first half hour alone, and the pace never slowed. No sooner was a phone hung up than it rang again. It was not fear that drove prices downward but rather the thousands of shares dumped on the market as a result of accounts wiped out by margin calls overnight. As Allen put it, “The gigantic edifice of prices was honeycombed with speculative credit and was now breaking under its own weight.”
Mike Meehan looked around the Exchange floor and saw a complete breakdown in decorum, as Karen Blumenthal observes: “Rules of the Stock Exchange specifically said that members on the floor should not run, curse, or push, but in the hysterical frenzy of midday trading, men were doing all three.”
As the prices dropped lower and lower and lower, voices rose, tempers flared and shirts became soaked with sweat. It didn’t take long for an animalistic panic to take hold of every man and woman on Wall Street that morning. On historian wrote that: floor brokers were literally being pinned against the trading counter by the overwrought throng.”And historian Parker Selywn describes the scene in his own way:
“The floor of the exchange was bedlam, with the jobbers caught in the middle. In vain attempts to be heard above the din, they were screaming orders to sell; when that did not work, they hurled their chits at the chalk girls. Pushing and shoving, they fought to get to the front of the line. Others, transfixed by the plummeting share prices, simply stood where they were in an almost catatonic state. -
Across the board, prices seemed to be crmubling. Big companies, small companies, it didn’t matter. General Motors was down $12. Westinghouse Electric’s fell $20. General Electric’s share price fell $25. Auburn Auto’s fell $75.
The drops were so violent and extreme, that they triggered a nightmarish chain reaction of stop-loss orders. Stop-loss orders are automated sell orders that take effect if a stock’s price falls below a certain level. Under normal circumstances, they’re a protective measure, but on Black Thursday they were like a string of land mines detonating in the belly of the bull market.
As John Kenneth Galbraith writes:
“Brokers had placed many of these orders for their own protection on the securities of customers who had not responded to calls for additional margin. Each of these stop-loss orders tripped more securities into the market and drove prices down farther. Each spasm of liquidation thus insured that another would follow.
Prices fell and fell and fell. All over America, brokers were calling their clients demanding more money to cover their holdings. But so many people had bought their stocks on margin, so many people had invested with borrowed money, that they simply could not pay. The brokers were forced to sell those shares? But to who? And so, the prices continued to spiral. As one compassionate broker remembered:
“It was agonizing talking to clients. When they were unable to put up the margin required, they often abused the broker, blaming him for not having sold their shares sooner when prices had been higher, or bemoaning the fact they might now receive nothing at all. Much human misery followed in the wake of those calls.”
It was beyond the comprehension of every broker, trader, clerk and investor. As Richard Whitney, the VP of the Exchange remembered: “all at once, the inconceivable terrors of the unknown and the unfamiliar are thrust upon the public mind; confidence is paralyzed, and until it is restored, chaos reigns.”
The stock tickers installed at the New York Stock Exchange could print 285 characters per minute, but the brass machinery could not keep pace with the logjam of signals coming over the wire. Prices were falling so fast, that the stock tickers were soon an entire minute behind. Then five minutes. Then 30 minutes. Then an hour. Then two.
It was the same at every barber shop, post office, and brokerage in cities across America. When new prices came out over the ticker tape, they could be hours old. Investors big and small had to make life-changing decisions based on unreliable information. As John Kenneth Galbraith writes: “Many now learned for the first time that they could be ruined, totally and forever, and not even know it.”
Outside the Exchange, the scene was even more chaotic, with thousands of people crowding along Wall Street desperately trying to get inside. Trying to get face-to-face with a broker who could sell their shares while they still had some money left.
Pat Bologna, the 19-year-old bootblack, was one of them. Right around 11am, at the fever pitch of the panic, Bologna was fighting and shoving and pushing his way into the customers room. The $5000 he’d invested in the market had been done on-margin, and he was terrified that he was about to lose it all. All those endless hours shining shoes and sweet-talking customers – it would be for nothing if he couldn’t get his money out.
Bologna remembered the pandemonium vividly, well into his old age. He describes the scene, and you’ll have to forgive the racial slur, this is a direct quote from a different era:
“In the crowd there’s a Chinaman wearing a hat which rests on his ears. He’s got a dead cigar in a mouth of dead teeth. He’s standing on tip-toe to see over the shoulders of a woman wearing a big fancy hat. She’s holding out her wedding ring and shouting ‘you want more margin—you can’t have more margin.’ He’s drunk as a lord. Everybody is shouting. They’re all trying to reach the glass booth where the clerks are. Everybody wants to sell out. The boy at the quotation board is running scared. He can’t keep up with the speed of the way stocks are dropping. The board’s painted green. The guy who runs it is Irish. He’s standing at the back of the booth, on the telephone. I can’t hear what he’s saying. But a guy near me shouts, ‘the sonofabitch has sold me out!’”
Bologna’s mind raced with fear, but then he remembered something a customer had told him once. The customer was a handsome, broad-shouldered man with a sunny disposition and a warm grin. A real bigshot. Bologna remembered that the handsome customer had tossed him a quarter, and then a gem:
“A wise man never sells out at the first sign of trouble. That’s for the pikers.”
That customer’s name was Sunshine Charlie Mitchell, the chief executive of National City Bank.
Bologna took a deep breath, tried to calm down, and pushed his way back outside. He decided he would hold on. The market would recover; just like it had always recovered before. It had to! As Bologna assured a man close by: “What goes down can always come up. With help.”
The cavalry was coming.
---- MUSIC BREAK ----
It was just after 12pm on Black Thursday, when the panicked crowd in front of the New York Stock Exchange caught sight of a man walking briskly down the sidewalk.
He was a tall man in his early fifties. Handsome; well-built; with a strong jaw, piercing eyes, and a reassuring grin. All the shoe-shine boys and bootblacks recognized him immediately. After all, Sunshine Charlie Mitchell passed this way every day on his six mile walk to work at the National City Bank.
It was a cold day, but Charlie’s blood was running hot. He’d taken off his coat and rolled up his white sleeves to the elbow. No one appreciated the importance of sharp attire better than a master salesman like Sunshine Charlie, but today was not a day for decorum. He was a man on a mission.
Two days earlier, on October 22nd, he’d arrived home in New York from a short European vacation. He’d barely had a second to walk through the door and put his suitcase down before he was assailed by mob of pessimistic reporters, screeching about an impending market break.
Charlie had a stage actor’s command of his facial reactions. He could smile and laugh and wink, even when his insides were boiling with contempt. But it was getting harder and harder to be a ray of sunshine for these people. He was getting tired of all this constant fearmongering; this contagion of cowardice that was seeping into the minds of once-bullish investors all over America. After all he’d given them, they still couldn’t seem to find a backbone.
7 months ago, he had saved their asses. When the Fed Board in Washington had told its branches across the country to stop lending for stock speculation, who had stood up to them? Charlie Mitchell. Who had made $25 million available for more loans when the public desperately needed reassurance? Charlie Mitchell. Who had turned National City Bank into a powerhouse that was the envy of every commercial bank from Toronto to Tokyo? Charlie Mitchell. Me – Me – Me.
When the reporters had asked what he thought about the shaky markets, he stifled a sneer and said it was a harmless case of cold feet: "I know of nothing fundamentally wrong with the stock market or with the underlying business and credit structure. . . . The public is suffering from 'brokers' loanitis.'
For someone whose personal wealth was as deeply entwined with the stock market as Charlie Mitchell, it was an understandably hopeful position. As historian Michael Perino observes: “People have a remarkable capacity for self-delusion, particularly when those delusions are congruent with their own financial interest.”
But on Thursday, October 24th, 1929 – Charlie’s self-delusion was beginning to falter. Even his beams of sunshine couldn’t break through this much cloud cover. The stock market was in a full-on rout. The stock tickers were two-hours behind. And Wall Street itself looked more like a prison riot than a financial district.
Half an hour earlier, Charlie had been in his office at National City Bank, trying to make sense of what was happening. Then the telephone rang. The person on the other end had been trying to reach him for ten minutes, but the phone lines were so jammed they couldn’t get through. Charlie mumbled a few words into the receiver, hung up, and bolted out of his office. He left so fast he didn’t even have time to put on his coat.
As he stepped outside, the blast of cold hair hit Charlie like a wall, but he didn’t have far to walk. He did six miles every day with ease; and today, his destination was just two blocks down Wall Street. After a few short minutes, Charlie arrived in front of a large, imposing building. There were no markings on the door. No name, no logo, no sign. Just the address: 23 Wall Street. As historian Parker Selwyn writes:
“Since nobody could enter the building without invitation, there was no need for a sign on the outside. If you did not know where the world’s biggest private bank was, you had no place being there.”
These were the offices of JP Morgan, the largest and most influential investment bank in the history of the world.
Once inside, Sunshine Charlie saw many familiar faces. It was a who’s who of the banking elite. An “Avengers Assemble” moment of Wall Street celebrities. One historian called it “a gold-plated consortium”. The chairman of Chase Bank was there. Reps from the Bankers Trust, the Stock Exchange, and of course top partners from JP Morgan itself. They represented, not even including JP Morgan, “more than $6 billion of massed banking resources” according to one source.
All of them had been summoned for the most high-stakes brainstorm in the history of corporate brainstorms. How the hell are we going to avert this crisis? When you get that many big egos and personalities in a single room, efficiency tends to take nosedive. But these men understood what was at stake; The market had barely been open for two hours, and the exchanges in Montreal and Toronto had already crashed too. Charlie and the boys that understood that if they didn’t do something – and fast – the world economy might collapse.
So, in a meeting that took only 20 minutes, the leader of each bank, trust company, and investment firm agreed to put up a combined total of $100 million dollars to inject into the floundering market. No one really know exactly how much they agreed to contribute – some historians say $240 million, others say $50 million, but regardless of the exact figure, it was – A LOT. Enough, they hoped, to prop up prices and stop the rapidly-spreading panic.
So - led by Sunshine Charlie, the Wall Street Avengers walked out the front door of JP Morgan to tell a crowd of reporters what they had agreed to do. The sight of Charlie Mitchell had a calming effect, as Gordon Thomas and Max Morgan-Whitts write:
Mitchell’s relaxed dress and demeanor worked like a potion on the people; the crowd’s good humor gradually returned. On all sides the cry was taken up. “It’s going to be all right.”
Back inside the New York Stock Exchange, the Bankers pool, or “organized support” as it was euphemistically called, was already working its magic. The VP of the Exchange, a hulking man named Richard Whitney, barreled through the mosh pit and ordered 25,000 shares of Union Steel at $205 each - $5 million dollars in total. Cheers went up throughout the trading floor.
The afternoon hours saw a merciful upswing in prices. John Kenneth Galbraith writes that: “The panic did not last all day. It was a phenomenon of the morning hours.” After lunch, it seemed like the bleeding had finally stopped. The high priests of Wall Street, Sunshine Charlie and the JP Morgan partners, had stepped in and saved the day. “I see nothing to worry about”, Charlie beamed to the press.
Although for many small-time investors, the support had come too late. 39:10 They’d watched their life savings vaporize before their morning coffee was even cold. As one historian wrote:
To many, many watchers it meant that they had been sold out and that their dream—in fact, their brief reality—of opulence had gone glimmering, together with home, car, furs, jewelry, and reputation. That the market, after breaking them, had recovered was the most chilling of comfort.”
The trading day only lasted from 10AM to 3PM, but to anyone with a single dollar invested in the stock market, it seemed as if eons had passed. According to Karen Blumenthal:
When the gong rang at 3 P.M., the calls and yells of traders and floor brokers turned into a collective howl, a combination of groans, boos, and moans of relief. Exhausted and dripping with sweat, some traders leaned against the posts. Men stood dazed, holding handfuls of unfinished orders. Overwhelmed clerks threw torn paper, ticker tape, and memo pads in the air until it looked like a parade had come by.
Everyone on Wall Street was dazed, numb, and emotionally exhausted. One journalist said at the time that: “people’s expressions showed not so much suffering as a sort of horrified incredulity.” Another said the brokers and employees at the Exchange looked like “shell-shocked soldiers.”.
But even after the yelling and screaming had stopped, the stock tickers kept on clacking out the prices onto miles and miles of ticker tape. By this point the tickers were printing on a four-hour delay. As Thomas and Morgan-Whitts write:
At 7:08 P.M., 248 minutes late, the ticker finally finished recording the day’s story. Brokers had traded in 974 different stocks during a Crash which saw 12,894,650 shares change hands—a record. But the morning’s losses of $6 billion had been halved during the afternoon.
Wall Street minds are some of the most opportunistic and creative in the world, and the tickers had barely stopped printing before some employees started slicing off portions of the historically significant tape to sell as souvenirs for fifty cents a pop.
In the evening hours, reactions to the losses of Black Thursday ranged from zen-like acceptance to suicidal hysteria. The Wall Street Journal summed up the day’s events: “Prices were literally slaughtered.” The individual tales of woe were manifold. One young widow calmly told a reporter that she had lost $1 million dollars in five hours. Her acceptance of the loss was astonishing: “I had a perfectly stunning time while it lasted. I never knew before what fun it was to make money. No wonder you men want to monopolize the business.”
One man, a grocer, said that he was $300,000 poorer on paper. If only he’d taken profits a few days earlier.
But one of the most traumatic accounts of that day comes from the household of Edward Stone. Stone was a wealthy investor who’d done very well for himself during the stock market boom of the ‘20s. He lived with his wife and adult daughter in a lavish apartment overlooking Central Park.
Well on Black Thursday, Edward got wiped out. In a handful of hours, he’d lost $5 million. When he came home from work at 6pm that day to the family apartment, his wife Mabel and his 22-year-old daughter Edith, immediately realized something was wrong. Edward opened the front door in a dazed, catatonia, and then suddenly erupted into hysterical screaming:
“Stop! Stop everything! We’ve got to move out! We can’t keep any of it. I haven’t a penny. The market’s crashed. We’re wiped out. Nothing!” Mabel and Edith tried to talk to him, but he just pushed past them, heading for the terrace. “I’m going to kill myself! It’s the only way. You’ll have the insurance. …”
What ensued over the next few minutes was a fight for Edward’s life. Mabel and Edith tried to pin him down, grab his waist, trip up his legs, choke him into unconsciousness – anything to stop him from getting to the balcony and flinging himself over the railing towards the street twenty stories below.
But he was too strong; it was only a matter of seconds before he might break loose and disappeared over the railing. His daughter Edith, having no other options, tried to shock him out of his hysteria with her words: “I called him a sissy, yelled at him, reviled him, hated him for what he was making me say and do.”. Mabel slapped him hard on each cheek for good measure; and finally, his strength gave out. Edward crumpled like wet paper and burst into tears. Edward, Mabel and Edith clung to each other on the balcony and cried. Mabel tried to comfort her husband, saying: “Ed, it doesn’t matter. We’ll manage somehow.”
Comfort was in scarce supply on Black Thursday. Some investors turned to less conventional sources for answers. Way back in Part 1, we met a famous fortune teller named Evangeline Adams, who specialized in providing clients with answers on what was going to happen next in the American stock market. Needless to say, on October 24th, her studio office above Carnegie Hall had a line out door. There were so many people clambering for her advice, Evangeline abandoned individual sessions and just started prophesizing to large batches of people at once.
They all desperately wanted to know: Why was the stock market crashing? Was this the end? How bad would things gets? Should the buy the dip, sell everything, hold on a little longer?
Evangeline shuffled her tarot deck and traced a finger over her crystal ball. No matter the client, no matter the situation, her answer was always the same. She said that the planets and celestial bodies were interacting to create “spheres of influence over susceptible groups, who in turn will continue to influence the market.”
Friday and Saturday would be good, she said. The next Monday even better. The worst was over. Good times would return again. Sweating under the hot lights in her crowded Carnegie studio, Evangeline got a message from her own stock broker. He informed her that she was down $100,000. Before continuing her optimistic prophecies, she slipped a note back to her broker telling him to sell all of her holdings at opening bell the next morning.
Clearly, even Evangeline Adams wasn’t willing to leave her fortune up to fate. But in the cold light of hindsight, it was abundantly clear what had happened on Thursday, October 24th, 1929. As Gordon Thomas and Max Morgan-Whitts explain:
America, the richest nation in the world, indeed the richest in all history—its 125 million people possessed more real wealth and real income, per person and in total, than the people of any other country—was now paying the price for accepting too many get-rich-quick schemes, the damaging duels fought between bulls and bears, pool operations and manipulations, buying on overly slim margins securities of low and even fraudulent quality. The indecisive and sometimes misleading leadership from the business and political world had contributed to the nationwide stampede to unload.
The only question now was…would this continue? Was this the bottom? Most people believed – or at least needed to believe – that this was just a nasty correction, not a real Crash. Surely, it could not get any worse.
President Herbert Hoover tried to step up and inject some calm into the equation, saying that: “the fundamental business of the country, that is production and distribution of commodities, is on a sound and prosperous basis.” But when asked by advisors to tell the public that stocks were currently cheap and a smart buy, he flatly refused.
Sunshine Charlie Mitchell insisted that “the fundamentals remain unimpaired.” The chairman of another bank reassured: “This crash is not going to have much effect upon business.” A brokerage firm called Hornblower & Weeks placed an ad in 85 papers saying: “We believe that present conditions are favorable for advantageous investment in standard American securities.” One investment trust placed an ad in the Wall Street Journal that read: “S-T-E-A-D-Y Everybody! Calm thinking is in order. Heed the words of America’s greatest bankers.”
Clearly, preventive incantation was in full effect on Thursday evening, but it was something closer to collective denial.
It had been a bad day for everybody – well, almost everybody.
Somewhere uptown in a discreet rented apartment, Jesse Livermore puffed on a Cuban cigar and glanced at the sleeping young woman wrapped in the bedsheets next to him. For days, he had been camped out at his offices on the 18th floor of the Heckscher Building on Park Avenue, working 18-hour days. But occasionally, he allowed himself a few hours to sneak out and satisfy his appetites.
The woman next to him was one girlfriend in a web of sidepieces and flings. A welcome distraction after days of endless research and analysis, shorting and maneuvering. He wondered what she would say if he told her that he’d made $14 million dollars today.
It wouldn’t be easy to sleep, but Jesse knew that he should at least try. Tomorrow was bound to be another big day on Wall Street. Overdressed cheerleaders like Charlie Mitchell might be trying to convince people that Black Thursday was rock bottom – but Jesse knew better. This was only the beginning. And he had the short positions to prove it.
Maybe he was wrong though? It’s not like he hadn’t been wrong before, in the market or otherwise. He’d been bankrupted by bad deals and swindles by shady partners. Even his marriages had been a string of poor investments. Dotsie was probably on her fifth glass of wine at the Evermore mansion in Great Neck. It was only 45 minutes away by car, but for all Jesse cared, Dots might as well have been on the other side of the world.
His mind turned back to his short positions.
The bankers pool organized by JP Morgan had saved the day, reversing six billion in losses to “only” 3 billion. Jesse’s gains might have been much larger had it not been for that little display. It was a band-aid on a bullet wound though. The bankers were trying to shepherd a panicked herd of investors along the edge of a very steep cliff. Only time would tell if they would keep their nerve enough to safely navigate.
If Jesse felt any twinge of guilt or remorse at profiting so heavily from the loss of so many others, millions of people, he pushed those feelings deep down. What was he supposed to do, go down in flames with all the rest of them? People who had been living in a fantasy world and were now paying the price? No – this was inevitable; and he was simply making the smart play.
As Jesse observed: “Gravity works in the market as well as in science.”
But there was still plenty of work to do. It wasn’t just a matter of betting that everything would go down. The waves of this panic would rise and fall and crash in unpredictable ways. Knowing which stocks would drop and recover and WHEN – that was a matter of pure intuition.
Tomorrow, the Crash would continue. And the next day. And the day after that, and the day after that. Even Jesse Livermore could not fathom just how bad things were about to get.
----- MUSIC BREAK ---
There are many myths surrounding the 1929 Stock Market Crash, but one of the most persistent is that it triggered a suicide epidemic.
Stop any random person on the street and ask them what they know about the Great Crash,
and you’re very likely to get an answer about ruined investors jumping off tall buildings to their deaths after losing everything in the stock market.
It’s an iconic visual, and not for nothing. There’s a very famous cartoon – you’ve probably seen it, but I’ll be sure to post it on the show’s social channels. The cartoon shows destitute stock brokers calmly forming a line to throw themselves out the window. The artist even included a sign that says “Line forms on the right”. And this cartoon was drawn – IN 1929.
So from the jump, pardon the pun, this visual has been intertwined with the mythology of the Great Crash.
And like all myths, it has its roots in fact. We’ve already heard the sad story of Edward Stone, who lost $5 million on Black Thursday and tried to throw himself out a 20-story window in front of his wife and daughter. Thankfully, Edith and Mabel were able to snap him out of it before he could do the deed.
Others were not so lucky. The next day, a Chicago real estate investor stuck his head in an oven. Another man shot himself in Kansas City a few days later. In Scranton, Pennsylvania, a civil engineer lit himself on fire and burned to death. In St Louis, a stock broker downed a bellyful of poison. Another man left a suicide note that said: “My body should go to science, my soul to the Secretary of Treasury, and sympathy to my creditors.”
But these colorful cases were the exceptions rather than the rule. The Great Crash did not trigger any substantial wave of suicides. But why is that perception so hard to shake? Well - the origin of the myth appears to come from a handful of contemporary comedians. Specifically, a vaudevillian by the name of Eddie Cantor.
In his day, Eddie Cantor was a hugely popular performer. He’d come up on Broadway, singing, dancing and performing in shows like the Ziegfeld Follies – in fact, there’s a pretty decent chance he knew Dotsie Livermore in her hip-shaking glory days. By 1929, Eddie was a huge star. But even huge stars are not immune to bad financial decisions, and just like everybody else, Eddie got swept up in the stock market hysteria of the Roaring 20s. So, when Black Thursday came around, he got wiped out with all the other suckers.
But one man’s misery, is another man’s material; And Eddie Cantor made comedic hay out of his own stock market woes. On Sunday evening, October 27th , three days after Black Thursday, Eddie was performing as the master of ceremonies at the annual Jewish Theatrical Guild meeting in New York. Like any good comedian, he couldn’t resist the opportunity to do some topical riffing.
He told the crowd: “If the stock market goes any lower, I know thousands of married men who are going to leave their sweethearts and go back to their wives. As for myself, I am not worried. My broker is going to carry me; he and three other pall bearers.”
Another joke he told around the time was: “Well, folks, they got me in the market just as they got everybody else. In fact they’re not calling it the stock market any longer. It’s called the stuck market. Everyone is stuck. Well, except my uncle. He got a good break. He died in September. Poor fellow had diabetes at forty-five. That’s nothing. I had Chrysler at a hundred and ten.’
But Eddie told another infamous joke, one that is very likely to be the origin of the ‘suicidal stock broker’ myth: “Yesterday I went to a hotel in New York and asked for a room on the nineteenth floor. The clerk looked up at me and asked: ‘What for? Sleeping or jumping?’”
Of course, Wall Street has always been a fruitful ground for comedy. As Mark Twain himself wrote way back in 1894: “October, this is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”
But suffice to say, most people were not laughing in the aftermath of Black Thursday. In particular, our old friend Sunshine Charlie Mitchell.
That night, Charlie sat at home, stewing with anxiety. On most days, Charlie was a chatterbox, a “genial extrovert” as one historian put it. But today, he was silent and angry, lost in a labyrinth of his own thoughts. A stock market crash is never convenient, but for Charlie and his bank, National City, Black Thursday had come at literally the most inopportune time possible.
For months, Charlie had been working on a pet project. It would be his crowning achievement; the jewel in the golden scepter he wielded as America’s favorite banker. For months, Charlie Mitchell had been negotiating a merger with another bank, an institution called the Corn Exchange Bank and Trust Company. The name was silly, but this deal was no joke. If this merger went through, and National City absorbed the new holdings, Charlie Mitchell would become the chief executive of, in his own words: “not only . . . the largest and most powerful, but the most solid institution in the world.”
In early October, the ink was all but dry. The last step in the process was a formal approval by the bank’s shareholders, and they all were very, very excited about the merger. As John Kenneth Galbraith elaborates:
Holders of Com Exchange stock were to receive, at their option, four-fifths of a share of National City stock or $360 in cash. The price of National City stock was then above 500, so it was certain that the Com Exchange stockholders would take the stock.
Then came the crash.
Sunshine Charlie watched in horror as National City’s stock price went down and down and down. 500 a share, 450 a share, 425 a share. All of a sudden, stock in National City was worth less than the optional cash payout Corn Exchange shareholders were being offered. If that decline continued, National City might have to pay out $200 million in cash to investors – which it absolutely could not afford.
The only option, it seemed, was to kill the merger.
But Sunshine Charlie could not – would not, let his dream die. This was the apogee of his ambition – his big moment. This wasn’t just the culmination of a few months of merger negotiations, this was going to be the defining legacy of his career. He could not let them take this from him. He had to save the merger – but how? Well, he needed to get National City’s stock price back up to its formerly inflated level.
In the gloom of his office, a lightbulb went off in Charlie’s mind.
The next day - Friday October 25th – the New York Stock Exchange opened surprisingly strong after the Thursday bloodbath. Like a pair of flimsy oars in a hurricane, the market held firm – but barely. The next day, Saturday was another disorienting combination of minimal losses and high anxiety. Still, it was a relief after the nightmarish selling on Black Thursday. As Galbraith writes:
Not only were things better, but everyone was clear as to who had made them so. The bankers had shown both their coin-age and their power, and the people applauded warmly and generously. The financial community, the Times said, now felt “secure in the knowledge that the most powerful banks in the country stood ready to prevent a recurrence [of panic].” As a result it had “relaxed its anxiety.” Perhaps never before or since have so many people taken the measure of economic prospects and found them so favorable as in the two days following the Thursday disaster.”
The stock exchange, as per usual, was closed on Sunday. Churches were packed and prayers were piling up at the pearly gates, begging for a much-needed market rally. Because the next day - Monday, October 28th - that would be a clear indicator as to whether Black Thursday had been a horrific fluke, or a sign of things to come. And so, America held its breath.
As you may have guessed, the New York Stock Exchange opened with a historically bad ‘case of the Mondays’. According to Karen Blumenthal:
Immediately after the opening gong, prices started to drop again. As on Thursday, the trading was fierce and downward. But this day had a different feel. Huge blocks of thousands of shares were changing hands, not little groups of one hundred or two hundred shares. While the small, lesser-known issues were particularly beat up last week, today the blue chips, the best of the best, were getting whacked. The stocks of U.S. Steel, American Telephone & Telegraph, and General Electric, the most seasoned of companies, tumbled. The little guys were wiped out the week before. Now, the big players were joining the panic. The decline was gathering steam.”
It was, as Scott Nations puts it, “a disaster”.
No stock was safe from ruinous collapse. According to Maury Klein: “Speculative favorites, blue chips, banks, utilities, investment trusts—all dropped through low levels no one dreamed they would break”. By 1PM, the ticker was two hours behind again. The same infectious cloud of panic that had enveloped the market on Black Thursday had returned with a vengeance.
But then, just after lunch, a ray of hope broke through the clouds.
The reporters and crowds on Wall Street saw a man marching down the street towards the offices of JP Morgan. It was the one, the only Sunshine Charlie Mitchell. Relief and reverence swept through the crowds. Sunshine Charlie was back with a vengeance too! He was obviously going to JP Morgan to rally another round of organized support, a banker’s pool that would yet again stem the tide and save the stock market.
Charlie waved at the crowds and smiled, and then disappeared into the unmarked offices of JP Morgan. But what the people did not know, was that Charlie was not there to help any of them. He was not there for another Avengers Assemble moment with the banking elite. Those times were long gone. In fact the opposite was happening, most big banks were calling in their loans, trying to save themselves, which in turn pushed the prices down further as accounts were liquidated from Texas to Toronto.
The stock market was collapsing, nothing could stop that now.
Sunshine Charlie was at JP Morgan at that afternoon to ask for a personal loan of $12 million dollars. To save the merger that would make National City Bank the largest financial institution in the world, Charlie decided he would personally buy millions and millions of dollars of National City stock in an effort to keep the share price at an acceptable level.
From JP Morgan’s perspective, it was an incredibly risky loan. But banking is about relationships, and Charlie had an excellent relationship with the boys at 23 Wall Street. As JP Morgan Jr himself said of Charlie and the rest at National City Bank: “They are friends of ours, and we know that they are good, sound, straight fellows.”
So, around 1:30, Charlie left the offices of JP Morgan with a smile on his face, confident that his bank’s stock would live to fight another day. The rest of the country did not have such well-placed friends. No cavalry was coming this time. And when the closing bell rang at 3pm, the butcher’s bill was jaw-dropping. As Thomas and Morgan-Witts write:
9,212,800 shares had been traded. It was less than on Black Thursday. But the fall in prices was far more severe: The Times general average of stocks was down 29 points. This was the largest drop in prices during any day in the entire history of the New York Stock Exchange. All told, securities had fallen in value an estimated $14 billion.
Monday, October 28th was the worst day in the history of Wall Street.
Or at least it was… for 24 hours. The next day, Black Tuesday, would surpass any and all conceivable thresholds of what Wall Street thought possible. The morale of American investors was already beaten, bruised and bloodied. Tuesday October 29th, would snap that resolve with such traumatic force that the market would not recover for another 20 years.
On the eve of Black Tuesday, the employees of the New York Stock Exchange were still reeling from the events of the day, working late into the night to process the avalanche of orders that had clogged the wires during the trading day. Wall Street had descended into a surreal state of anarchy and disorder. As a contemporary reporter named John Leonard described:
“That night Wall Street was lit up like a Christmas tree. Restaurants, barber shops, and speakeasies were open and doing a roaring business. Messenger boys and runners raced through the streets whooping and singing at the tops of their lungs. Slum children invaded the district to play with balls of ticker tape. Well-dressed gentlemen fell asleep in lunch counters. All the downtown hotels, rooming houses, even flophouses were full of financial employees who usually slept in the Bronx. It was probably Wall Street's worst night. Not only had the day been bad, but everybody down to the youngest office boy had a pretty good idea of what was going to happen tomorrow.”
The worst was yet to come. As John Kenneth Galbraith writes:
The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune.
Bright and early the next morning, on Tuesday October 29th, our favorite shoe-shine boy Pat Bologna was riding the subway down to the financial district. Looking around at the other Wall Street-bound passengers – the brokers, clerks, and bank employees - Bologna saw what can only be described as a group of zombies: “People who had battled through Thursday’s Crash, who had been hit again hard by Monday’s break, looked like they couldn’t take any more. They were at the end of their resistance.” He compared the subway car to Titanic, headed inexorably toward disaster.
The mood was equally grim on the floor of the New York Stock Exchange.
Mike Meehan, the veteran broker who had made his fortune betting big on radio, and kept it by operating shady pools, was dressed to the nines on Black Tuesday. With his crisp blue suit, pearl tie pin and freshly polished shoes, he looked, according to another broker, “like several million dollars—or a man going to a funeral.” Meehan’s staff was supposed to have resembled “the defenders of the Alamo as they waited to be overrun.”
Up the street at National City Bank headquarters, Sunshine Charlie was quietly preparing to buy as much of his own bank’s stock as possible with the $12 million dollar loan he’d received from his buddies at JP Morgan.
And uptown, at his 18th floor command center on Fifth Avenue, Jesse Livermore was holding his breath, waiting to see if the market would do what he’d bet his entire fortune and reputation that it would do. For Jesse, it would be the single most profitable day of his life; for the rest of America, it would be something else entirely. As John Kenneth Galbraith writes:
Tuesday, October 29, was the most devastating day in the history of the New York stock market, and it may have been the most devastating day in the history of markets. It combined all of the bad features of all of the bad days before.
Within the first 30 minutes of the trading day, over 3.5 million shares had been sold and $2 billion dollars of wealth had vanished into thin air. The disaster-machine was self-sustaining now. As Galbraith writes:
The market had reasserted itself as an impersonal force beyond the power of any person to control, and, while this is the way markets are supposed to be, it was horrible.
The Vice President of the New York Stock Exchange, Richard Whitney could only sit back and marvel at the sheer financial violence of the selling-spree: “The liquidation in the stock market was on so vast a scale as to parallel a war calamity.”
The immense scale of the trading threatened to completely destroy the Exchanges’ communications system, the hundreds of miles of wires and electrical infrastructure that allowed the brokers to process the orders. By mid-morning, trans-Atlantic calls had doubled and the system was bottle-necking. As one witness said it was like “trying to force a gallon of water into a quart bottle.” All the while, stocks continued to “tumble into a seemingly bottomless pit” as one reporter put it.
And the misery was not confined to Manhattan. The Montreal and Toronto stock exchanges collapsed in tandem. The smaller exchanges in Chicago, Boston, Philly, and San Francisco suffered grievous wounds as well. The Roaring 20s - the age of prosperity - was officially over. As one historian wrote:
“On the day the bubble burst, the land was dotted with houses bought on part payments; cars bought on credit; clothes, jewelry, vacations, luxury goods of every kind acquired on the promise to pay in the future—often when stock profits came in. Now, for too many, the money would never come.
Thomas and Morgan-Witts write that in Flint, Michigan, witnesses saw men “wailing like lunatics, saying they wished the motor car had never been invented. They were ruined from their losses in General Motors. Outside brokerage offices there were lines of “white-faced men who already knew what misery lay ahead.”
One of those white-faced men back in New York was the bootblack Pat Bologna.
When the market opened and the evisceration continued, Bologna decided it was time to get the hell out. When he finally managed to get a broker on the phone, he learned that the $5000 he had saved over the past several years had dwindled to a mere $1700. He considered himself lucky to have made it out with anything at all.
Up the block, Sunshine Charlie was not feeling so glass-half-full. The stock price of National City Bank had continued its downward spiral. All the money he’d personally borrowed from JP Morgan to keep the price afloat – it had done nothing to buoy the stock. A few weeks earlier, National City’s stock had been sitting well above 500 a share. Now it was only worth $300 a share.
His merger – his baby – was toast. Sunshine Charlie ended Black Tuesday angry, scowling and in astronomical debt. For years he had tried to be the captain of the eternal bull market, to spur it on to new heights of prosperity. Now he was a passenger, a witness, a victim - just like everyone else.
7 miles uptown on Fifth Avenue, Jesse Livermore was so exhausted he could barely stand. All day, he had watched the stock market continue its collapse, just as he had predicted. The phones had been ringing off the hook all day long as Jesse’s staff navigated the rolling waves of selling and buying. But his shorts had been well-placed, and when his secretary placed the final profit tally on his desk that evening – it finally hit him. As biographer Tom Rubython writes: “He already knew to the last cent what the figure was, but seeing it on paper was truly surreal.”
That day alone, Jesse had made “a reported $66 million profit to bring his total gain for the week at $93 million. Adding in the other smaller gains he had made in September and early October, his total profits exceeded $100 million. His profit on Black Tuesday was believed to be the second biggest single day profit of anyone in history.”
Jesse looked at his watch. It was 9 o’clock.
It’s easy to imagine a playboy like Livermore ordering a magnum of champagne, a curvaceous call-girl and roaring off into the night in his yellow Rolls Royce. He had more money than God, and most men in his position would want to celebrate the historical achievement.
But Jesse, just wanted to go home.
After days in the trenches, he just wanted to see his wife and kids, strained as the marriage might be. He wanted to put his feet up at the house in Great Neck, pet his dog, and begin digesting what had just happened. Not only to him, but to the country. As Rubython writes:
“When he got home, his wife Dorothy and the children greeted him at the door in tears and Dorothy’s mother was wailing in the background. They had heard the news on the radio about the market crash and that many leading investors had been ruined. Dorothy assumed her husband had been one of them. She was getting ready to hear her husband say that they would have to leave their houses, sell the cars and yachts and return to living in a modest rented apartment in the city. Livermore took a few seconds to understand what was happening and when he grasped it he quickly explained to a stunned Dorothy that, far from being ruined, they were now richer than anyone could believe. What he was saying took a few minutes for her to absorb and she said to him: “You mean we are not ruined?”
He replied: “No darling, I have just had my best ever trading day – we are fabulously rich and can do whatever we like.”
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Before we jump back into the story, I wanted to take a quick pause for what you might call an intermission.
Not only to just step back and breathe after the traumatic events of the Great Crash, but to also let you guys know about something special I put together for you. The story of the Stock Market Crash of 1929 is SO big, and SO complex, and SO multi-faceted, that to have any sense of narrative cohesion, we can only really glimpse it through a handful of perspectives.
The unfortunate side effect of that, however, is that a lot of stuff ends up on the cutting room floor. To keep the main narrative brisk and focused, I had to leave out some really amazing side-stories, B-plots, and supporting characters.
One of those stories involved a group of small-time embezzlers at a bank in Flint, Michigan. These guys and what they did are absolutely infamous in the mythology of the Crash, and I tried to incorporate them in some way over the course of the last 3 episodes – but it just wasn’t happening, it wasn’t working.
So instead of simply leaving it on the cutting room floor, I decided to record a short bonus episode that tells that story. And as a special ‘thank you’ for your time and your patience, that bonus episode is live and completely free on the show’s Patreon right now.
So, when you get done with Part 3 of this series, and you’re craving a little more Conflicted, head to patreon.com/conflictedhistorypodcast and enjoy that free bonus episode. I don’t do Bonus episodes that often, but I felt compelled to share this one with you. It’s too good of a story to leave languishing in a drafts folder. I hope you enjoy it.
Now with all that said, let’s continue our story. The stock market may have crashed and burned, but the tale is far from over. Someone has to pay for this calamity. Someone needs to see their day in court. But who deserves the blame for such a far-reaching catastrophe? Sunshine Charlie Mitchell? Montagu Norman? Ben Strong? Jesse Livermore? Herbert Hoover?
Well, put on your suits and open your briefcases. We are now entering the courtroom drama phase of today’s episode.
*LAW & ORDER sound effect*
And it begins like all good courtroom dramas do….
With a lawyer.
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It’s 1888. 40 years before the Great Crash.
We’re in New York City, in the Chelsea neighborhood on the west side of Manhattan.
And at Public School 55, there’s a new kid in class.
As the teacher, an imperious woman named Miss Anderson, called roll that morning – the students names sounded straight out of a Dublin phonebook: Murphy, Doyle, Byrne, Kelly, O’Connor. At the time, Chelsea was an Irish majority neighborhood, and the students at Public School 55 reflected that demography.
But as she made her way down the list of students’ names, Miss Andersen arrived at a name she did not know how to pronounce. P-E-C-O-R-A. Pecora? Pee-cora?
The student the name belonged to was a small, six-year-old boy. Every other kid in the class had an Irish heritage and the pink skin to prove it. But this little boy had the dark, olive skin of a Sicilian. He stuck out like a sore thumb.
Miss Andersen made eye contact with the little boy and asked him his name. He didn’t speak English very well, but he said his name was Ferdinand Pe’cora. The exotic pronunciation tied Miss Andersen’s tongue into knots, and she told little Ferdinand that his name didn’t sound “euphonious”. When little Ferdinand stuttered out a protest, Miss Andersen cut him off:
“Well, it’s easier to say Pe-coŕ-a than Peć-or-a.”
From that moment on, Ferdinand Pecora was his name. 40 years in the future, it was a name that would send Wall Street bankers into a cold sweat. There was no way for her to know at the time, but Miss Anderson was teaching English to a kid that would go on to become known as The Hellhound of Wall Street, a crusading lawyer who would forever change the landscape of American banking.
But for now, six-year-old Ferdinand’s most pressing concern was making some friends at Public School 55. For the only Sicilian in a predominantly Irish school, that was easier said than done.
In 1888, Ferdinand and his family were literally fresh off the boat. Hailing from a small town in Sicily, the Pecoras had made their way to America in 1886, the very same year the Statue of Liberty was dedicated. It was an immigration of necessity. Back home, the Pecoras were outcasts – Protestant heathens in a majority Catholic country. When Ferdinand’s Dad settled his family in the Irish neighborhood of Chelsea, he thought he would be in the comfortable bosom of fellow Protestants. He was wrong.
It’s difficult to overstate the racial hostility that Italians faced in America in the late 19th and early 20th centuries. But to give you an idea, let’s take a brief tour of some of the things that were being said about Italian-Americans in print at the time.
The New York Times wrote in 1886: “There has never been since New York was founded, so low and ignorant a class among the immigrants who poured in here as the Southern Italians who have been crowding our docks during the past year.” Italians were, the Times continued: “not Americans, but the very scum and offal of Europe.”
Six-year-old Ferdinand and his family were nothing more than: “sneaking and cowardly Sicilians, the descendants of bandits and assassins, who have transported to this country the lawless passions, the cutthroat practices, and the oath-bound societies of their native country, [who] are to us a pest without mitigations. Our own rattlesnakes are as good citizens as they.”
That was the vibe up North, and things were predictably much worse for Italians down South. As Michael Perino notes: “olive-skinned Southern Italians like Ferdinand were not considered “white,” and in the South they could not attend white schools.” In New Orleans, eleven Italian immigrants were lynched in the mid 1890s. The local paper commented simply that “Desperate diseases required desperate remedies.”
But regardless of the racial animosity Ferdinand Pecora was facing, he did not retreat into fear and resentment. At about the same time 14-year-old Jesse Livermore snuck off his family’s corn farm outside of Boston, 9-year-old Ferdinand Pecora was throwing himself headfirst into his studies. He particularly loved drama and acting; his favorite play was Shakespeare’s take on another famous Italian, Julius Caesar.
But it wasn’t easy in those early days. Pecora was an outcast among Italians and the Irish alike. Hated for his Protestant faith by his countrymen, and despised for his olive skin by his classmates. Pecora had little choice but to find a different way forward. As Michael Perino writes:
“When he was young he was embarrassed at being Italian. Pecora simply wanted to fit in, to shed his foreignness, to become an American like everyone else.”[…]
“If most people thought Italians were unintelligent, he would excel in school. If most thought Italians lazy, he would be industrious. If most thought they were lawless, he would become a lawyer”
By 1918, after years of odd jobs, relentless studying and contentious stints in local politics, Ferdinand Pecora was sworn in as a deputy assistant district attorney at the age of 34.
The shy six-year-old from Miss Andersen’s classroom was long gone, and in his place was a confident, gregarious lawyer who could move through courtroom intrigues like a fish through water. And he.could.talk.As one colleague remembered: “Pecora was one of the most long-winded men God ever made.”
In his single-minded pursuit to be seen as an American first and an Italian second, Pecora had left the florid accent of the old country behind, according to Michael Perino:
“He had perfected the mid-Atlantic accent of a well-educated, upper-class, urbane American; indeed, his tones and cadences were remarkably similar to Franklin Roosevelt’s.”
But behind the well-manicured speaking style was a clockwork mind, perfectly suited for the rigors of prosecutorial work. As Perino describes:
Pecora had a prodigious memory; he seemed to remember every word of testimony and every piece of evidence. That gift allowed him to pounce on witnesses who tried, however subtly, to change their answers. With his love of acting clearly at work, he could assume various guises while questioning a witness. Mostly he was polite, even courtly; but when called for, he could quickly and effortlessly shift from friendly and innocuously curious to belligerent and sarcastic. He would doggedly ask the same question again and again until the witness finally conceded his point, and he would not hold back when confronting the rich and powerful.
Right away, Pecora established himself as a tenacious investigator, bent on finding the truth, even if it was inconvenient for important people. As he commented later: “I was never consciously overawed by being suddenly brought among persons whose names meant something,”
One of his first cases involved a young black man named Malcolm Wright. Wright had been accused of robbing two women in broad daylight on 125th street. The two women identified Wright as the man who had robbed them, and Wright’s alibi was weak by comparison. It was an open-and-shut case. It only took the jury an hour to come back with a guilty verdict.
But to Pecora, something felt off.
The case gave him a “weird feeling”. So the next day, he brought Malcom Wright into his office for a face-to-face. In the absence of a hostile courtroom atmosphere, Wright told Pecora the full story. He had been picked up by detectives a few days after the robbery and when he protested innocence, the detective replied: “Well, maybe you’re right, but it will cost you $100 if you want me to believe it.”
Wright did not have 100 bucks, so he went to jail. It was pay-to-play bribery. “Blatant police criminality”, one historian called it. And now Wright was facing 20 years in prison. Pecora decided to dig deeper into the Wright case, and called one of the women who had identified Wright as the robber into his office. He said to her:
You look like the type of woman that wouldn’t want to see anyone sentenced unjustly. Please think this over very carefully. I’m not going to ask you any questions for a few minutes. You just sit there and consult your own thoughts and then let me know if the story you’ve told, and the testimony you gave on the stand, was the truth.”
Seconds later, the woman burst into ugly sobs. She admitted that Wright had not robbed her at all; she had been pressured by the police to identify him as a quick-and-easy culprit. Pecora took this new evidence back to the judge, and Malcolm Wright was acquitted. As Michael Perino writes: “Prosecutors often say that their job is not to obtain convictions, but to see that justice is done. Pecora actually meant it.”
Pecora’s fame as an uncompromising crusader continued to grow.
A few years later, he took on a wrongful prosecution case in which a local poultry dealer named Joseph Cohen had been sentenced to death for allegedly hiring an assassin to kill a business rival. It took 18 months, but Pecora eventually uncovered that the conviction was built on perjured testimony. Seven minutes before Cohen was set to be executed, he got a stay of execution thanks to Pecora’s efforts. A few weeks later, a little old lady came to Pecora’s office and started crying and hugging him. It was Cohen’s wife; she said: “I came to thank you for what you have done for my husband.” Pecora called it: “the biggest fee I ever received as a lawyer”.
Throughout the Roaring 20s, Ferdinand Pecora sharpened his trade and sniffed out wrongdoing for the state of New York. Eventually, he got it into his head that he could do the most good at the top of the pyramid as District Attorney. But sadly for Pecora, his talents in the courtroom did not extend to the ballot box. After he lost his race in 1929, he retired from public service altogether and joined a private law firm. He was bored out of his skull:
“There isn’t much occasion, [in private practice] for a lawyer to take part in any kind of litigation that is in any way out of the ordinary.”
In 1932, Ferdinand Pecora was in his early 50s and looking for a new challenge. He was about to get it.
SHORES OF DEPRESSION
While Pecora’s formidable talents were wasting away in a private practice, the United States was slipping into a full-blown depression in the aftermath of the October Crash.
Now - it’s important to take a second to point out that the vast majority of modern historians and economists do not believe that the Stock Market Crash of 1929 directly caused the Great Depression. There were many factors outside of Wall Street that contributed to the collapse of the American economy. But still, the crash was a mortal blow to the unbridled optimism of the 1920s. As Karen Blumenthal points out:
Though it wasn’t the single cause or even the main cause of the Depression, those six days in October became the turning point, the defining moment, when good times gave way to bad. After the crash, American life would never be the same.
To some, it seemed like a crash was divine judgement after the hedonism of the Roaring 20s. As John Kenneh Galbraith observes:
“A great many people have always felt that a depression was inevitable in the thirties. There had been (at least) seven good years; now by an occult or biblical law of compensation there would have to be seven bad ones.”
It was the end of an era, as historian Maury Klein points out in his book, Rainbow’s End:
“At the time, what the crash did above all else was to transform the “irrational exuberance” of Americans into a grimmer, more sober outlook. The rainbow had vanished, and with it the enticing pot of gold that shimmered just beyond the horizon. The New Era became a figment of someone’s imagination as once again it became painfully clear that good times do not last forever.”
“Farewell has been said to an illusion….”, wrote the Wall Street Journal. But contrary to popular perception, the Crash did not usher in a Depression overnight. As historian Charles R. Morris puts it:
“Timelines are compressed by historical memory. The American story therefore becomes: the stock market crashed, and the Great Depression ensued. But that’s not how it appeared at the time.”
After October 29th, the corpse of the American bull market kept twitching for months on end, refusing to believe that the good times were really gone. As traumatic as those six days had been, most people envisioned a quick recovery; a return to normalcy. After all, how much worse could it possibly get? As one young investment banker recalled years later: ‘I thought it was temporary. Most people thought it was temporary.’
But the destructive legacy of “buying on margin”, of buying huge amounts of stock with borrowed money, had left a crater in the banking industry. Those loans were never going to be repaid, and the banks themselves started to wonder how they were going to stay in business. As one historian elaborates:
“Without the return of borrowed money, banks began to feel the pinch and remaining solvent for day-to-day activities became an issue. Some banks were forced to close because of the shortfall. As news and rumors swirled about the health of the banking industry, more and more people lost faith in their respective banks and started to withdraw their money. It was a destructive cycle. The more people that ran to the banks, wanting their money they thought was safe, caused more banks to fail. By 1932, more than 5,000 banks had failed. The run on the banks accelerated the downward spiral of the economy. Spending had already been slower, but now with entire life savings wiped out, discretionary spending was all but non-existent.”
Just as the Crash had been precipitated by psychological factors, so to was the Depression. As Karen Blumenthal writes: “When savings could disappear just as easily in a bank as in the stock market, no place seemed safe for hard-earned money.”
With discretionary spending all but frozen, the layoffs at large companies began. No jobs, no money, no spending to bring back jobs – it was an ouroboros of poverty – a snake eating its tail. And before long, everyone was feeling the squeeze. As Gordon Thomas and Max Morgan-Witts write:
Across the nation cars stood idle because their owners could not afford to run them. The price of Texas oil dropped to four cents a barrel.
Newspapers disconnected electric clocks to save current. Paper mills requested employees to use wood shavings for toilet purposes.
Conrad Hilton [of Hilton Hotels] offered long-staying guests hotel rooms at rates below actual running cost, closed whole floors to save heat, removed guest telephones to save fifteen cents a month in rental charges, and ordered clerks to dole out stationery sheet by sheet. The Plaza Hotel, where so many stock market deals had been discussed, could no longer afford to clean its marble, tapestries, bronze, and the panels in the Oak Room.
Unemployment skyrocketed. By 1933, 13 million people were out of work; one out of every four workers. Historian Michael Perino elaborates:
In Chicago, crowds fought over the garbage bins behind restaurants. In the coal fields of Appalachia, miners were earning less than $2.50 a day and were lucky if they could work three days a week. Hunger was a constant presence, with most diets consisting of little more than beans and bread. When one schoolteacher in an impoverished mining camp told a faint young girl to go home to eat, she replied, “It won’t do any good . . . because this is my sister’s day to eat.”
As the famous comedian Groucho Marx joked later in life, “Times got so rough, the pigeons started feeding the people in Central Park.”
The government tried to help, but its efforts were misguided at best and mismanaged at worst. One of the more striking examples was an income tax cut. As one historian observed: “It gave a man supporting a family of two children on $4,000 a year a full $6 a year extra to spend.”
As for the stock market itself, the magnitude of the losses were catastrophic. John Kenneth Galbraith writes:
U.S. Steel on July 8,  reached a low of 22. On September 3, 1929, it had sold as high as 262. General Motors was a bargain at 8 on July 8, down from 73 on September 3, 1929. Montgomery Ward was 4, down from 138. Tel and Tel was 72, and on September 3, 1929, it had sold at 304. Anaconda sold at 4 on July 8. The Commercial and Financial Chronicle observed that “the copper shares are so low that their fluctuations are of little consequence.”
And one mind-blowing statistic from Thomas and Morgan-Witts really drives the point home: “In the five hours the market had gone mad on October 29, it was later estimated that almost as much money in capital value vanished into thin air as the United States had spent on World War I. The loss was around ten times the budget of the Union in the entire Civil War.”
But the most visceral indicator of the stock market’s implosion was the complete lack of activity of the nation’s stock tickers. In the late 20s, they had been clacking ‘round the clock. The week of the Crash, they had been hours behind because of the volume, but now…as Maury Klein describes: “On 1930’s second day of trading, the ticker paused at times for full minutes “out of sheer lack of something to print.”
As the banks failed, businesses closed, and bread lines snaked around the corner, anger was rising in America. Someone had to answer for this. Someone had to pay. In Washington, angry eyes began turning towards the high priests of Wall Street.
At the time, the New York Stock Exchange was almost completely unregulated. According to one historian:
Unshackled by any sort of public regulation, and governed by rules of its own devising, it was fully capable of summarily changing those rules to its own advantage, carrying on vindictive vendettas, and explaining itself to the public in terms so patently preposterous as to seem to express contempt.”
Bankers and brokers had once been the rock stars, the celebrities, the folk heroes to look up to and emulate. Now they were public enemy #1. In March of 1932, the U.S. Senate authorized an official investigation into Wall Street in general and the ’29 Crash in particular.
But, then as now, high-profile commissions and investigations tend to quickly devolve into empty exercises in political theatre. A way for politicians to raise their national profile, get a juicy soundbite, with very little interest in anything resembling lasting change. One cynical observer wrote at the time: “There will always be committees. Some persons whose daily prayer will be, ‘Lord, let the limelight shine on me, just for the day.’
As the investigation rumbled to life and the committee assembled, the Wall Street elite were not concerned in the slightest. One congressional staffer said grimly: “I am reliably informed that Wall St. and the Exchange are well satisfied and believe nothing will be done.”
And for the better part of a year, they were right. The investigation was aimless, ill-informed, and badly managed. The public was pissed-off and itching for accountability, but the commission’s investigators seemed unable to glean any actionable information from these bankers. Nothing that could move the needle or necessitate real reform. It was all “a pipe dream”, as one historian put it.
What the investigation needed was a good lawyer. One who didn’t care about people in high places or what they wanted. A person who pursued the truth for its own sake. Who could tie even the slipperiest vipers into verbal knots.
In January of 1933, a phone rang in an apartment in New York.
Ferdinand Pecora picked it up. The voice on the other end belonged to a Senator Peter Norbeck. He said he wanted to offer Pecora a job. It was a government gig, so it couldn’t pay much. Just $255 a week. Pecora asked what the Senator and the committee wanted him to do. The answer was simple, even if the task wasn’t.
They wanted the best cross-examiner in New York to take down the crooks on Wall Street.
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It’s Friday, September 16th, 1932.
We’re in a small courthouse in Reno, Nevada.
As the judge flips through his notes and prepares for the next case on the docket, something catches his eye. Hundreds of people came through this courthouse every day, forgettable people with forgettable problems and forgettable names.
But the next name on the docket, the judge recognized immediately. It was a famous name. A celebrity name. A name that belonged to one of the top ten richest men in the world.
Sure enough, the judge looked up to see Jesse Livermore and his wife Dotsie walking into the room side-by-side. And then he watched them separate, and take their places in the opposing plaintiff and defendant positions.
The Livermores were finally getting a divorce.
That morning, Jesse had gotten on a plane in New York. Long distance commercial air travel cost a pretty penny in those days, but for a man with as much money as Jesse Livermore, it was a pittance. A small price to pay to close an ugly chapter in his life. When he touched down, he took a car straight to the Reno courthouse.
Dotsie was waiting for him there. Any affection or tenderness she had once had for Jesse was gone. She could barely even look at him. As for Jesse, he just wanted this whole thing to be over with. As they stood in the Reno courthouse, listening to the judge finalize the details of their divorce, Jesse looked over at Dotsie. She just looked straight ahead. Staring at the wall.
Jesse couldn’t help but feel a pang of grief for the woman she had once been. The woman he had loved so deeply; The woman with auburn curls and green eyes, who’d given him two sons. The woman he had neglected, cheated on, screamed at, and ignored. The woman who had to be dragged out of his fifth avenue office. Who’d tumbled headfirst into alcoholism. Who finally found a lover of her own, and now wanted to be free of the name “Livermore” forever. As biographer Tom Rubython writes: “Fourteen years of memories flashed through his mind, and he just shook his head at the waste of it all.”
As the judge droned on, Jesse’s mind began to wander.
Three years earlier, when he’d arrived home on the night of October 29th, 1929….Jesse felt like the luckiest guy on Wall Street. He’d turned the greatest financial calamity of the modern era into his biggest payday ever – and he had the $100 million in his bank account to prove it.
He went to bed that night one of the richest people in the world - in the history of the world. But when he woke up the next morning, the problems really began. As Rubython observes: “From 1930 onwards, it seemed that Jesse Livermore single-handedly set out to prove the old adage “money does not buy happiness”.
Even in the best of times, when you make lots and lots of money, people tend to get jealous. But when you make an insane amount of money while everyone around you is going broke, people get angry.
Most assumed that Jesse had come by his riches dishonestly. The rumor mill raged and churned - accusing him of insider trading, bribery, fraud – every financial crime under the sun. Livermore had sold America short, they said. Some went so far as to say that his short-selling antics had contributed to the market’s downfall. The Great Bear of Wall Street, they said, had been rooting for the American bull market to fail. And now the craven, womanizing miser was counting his riches like the dragon Smaug at his sprawling mansion in Great Neck.
He was obscenely rich when everyone else was dirt poor – and they hated him for it. It wasn’t long before that hatred manifested in some scary ways. As one historian explains:
Livermore received scores of extortion notes, intimidation letters, and death threats. Fearing for his and his family's safety, he hired a crew of armed bodyguards to escort them to and from all public places. […] Livermore reportedly hired a five-man jazz band who discreetly carried pistols and machine guns in their instrument cases and were tasked with accompanying his family to restaurants, shopping centers, night clubs, and other high-profile locations.
As the mailbox at Great Neck filled with death threats, and even a simple night out became a life-or-death affair, Jesse and Dotsie started fighting more and more and more. The atmosphere of stress and anger took a terrible toll on their two adolescent sons, Jesse Jr and Paul. The boys spent most months tucked away at an upstate boarding school, weathering insults and wedgies from bullies who called their Dad a cheat and a traitor to his country. On the rare occasions when the family was together, Dotsie was usually drunk to the point of belligerence.
At some point in 1931, Dotsie packed her bags, loaded the boys up in the car and moved out to Reno to live full-time with her new boyfriend, the Prohibition Agent Walter Longcope.
Jesse found himself living completely alone in the 11-acre waterfront mansion. “Evermore” he’d named the house when he bought it. Now it was just a reminder of his colossal failure as a husband and a father. The implosion of the Livermore family reached its zenith at the small courthouse in Reno in Fall of 1932.
The judge granted the divorce without incident. It was as quick as the legal system could allow, but for Jesse and Dotsie, to even be in the same room was a kind of emotional torture. After the legalese had been finalized, Jesse hopped on a plane and flew back to New York the very same day. As for Dotsie, it wasn’t just her divorce day. It was her wedding day. As biographer Tom Rubython writes:
He had no idea what his wife had planned until he read about it in the next day’s newspapers. Twenty minutes later, she walked back into court arm in arm with Walter Longcope and back in front of [the judge]. She had been single and divorced for less than an hour before she was married again and became Mrs. Walter Longcope.
The final humiliation came a few months later, when Dotsie began auctioning off some of the jewelry Jesse had given her for a fraction of the original price. For her, they were totems of anger and regret, reminders of an awful marriage to an awful man (as she saw him). One of the last items on the auction block was the golden wedding ring Jesse had given her in 1918, engraved with the inscription “Dotsie, forever and ever.” It sold for just $10.
The numbness of depression began to creep into the corners of Jesse’s psyche. But he tried look forward – to the future. His family may have been broken, but his first love, his true love, was still out there.
The stock market was bruised and bloodied, but there was always money to be made, always a trade to sniff out. Jesse had nothing to lose and $100 million to burn – what could go wrong? A contemporary Senator had once famously commented: “There comes a time, when the fun of making money is all gone. . . . The battle is won; the goal is achieved; it is time for something else.” Well, that was not Jesse Livermore’s style. As one historian framed Jesse’s rekindled ambition: “The best decision at that moment would have been to retire.”
As 1932 came to a close, another of our main characters was licking his wounds: Sunshine Charlie Mitchell.
CHARLIE GOES TO COURT
October 29th had been one of the best days of Jesse Livermore’s life. For Sunshine Charlie, it had been one of the worst. A month before the crash, Charlie had been telling everyone that stock were “exceptionally sound” and that the market was in a “healthy condition”. But in the grim hindsight following the October crash, Charlie didn’t just sound incorrect, he sounded delusional and insane.
As Michael Perino writes: “In bad economic times, Americans have traditionally suspected Wall Street’s motives and its morals, but now the country doubted its intelligence, too.”
Like most public figures, opinions on Sunshine Charlie were sharply divided.
Some, like Senator Carter Glass, accused Charlie of being one of the chief architects of the Crash, pointing to his defiance of the Federal Reserve Board in early 1929. Sunshine Charlie, Glass said was “more responsible than all others together for excesses that have resulted in this disaster. […] He defied the board and speeded up the boom. He took a ‘go-to-hell’ attitude toward the Board and got away with it. […] More than any 50 men is responsible for this stock crash.”
Others simply thought Sunshine Charlie was a victim of his own optimism. Sure, he had gotten caught up in the enthusiasm and positivity of the Roaring 20’s – but hadn’t everybody? Charlie, some said, was just as much a victim of the Crash as the millions of investors who’d been wiped out in late October. Charlie certainly thought of himself as a victim. As politicians lashed his reputation in the public square, he felt the country was “crucifying him”.
The New York Times joked that while the lines of unemployed workers were surviving on soup kitchens, Charlie was “subsisting on a diet of crow”.
Initially, there were some calls for Sunshine Charlie to resign from his chief position at National City Bank. He laughed it off, saying a resignation was “too absurd to be considered by any sensible person.” Instead, Sunshine Charlie took the time-honored strategy of waiting out the storm. All these little people, who could not understand or appreciate what he had done for them, after enough time had passed, they’d get over it. Tempers would cool. Passions would calm. People would forget. Just like they always forgot.
He was right; By late 1932, Wall Street’s reputation was still in the gutter, but Sunshine Charlie had returned to his gilded eyrie of prominence and esteem. He advised Herbert Hoover on credit matters. He spearheaded a small-business loan program in New York. He even made a list of the top 60 most influential – positively influential – people in the United States.
He still owed JP Morgan about $6 million of the loan he’d taken out to prop up National City Bank’s stock – but the guys at 23 Wall were good friends. Sunshine Charlie was never going to be strapped for cash. Or wanting for any luxury. While most people in America were struggling to survive, Sunshine Charlie was sipping cocktails on a beach in Bermuda.
But on January 30th, 1933, Charlie received a surprising piece of a mail.
It was a subpoena. From some small-time immigrant lawyer named Ferdinand Pecora. The subpoena required Charles. E. Mitchell to appear before the Senate Committee in three weeks’ time to testify about the activities of National City Bank and the Wall Street Crash of October ’29.
Mitchell rolled his eyes. He’d dealt with lawyers before. Armies of them. And when faced with the blinding charisma of Sunshine Charlie, they’d all blinked and shielded their eyes. Some crusading, fresh-off-the-boat, pencil-pusher wouldn’t be a problem.
So when this…Ferdinand Pecora…. requested access to National City Bank’s records archive, Charlie waved his hand and said “sure, why not”. What harm could he possibly do? Charlie was leaving in a few days for a vacation to Rome, so Pecora would only have 48 hours to review the labyrinth of jargon-heavy banking documents. No man on earth could possibly make heads or tails of all that paper in so short a time, much less find anything damaging.
He underestimated Pecora. And he was about to pay the price.
PECORA DOES HIS HOMEWORK
Mitchell wasn’t the only one underestimating Ferdinand Pecora in the early months of 1933. A Missouri newspaper spoke for many when it printed the following commentary:
“The “idea of getting a cast-off Tammany legal hack to investigate the Stock Exchange . . . is so ridiculous and in addition so tainted with suspicion of its good faith that even the United States Senate brand of intelligence ought to have comprehended it.”
Pecora answered the tide criticism with mild-mannered deflections. His interest in Charlie Mitchell and National City Bank was “a fact-finding, not a head-hunting, exploration.”
But in reality, Pecora was seeking to nail Sunshine Charlie and National City to the wall. To Pecora, Charlie was a symbol for everything wrong with Wall Street. As Pecora remembered later:
The prestige and reputation of these institutions was enormous. They stood, in the mind of the financially unsophisticated public, for safety, strength, prudence, and high-mindedness, and they were supposed to be captained by men of unimpeachable integrity, possessing almost mythical business genius and foresight.”
Pecora’s goal was to deconstruct that myth and unmask the reckless greed at the heart of National City Bank. If he could take down a figure as august as Sunshine Charlie, reform might actually be possible. As Michael Perino writes:
“No one had yet provided proof that Mitchell or any other leading Wall Street banker had in fact acted illegally or unethically […] If Pecora could show improprieties at City Bank […] then he would go a long way toward securing federal legislation of the stock market.
But the idea of Ferdinand Pecora, Sicilian immigrant, failed political candidate, and private practice lawyer – making a dent in Sunshine Charlie’s reputation was absolutely laughable at the time. Pecora was no banking expert; he had handled a couple of low-level fraud and securities cases before, but nothing major. Sunshine Charlie and National City, by comparison, were almost untouchably powerful. As Michael Perino writes: “City Bank was still considered a fortress, its balance sheet “the envy of every bank in the United States.” -
The expectations for Pecora’s investigation were low, to say the least. As one journalist put it at the time: “You can expect National City’s forthcoming inquisition by Mr. Pecora to be mild—if it takes place at all.”
That power differential was on full display when Sunshine Charlie sauntered onto Capitol Hill on Tuesday morning, February 21st, 1933.
Charlie’s smiling face was nicely tanned from a recent trip to Bermuda, he was dressed to kill, and flanked by a team of the best financial lawyers in the country. Ferdinand Pecora, on the other hand, had been working out of a shabby office on Madison Avenue with a limited staff. That Tuesday morning, Pecora and Charlie met face-to-face for the first time:
“Mitchell towered over the pocket-size Pecora. With his thick neck, firm jaw, and iron-gray hair he had the air, in the words of one of his salesmen, of a “commanding officer,” a man “of indomitable will . . . who would not surrender.”
By the standards of the day, Pecora cut a slightly less regal figure, according to one historian:
“Stocky and under five and a half feet tall, with dark eyes and jet-black hair just beginning to gray, which he wore swept back in a slick pompadour; Time magazine described him as a “kinky-haired, olive-skinned, jut-jawed lawyer from Manhattan.”
Sunshine Charlie was hardly threatened by the scrappy Sicilian as he sat down in the witness seat. This whole sham investigation was a formality. A nuisance. This time next month he’d be vacationing in Rome, spending time with less irritating Italians, the kind that served him drinks and fluffed his sheets.
As he began his questioning, Pecora was prepared, energetic, and “exhilarated”. He was also angry. For weeks, he had been receiving and reading letters from former customers of National City Bank and its affiliate. Letters from people who had been duped by the bank, and lost everything. One of the letters came from a widow in San Francisco named Helen Kerst. As Perino writes:
“The bank’s sales force convinced her to sell her portfolio of safe government bonds in order to buy the bank’s stock, which they assured her was not only safe, but would yield her a much better return.“Naturally believing them to be honorable and a bank of highest standing and integrity I was [gullible].” The longer she held the stock the more nervous she became. She repeatedly asked the local manager to sell the City Bank stock and he repeatedly refused to do so. When the stock collapsed she was left penniless and she wrote Mitchell to complain. Mitchell wrote back a short reply. He was, he claimed, “sorry” that she had lost money, but it was really her own fault. After all, she “shouldn’t have gambled.”
Another letter came from an elderly teacher named Christopher Lane. He was angry about the shoddy securities he’d been sold by National City. And here is his letter:
“I am writing this from McGrath’s Funeral Parlor [in] Brooklyn,” he told the investigator. “My wife is lying in her casket in the next division. She died of pneumonia. Had I hoarded my $10,000, I could have taken her to the South for the winter. . . . When you see Mr. Mitchell, you might ask him if it comes within your jurisdiction, why his Company or Bank, so trusted, could palm off such poor stuff on an old retiring teacher.”
Then there was the sad story of Edgar Brown. Brodn had been a successful theatre owner, and he retired with $100,000. He came across an ad for National City Bank, one of those flamboyant ads we covered back in Part 2, and he took the bait. Within a few months his 100,000 was spread out across a dubious array of Peruvian, Chilean, Belgian and Greek bonds. As Perino writes: “They seemed to have only one thing in common—they all went down in value.
When those didn’t pan out, he swapped them for National City Bank stock. And after the Crash, those investments collapsed too. When he went to the bank’s office totry and sell the stock and recoup some losses, the salesmen cornered him like a pack of dogs: “I was surrounded at once by all of the salesmen in the place, and made to know that that was a very, very foolish thing to do.” In the end, Edgar was completely wiped out. As he wrote in a letter to the bank:
“I am now 40 years of age, tubercular—almost totally deaf—my wife and family are depending on me solely and alone and because of my abiding faith in the advice of your company I am to-day a pauper.”
Pecora read hundreds of letters like that. Hundreds. But a few sob stories from across America wouldn’t be enough to pin down Sunshine Charlie. He needed to get something from the horse’s mouth. As Michael Perino puts it:
“Over the next few days, Pecora had to prove to the American public that the bank’s sterling image was and always had been a mirage.”
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In 1933, the length of a normal trading day on the New York Stock Exchange was five hours. As we have seen throughout this episode, a lot can happen in five hours. Fortunes can rise and fall, investors can be wiped out; life moves fast on Wall Street.
Well, on Tuesday, February 21st 1933, it only took for 4 hours for Ferdinand Pecora to discredit and humiliate Sunshine Charlie Mitchell in front of the entire country.
There are no pictures of what happened that day in Room 301 of the c. That’s because Pecora kicked every single photographer out of the room. Only journalists with pens and paper would be allowed. As Pecora said:
“There is no reason why a person who takes the stand in response to a subpoena should be subjected to any of the unpleasantness beyond that which might be embodied in the examination itself.”
He didn’t want any flashbulbs distracting Sunshine Charlie. Of course, kicking the photographers out also had the added bonus of quieting down the Senators in attendance. They were like “a Greek chorus”, always jumping in with comments and asides. Without a camera to mug for, Pecora hoped they’d pipe down and let him work.
Pecora began his questioning of Sunshine Charlie with a slow drip of tedious, procedural questions. Is this figure accurate? Is that figure accurate? When and where was this branch established? To whom does this person report to? That kind of stuff. It was boring. It was dull. It was not the fireworks show anyone had hoped for.
It was plain that Charlie felt this entire sideshow was beneath him. The tone of his answers was “both arrogant and condescending. He had the manner of a powerful man irked at wasting his time on a mundane and insignificant task”, according to one historian. As Pecora put it: “Mr. Mitchell’s whole attitude,” Pecora wrote, “was not that of the servant, but of the master, of his institution.” And all the while, the reporters scribbled down every dismissal, every sigh, every eyeroll from Charlie.
“So far, so good”, thought Pecora.
The Greek Chorus of senators in attendance, however, were not privy to Pecora’s playbook. They wanted a show. They wanted headlines. So just before lunch, Pecora was interrupted by a line of moralizing questions from hot-blooded Senators aimed at Sunshine Charlie. The questions were clumsy and obvious, and Charlie evaded every trap and bait hook with ease.
Mitchell may have been arrogant, but he was no fool. As one observer said later: “His remarkable mind functioned as a huge machine. I could almost see it spinning as a great wheel in a Power House.”
After lunch, it was Pecora’s turn again.
This time, the senators kept silent, and Pecora turned his line of questioning towards the bonuses that Charlie and the other executives at National City Bank received. At this, Charlie’s ears perked up. Now this was the kind of thing he liked to talk about – his compensation. The details dropped jaws. As Perino writes:
City Bank paid Mitchell over $3.5 million from 1927 to 1929. It is hard to even contemplate what those numbers must have sounded like to the people gathered in Room 301. Pecora was making $255 a month as counsel for the committee. The senators were earning $9,000 a year, congressional pages about a tenth of that amount.
A vast majority of that 3.5 million came not from Mitchell’s official, taxable salary. But something that the executives at National City Bank called a “management fund”. Today, we’d call it a bonus pool. Twice a year, the officers of National City Bank took 20% of the bank’s profits for themselves, the lion’s share of that amount going directly into Sunshine Charlie’s pockets.
On paper, there was nothing wrong with this. It was legal. So, Sunshine Charlie happily chatted away about how much money he had made from the $20 billion in securities he had sold the American public over the course of the last decade. But the bonus pool had an important stipulation: the officers would only get their bonuses if the bank and its affiliate made above 8% profit. To get their money, the officers had to ensure that more and more and more securities were being sold. It was a system that emphasized short-term profit at the expense of long-term stability.
Pecora’s point was beginning to take shape under Charlie’s nose, as Michael Perino summarizes:
The officers at City Bank were paid potentially enormous amounts, but only if they were able to sell vast amounts of securities. And, since they did not bear the cost of securities that went down in value, they had incentives to sell as many securities as possible, even if they were of dubious quality. The affiliate, Pecora wrote, was “a gigantic, foolproof device for gambling freely with the stockholders’ money, taking huge profits when the gambles won, and risking not a penny of their own money if they lost.”
Pecora continued to pursue this point. Did National City tell its customers what they made off the sale of certain securities? Did they provide information on the stability or health of those investments? Did they disclose any information at all?
Pecora had spent three days in National City Bank’s archives, sifting through a three-foot tall stack of records. He knew the answers to all of those questions was “no”.
Mitchell could not wrap his mind around the idea of transparency. National City was selling a product, pure and simple. We sell it, a customer buys it. Transaction over. End of story. He responded: “If I go in and buy a pound of coffee there is no indication as to what the grocer paid for it and what profit he got for it.” Pecora fired back: “But when a person goes to a store to buy a pound of coffee he knows the merchandise that he is buying, doesn’t he?”
Mitchell tried to say that those details were irrelevant. As meaningless as the whether a bond certificate was “printed on red paper or gray paper or yellow paper.” At this, Pecora’s temper flared: “I am not discussing the best color. The color of the paper gives no information, does it, of the security to the public?”
Sunshine Charlie did not like this turn of events. The questioning was becoming more pointed, more hostile, more detailed. He was beginning to regret underestimating this diminutive immigrant. As Pecora remembered years later: “He seemed to be wondering where I got the information from upon which I based these questions. I don’t know whether he had been told . . . that I had spent three days from morning till midnight examining his books.”
As the afternoon wore on, Pecora pulled more and more damning information out of Sunshine Charlie.
One of the biggest jaw-droppers concerned the aforementioned bonus pool and the way it was handled in the aftermath of the October crash. Those six days in late October had wiped out all of National City’s profits for the year. According to their own rules, Sunshine Charlie and the bank’s officers should have been entitled to no bonuses. Well – a history-making crash wasn’t going to stop Charlie from getting his scratch. He and the other executives marked the money a “advance on future bonuses” and pocketed their normal amount anyway.
But the most devastating disclosure for Sunshine Charlie on that fateful day was of a much more personal nature. It was the culmination of Pecora’s scalpel-like precision and attention to detail. He never asked a question to which he didn’t already know the answer. As Perino writes:
“There are few surprises for great cross-examiners, who almost invariably know the answers to their questions before they ask them. It is really the only way to pin down evasive witnesses, who are unlikely to concede anything important unless confronted with the documentary evidence that leaves them with no other choice.”
In the final bomb of the day, Pecora asked Sunshine Charlie a question to which he already knew the answer: “Mr. Mitchell, did you also sell during the year 1929 any substantial portion of your holdings of National City Bank stock?” Charlie gave a long, rambling non-answer. As of 1933, he owned more stock in his own bank than ever. Pecora smiled and responded:
“No . . . my question was: Have you also sold very extensively of your holdings in that period or before the end of that year?”
Charlie realized he was trapped. He reluctantly gave the answer. As Michael Perino describes:
“At the end of 1929, Mitchell sold 18,300 shares of City Bank stock to establish an investment loss and then turned right around and bought the stock back for exactly the same price in early 1930. There was absolutely no economic reason for the transaction; it was a sham, done with only a single goal in mind.
Why did he sell it, Pecora asked? Charlie answer:
“I sold it, frankly, for tax purposes.”
And who did he sell it to? Pecora went in for the kill:
“By the way, that sale of this bank stock that you referred to in the latter part of 1929 was made to a member of your family, wasn’t it?”
Charlie replied: “It was, sir, yes”. It then came to light that to avoid paying taxes on his 1.1 million in 1929 bonuses, Charlie Mitchell had sold millions in National City Bank stock to….his wife, Elizabeth. Ferdinand Pecora had just gotten the most preeminent banker in the United States to confess to tax evasion in front of a room full of Senators and reporters. As Perino writes:
“The portrait of a greedy banker willing to use any artifice to hang on to every cent of his enormous salary was now complete. […] In truth. the picture Pecora painted on that first day of testimony was of a corporation run with only a single purpose in mind—to maximize the financial returns of its officers, especially its chairman. Nothing else seemed to matter. Not the shareholders, who were kept in the dark about how much the officers were raking in; not the customers, who trusted the institution to provide them with sound financial advice; and certainly not the federal government, whose tax bills could be easily evaded with a couple of ledger entries. If Pecora’s goal was to create outrage, he succeeded magnificently. The only thing dividing most newspapers was which part of the testimony was more outrageous.”
The reaction to the revelations was absolutely blistering.
Sunshine Charlie’s picture was on the front page of the Washington Post the next day, followed by an extremely unflattering breakdown of his testimony. Another paper wrote: “Charles E. Mitchell, president of the National City Bank, and a man who has always been held in high regard, admits a cheap dodge to avoid paying income taxes in 1929.”
A Montana Senator said at the time: “The best way to restore confidence in our banks is to take these crooked presidents out of the banks and treat them the same as treated Al Capone.”
Another journalist took the outrage further: “If the general public realized the ignorance, smallness, futility and greed of the average N.Y. banker, I think they would certainly hang a few of them, beginning I hope with Charlie Mitchell.”
Sunshine Charlie wasn’t the last casualty of the Pecora Commission, as it came to be known, but he was the most important. In four hours, Pecora turned Wall Street’s invincible optimist into a symbol of everything wrong with the finance in America. Pecora went on to question and expose dozens of banking officials over the next several months, fully cementing the need for reform in the minds of citizens and lawmakers all over the country.
At one point, an anonymous figure approached a friend of Pecora’s and suggested bribing the crusading prosecutor with a quarter of a million dollars. The friend said it wouldn’t be enough. When the shadowy briber asked what would be enough, Pecora’s friend responded: “You don’t own all the gold in the world, but if you did, that wouldn’t be enough.”
Many of the regulatory laws that govern Wall Street today were a direct result or hastened along by Pecora’s investigation into National City Bank. As Pecora remembered later: “It lasted . . . just nine days, but in those nine days a whole era of American financial life passed away.”
In the coming months, Congress passed the Glass-Steagall Banking Act of 1933, the Securities Act of 1933, and the Securities Exchange Act of 1934. Wall Street, it seemed, was finally subject to some long overdue oversight.
As for Sunshine Charlie, Pecora noticed him leaving Capitol Hill on the final day of the hearings. As Michael Perino describes: “The confident, commanding swagger was gone; Mitchell’s head was bowed as he made his way across the plaza. The entourage had vanished, too; Mitchell was completely alone, forced to carry his own suitcase as he headed back to New York.”
One Senator thought he looked like Napoleon being shipped off to exile. A few days later, the board at National City Bank accepted his resignation.
On March 4th of that year, the newly elected President, Franklin D. Roosevelt, gave his inaugural address. In it, he said that:
“The rulers of the exchange of mankind’s goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. Money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths.”
It was the end of an era. For an entire generation of bankers, brokers, and day-traders, the world had changed. The rules – or lack thereof – that had made it possible for them to amass vast fortunes were no longer relevant. They were dinosaurs, and their planet-killing comet had finally come.
This was especially, painfully, apparent to an old friend of ours. Jesse Livermore.
When a new decade began in 1930, Jesse had started it off with over $100 million in assets, all profits from his ingenious and insightful maneuvering during the October Crash. To this day, it is one of the most impressive individual achievements in Wall Street history. In those days, $100 million dollars was Richard Branson money, Elon Musk money.
But by late 1933, Jesse had lost it all.
When his marriage to Dotsie ended, and she took the boys 2500 miles away to the West Coast, Jesse tried to numb his pain by returning to the stock market. He tried to recapture that indescribable feeling of satisfaction that he had gotten on October 29th, 1929. He tried to bottle that happiness.
But the stock market didn’t make sense anymore. The crash had changed the landscape – turned up into down, black into white. For the first time in his life, it seemed like every decision he made was wrong. He was like a fighting bull who’d had his horns shaved. Or a musician who woke up and couldn’t play anymore. He couldn’t feel the currents of the market. He couldn’t read the ticker tape anymore.
As biographer Tom Rubython puts it: “It was a period of total inconsistency and illogicality during which, by his own rules, he should have been out of the market sitting on his money. But he wasn’t. Having conquered the world, he wanted to climb the mountain again.”
As 1931 became 1932 became 1933, Jesse lost more and more money. It felt like every trade he made was wrong. He knew he should stop, that he didn’t have to do this. But the awful truth was…what else was left for him?
And then came the Pecora Commission, and the hearings, and the tough legislation that made the pirate’s paradise of Wall Street into an unrecognizable, alien planet. As Gordon and Morgan-Witts write:
His triumphs had been based on the old Roman maxim—Caveat emptor, Buyer beware. But in May 1933 the Securities Act effectively made it mandatory, in all stock dealings, for the seller to beware.
Tom Rubython elaborates:
Speculative shenanigans that were perfectly legal the year before were now punishable by prison and large fines. It was a nightmare for a man over 50 who suddenly had to play by some rules where none had existed before.
By the summer of 1934, Jesse was bankrupt and deep in debt to creditors, friends, enemies, even mobsters. One historian noted that: “No man in history, before, then and since, had earned so much money so quickly and then lost it so quickly as Livermore had between 1929 and 1933.” But the Boy Trader, now 55 years old, believed he still had some magic left in those middle-aged fingers: “I have made comebacks before, but this one will take longer because conditions are worse.”
Things weren’t going much better for the other side of the Livermore clan on the West Coast.
Dotsie had managed to squander her money as well. The $10 million dollar divorce settlement she’d gotten from Jesse was almost gone. The new husband, Walter Longcope, was long gone too. After just one year, he’d left Dotsie and moved back to the East Coast. To make matter worse, the Livermore boys, Jesse and Dotsie’s sons, were in their teens. And they were behaving as about as well as you’d expect after years of family upheaval.
The biggest problem was Jesse Jr; the eldest at 16 years-old.
Junior had grown up in Evermore with a front row seat to some of his parents’ nastiest arguments. He’d seen his Dad come home late smelling like other women. He’d seen his Mom be carted off to bed by the servants reeking of white wine and whiskey. He’d grown up rich, but most certainly not happy.
When the family imploded and split up, Junior blamed his Mom and her drinking. By the time he was 16 years old, Junior was acting out in ways that were eerily remeniscient of his womanizing father. As Tom Rubython writes:
His exceptional looks and muscular physique made it very easy for him to seduce women and he started sleeping with his mother’s friends, causing terrible problems with their husbands, which Dorothy then had to deal with. He also occasionally drank heavily which she didn’t like, and Dorothy accused him of throwing his life away.
Things came to a head between Junior and his Mom on Thanksgiving Day, 1935. Rubython continues:
He and Dorothy got into a heated argument over her drinking. Jesse Jr grabbed a quart bottle of whiskey and downed a quarter of it in one slug, shouting: “I’ll show you I can drink as much as a woman.” Over the next hour, he finished it off ostensibly to show his mother how unattractive drunks could be. The young Paul Livermore (that’s the younger brother), watching the argument unfold and sensing there might be trouble later, retired to his bedroom and locked the door. As Jesse Jr drunk more and more of the bottle, he grew more and more excited. Then it turned ugly, as Dorothy shouted: “I’d rather see you dead than drinking that way” as she knocked the bottle from his hands.
Jesse Jr grabbed a .22 caliber rifle he had under the bed and rushed downstairs and challenged his mother to make good her threat. Obliterated by alcohol, she took the rifle and almost randomly squeezed the trigger. A millisecond separated the bang and the bullet entering Jesse Jr’s body. The bullet raced past the 16-year-old’s chest, narrowly missing his heart, puncturing his kidney, and finally lodging in his back, near the spine. He seemed to freeze until the full force of the shock hit his body and he fell to the floor half unconscious, whispering almost inaudibly: “Mother, you did it.”
Less than 24 hours later, Jesse Senior was stepping off a plane in LA and rushing to the hospital. When reporters cornered him, he growled: “If anything has happened to that boy, I will see that she pays.” But when he stood over his son’s hospital bed, watching the 16-year-old cling to life, he broke down and whispered: “Fight boy, I’m standing by you.”
It took Junior three months to recover from the gunshot wound. He pulled through, and eventually forgave his mother.
Dotsie was brought up on charges of assault with intent to kill…but the local DA quickly dropped them. Mostly thanks to Jesse. He hated his ex-wife, to be sure, but he felt that for his boys, watching their mother serve a lengthy jail sentence would be even more damaging to their precarious future. The whole debacle was “yet another extraordinary saga in the life of the Livermore family.”
Five long years passed, and Jesse Livermore’s luck in the stock market did not improve. His big comeback never materialized.
On the afternoon of Thursday, November 28th, 1940, Jesse went to a cocktail bar in the Sherry-Netherland Hotel in Manhattan.
The bartender served him two martinis. And while Jesse quietly sipped his drinks, the bartender noticed he was writing something down on a notepad. Maybe it was his memoirs, or a to-do list, or some kind of stock strategy.
The bartender didn’t think much of it when Jesse got up from his stool at around 5:30pm and disappeared into the bar’s bathroom. A few minutes later, a hotel attendant making his hourly rounds entered in the bathroom and saw Livermore slumped in a chair. At first, he thought he was just asleep. Another high-roller down for the count after too many stiff drinks.
But then he saw the pistol on the floor. And the trickle of crimson spilling onto the ground from Jesse’s left ear. Jesse Livermore had taken his own life at the age of 63, and no one had heard so much as a pop of a gunshot. On his body, the police found a suicide note, addressed to his third wife, Nina:
“I cannot help it. Things have been bad with me. I am tired of fighting. Cannot carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me.”
Above that, a single phrase had been written over and over again: “MY LIFE HAS BEEN A FAILURE. MY LIFE HAS BEEN A FAILURE. MY LIFE HAS BEEN A FAILURE.”
Historians Gordon Thomas and Max Morgan-Whitts gave a brief but fitting elegy for Livermore in their book on the Great Crash: “Livermore died as he lived. Sensationally.”
Historian John Brooks had something slightly more meditative to say about the Great Bear of Wall Street, the farm boy wunderkind who could read the ticker tape like a sheet of music. The man who followed his market obsessions into the grave with a kind of unique purity:
“Why is there something so depressing about this single-minded and simplehearted man? Perhaps because his obsession looms in retrospect as a crippling disability; perhaps because he is a kind of gigantic real-life close-up of the kind of American European intellectuals like to imagine, and indeed, because he came so uncomfortably close to being the embodiment of a prevalent American dream. And yet we pity him at our risk, because his ghost may rise up to call us what we cannot call him–a hypocrite.”
It's hard not to be struck by the irony of Livermore’s suicide. The great myth of the Stock Market Crash of 1929 is that it provoked a wave of suicides among men who lost it all during that terrible week in October. We know now that the supposed epidemic was a gross exaggeration of a few scattered cases. In a sad twist of fate, it was the man who profited most from the Great Crash who ultimately decided to kill himself.
Before we end today’s episode, I want to leave you with an anecdote. After all we’ve been through together, all the twists and turns, a downer ending just won’t do. Let’s leave things on a lighter note.
About twenty years after the Stock Market Crash of 1929, the New York Stock Exchange had bounced back to its old self. With government regulations in place and the SEC on the prowl, Wall Street appeared to be in a new age of responsible investing.
Well one day, in the 1950s, the Exchange got a very special visitor. It was the famous comedian Groucho Marx. Back in ’29, Groucho had suffered heavy financial losses during the Crash. He’d invested hundreds of thousands of dollars on margin, and when the market went sideways he lost it all. And twenty years later, he was here in New York touring the epicenter of that disaster.
And in typical Groucho fashion, he made it a memorable day for the employees of the Exchange. As Karen Blumenthal describes:
It turned out that the comic could neither forgive, nor forget. After watching the trading for a few minutes from the visitors’ gallery, Groucho stood up on his chair and began belting out “When Irish Eyes Are Smiling” at the top of his lungs.
The traders stopped their work to look up at the nut in the gallery. They didn’t recognize Groucho without his mustache. The adviser tried to stop his friend, saying, “Groucho, I’m afraid they don’t appreciate clowning in the Stock Exchange.”
But Groucho kept going. A guard told him to be quiet or he would call the police. “Listen you crooks,” Groucho shouted, now that he had everyone’s attention. “You wiped me out of $250,000 in 1929. For that kind of dough, I think I’m entitled to sing if I want to.”
This has been Conflicted. Thanks for listening.
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