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(upbeat music) - Hey everyone, Steve Adubato.

Every once in a while on this program, we get to look back at history and understand how history can repeat itself.

And there are players and leaders and figures in history who we don't know about, but have had a great deal of impact on the world we live in and the role of government, particularly when it comes to monetary policy.

We are honored to have the author of this absolutely fascinating book.

He is Michael Perino, author of "The Hellhound of Wall Street: How Ferdinand Pecora's Investigation of the Great Crash Forever Changed American Finance."

Michael Perino is a professor at St.

John's University School of Law.

Professor, it is an honor to have you with us.

And I absolutely, I don't have Oprah's book list, but this would be on the top 10 book list of anyone.

Thank you, Michael, appreciate it.

- Well, I appreciate that very much.

I'm glad you enjoyed the book, and it's great to be here as well.

- So let's do this.

Ferdinand Pecora was whom and why does he still matter so much today?

- So when I set out to write this book, it was actually during the financial crisis of 2008.

I had started it a little bit before then.

But everything I was hearing in the news during the financial crisis was what I was reading in these congressional transcripts from the 1930s.

Ferdinand Pecora was, at the time, a little-known former prosecutor from New York.

He is little-known today.

When I told people I was writing about Ferdinand Pecora, the invariable reaction was, "Who, who?"

Exactly.

But Ferdinand Pecora, through serendipity more than anything else, was tabbed to lead an investigation of Wall Street that was supposed to be wrapping up in the winter of 1933 in that interregnum between Herbert Hoover going out of office and FDR coming into office.

- But hold on a second.

Let's do this.

The crash happens in October of '29.

- Correct.

- In '32, Hoover, the president, loses to FDR.

There's a change in administration in January of 1933.

Please pick it up from there.

- It's actually a little more complicated than that because at that time, the gap between the old administration going out and the new administration coming in goes until March 4th.

- No.

- Yes.

- Not January?

- Not January.

So this was the last time we had that big a gap between administrations.

And one of the reasons for the change was because this gap was such a disaster.

The country was in the throes of the Depression.

Unemployment was 25%.

The stock market had lost 90% of its value.

People were out of work everywhere.

There were Hoovervilles.

All of the stories about the Great Depression.

And we're in this period where no one's in charge.

And the country seems to be getting worse and worse and worse.

And what's known as the banking crisis of 1933 is beginning.

And so a lot of people will know that when FDR came into office, his first act was to declare a nationwide banking holiday.

But what most people don't know is that pretty much every bank in the country was shut down by the time he declared that holiday.

The banks started closing in Michigan.

And once they started closing in Michigan, it spread like a virus across the rest of the country.

- And people couldn't get their money.

- People couldn't get their money.

I mean, you know, there's no ATMs.

There's people rely on checks for most things or cash.

And every bank was closed.

The entire economy of the country was really just frozen.

- And this is pre all of the, sorry for interrupting, Michael.

This is pre the FDIC.

There was no federal deposit protection, insurance protection, pre a whole range of other federal entities that we're gonna be talking about.

So there really was no quote unquote regulation of the banking industry.

Is that a fair assessment, Michael?

- There was regulation of the banking industry, but nothing like the regulation we know today.

There was no regulation of Wall Street.

There was not a single law that regulated how the selling of stocks and bonds, investment banking as we know it today would operate.

So we're in this interregnum as it's called in the winter of 1933.

This investigation had started the previous March.

And actually it was under President Hoover's auspices.

He had asked a senator to start this investigation because he was convinced that short sellers on Wall Street were trying to ruin his chances for reelection.

Now, he was never gonna get reelected.

He was looking for a scapegoat.

So this investigation sort of creaked and moaned along and did nothing.

- Hold on, let's be clear.

Investigations into the banking industry.

- The banking industry and Wall Street and the causes of the 1929 stock market crash.

- And the argument that many in the banking/Wall Street community were engaged in manipulative sales practices that were pulling people into the market who really should not have been in the market were engaged in, I don't know, can I call it insider trading or am I?

Okay, I can't call it that, Michael?

- You can call it that.

What's interesting about that is that insider trading as we know it today doesn't really get regulated in the way we talk about it today until the 1960s.

Much later than you would have thought.

- Let's go back to Ferdinand Pecora.

- Sure, sure, sure.

- He comes from Sicily.

He's an immigrant from Sicily.

- Yep.

- He's not a particularly well-known or I'm not gonna say not respected.

He's not a prominent attorney.

But he's picked to be the chief counsel of the Senate committee investigating the banking industry.

Fair assessment?

- Correct.

- And so he starts questioning these extremely wealthy, can I say blue blood?

- Absolutely.

These were the- - Who were the folks he was interrogating, investigating, and challenging who really thought, this guy's an immigrant from Sicily, didn't go to any prominent Ivy League school I went to.

Who the hell is he to be challenging us?

Who was he challenging and why is it so important in our history?

- So the centerpiece of the book is really when Pecora takes over that investigation in the winter of 1933.

He's not expected to do anything.

He's supposed to write a report and sum up the findings of the investigation, which were nothing really.

But he convinced the committee chairman, a man who knew not the first thing about Wall Street.

He was a artesian well driller from South Dakota named Peter Norbeck.

He said, "Let me take one more set of hearings."

And he decided to put on the stand one of the best known bankers of his day.

His name is Charlie Mitchell.

And he was the president of a little outfit called the City Bank of New York, which a few name changes later we might know as Citigroup.

- Oh, that little company?

- That little company.

Pecora had almost no time to prepare for these hearings.

He was hired a couple of weeks earlier.

He issued some subpoenas, he read some records and Charlie Mitchell shows up on the stand, one of the most famous bankers in the country, running the largest bank in the country, just as that banking crisis is starting to unfold.

So the one thing that, Pecora had a lot going for him.

He was a really talented lawyer.

He knew his way around the courtroom.

He was an amazingly effective teacher.

And we can talk about that in a few minutes.

But he had impeccable timing.

And so as he starts to reveal the wrongdoing of these men who are supposed to be of unimpeachable integrity, who are running the largest banks on Wall Street, the banking system is collapsing in front of everybody's eyes.

And it was the combination of those two things that really created the political climate in which everything in FDR's first 100 days could pass.

So you mentioned FDIC.

The FDIC- - The Federal Deposit Insurance.

So that protects your money in a bank up to a certain amount, correct?

- That's correct.

And so what that means is if the bank fails, the government's gonna cover the amount up to a certain amount, right?

- That's the FDIC.

What about the Securities and Exchange Commission?

- So the Securities and Exchange Commission was created in 1934.

- And what was that- - So a year later- - I'm sorry for interrupting, Michael.

What was that intended to do in terms of regulating Wall Street?

- It was supposed to put a cop on Wall Street.

That is exactly how it was referred, right?

So we are going to have somebody actually overseeing Wall Street.

Wall Street for years had said, "We can regulate ourselves."

"Trust us.

"We know what we're doing."

- "Trust us."

- "Trust us.

"This is too complicated.

"You can't possibly understand it.

"The only ones who can really understand it is us, "and so we're in the best position to regulate ourselves."

And don't worry- - Is this after the crash?

Michael, sorry.

- Absolutely.

- After the crash of '29, they still said, "Wall Street bankers, "finance people, Ivy League, well-educated, "trust us."

After 25% unemployment, millions of Americans losing everything, can't get their money out of a bank, trust us.

- So this is where the Pecora as teacher comes in.

There was a view that all of the stuff that had happened on Wall Street wasn't really coming out of the biggest, most prestigious banks.

It wasn't coming from J.P.

Morgan.

It wasn't coming from Citibank.

It was sort of the bottom feeders on Wall Street who were creating all these problems.

And what Pecora was able to do, and quite frankly, most people didn't understand Wall Street.

They still don't, right?

So what Pecora was able to do was two things.

One, he demystified Wall Street.

He showed that these things that were really super, supposedly super complex, weren't really that complex at all.

And he converted these complex economic problems really into simple morality tales.

He knew how to tell a story.

He knew the power of narrative.

He knew that people understood the world through stories.

And so he used stories to illustrate the inadequacies of how we regulated Wall Street.

- How bad did he make, I'm sorry again, for interrupting so many pieces of this.

Charlie Mitchell, top banker in the country, well-respected, how bad did Pecora make Mitchell look?

In large part because Mitchell totally underestimated this Sicilian immigrant.

Who's this guy?

- Right, so this portion of the hearings was over in 10 days.

At the end of that 10 days, Charlie Mitchell had resigned as president of Citibank.

He left Washington alone and disgraced.

Pecora watched him trudging toward Union Station all by himself, no longer surrounded by the retinue of bankers and lawyers that he'd strode into the hearing room with.

And he was soon indicted for tax evasion.

And so his reputation was destroyed.

As in so many of these cases, he had a comeback later on and returned to power in Wall Street.

But for that time, Pecora had thoroughly discredited it.

- What do we owe Ferdinand Pecora?

- So, for all intents and purposes, there are no more bank runs, right?

Bank runs used to happen all the time in the United States because when you're not sure whether the bank is gonna survive or not, you're gonna race to the door, right, and everybody races to the door, and when everybody races to the door, that feeds the collapse, right?

Insurance, probably the most important structural reform to come out of that first 100 days, basically eliminates that chaos, that happens when the bank, when we have questions about the soundness of the bank.

We got the idea that these leaders of Wall Street weren't these sort of superhuman beings.

There was a lot of the, it was a little late, but there was a lot of the social Darwinism, these are the fittest of the fit leaders of these institutions, a lot of that went away.

Pecora humanized them and turned them into ordinary human beings, and he created a system.

You have to think back to the way the legal system operated in the 1930s.

There was, there were a large number of people who thought it was actually unconstitutional for the federal government to regulate the New York Stock Exchange.

The argument was that the only entity that could regulate the New York Stock Exchange was New York State.

And so by creating this political climate, which really just crystallized the anger at Wall Street and turned it into this concrete evidence, he created that climate where we could regulate Wall Street for the first time.

- Nationally, but there's another entity here, the Federal Reserve.

- Yep.

- Can we fast forward to modern day?

- Sure.

The Federal Reserve's role is what?

- So, the Federal Reserve, and I will say, I am not a Federal Reserve expert, but I know the basics.

So, the Federal Reserve really has a dual mandate, right?

They are supposed to keep inflation in check.

- That's right.

- And they're supposed to make sure that we have as full employment as we possibly can.

- Got it.

- And their major levers for doing that are setting interest rates, and buying and selling government securities.

- Okay, but Michael, you know this stuff.

This stuff, you're gonna be fine with.

You ready?

- I'm not worried about it, but I just wanted to give the appropriate caveat.

- Are you worried about this?

Are you worried about this?

Are you worried and concerned that there are many who have argued that the Fed, the Federal Reserve, establishing monetary policy in our country, is intended to be, was created to be separate from whomever is in the White House, whoever controls Congress.

President Trump, for a long time, was arguing that now the former Fed Chair, Jerome Powell, get him out of here.

I'm gonna fire him.

Not sure constitutionally whether he could ever have done that.

Wanted interest rates to be lowered.

Jerome Powell's argument was, we will make monetary policy and establish interest rates based on what we believe would keep inflation down, and also promote as much employment as possible.

Trump had- - And a belief, yeah, a belief, not just a belief, but a belief based on the hard data.

- Data, not this is what I'm telling you to do.

Finally, Jerome Powell steps aside as chair, stays on, and I don't wanna get in the weeds here, but I would say this to you.

This is an important question of monetary policy because the new chief, Kevin Warsh, who is the President's choice to run the Fed, to control monetary policy in our country from the Fed, from your perspective as a professor and expert in this field, should monetary policy be dictated by whomever is in the White House, or potentially controls either or both houses of Congress, or should it be a separate entity that looks at the data to establish monetary policy?

'Cause Kevin Warsh is Trump's choice.

- Absolutely correct, and of course, the whole point of the Fed is to be independent of the political actors, to not set monetary policy based on political considerations, but to set them based on what's best for the broader economy, okay?

And that's so fundamental that you can't really argue.

The problem, of course, here is not just that so much of what the President has been doing undermines faith in the Fed being that independent, good-faith actor.

So much of what the President is doing has been about undermining our belief that government itself is populated with people who are independent, good-faith actors, that you look at what's happening, and there's so many things that are happening, it's hard to talk about, but one of the things that is happening is that it looks like the President is just lining his pockets in every way he can in running the government.

And so we're kind of at the New York Tammany Hall political machine stage of this government where people are- - You make reference to Tammany Hall in the 1920s, moving forward, the Democratic machine in New York City- - Democratic machine.

- All kinds of people.

How would you connect the White House and President Trump, whom, as we speak, there are now conversations and questions about his investment policies.

He says it's in a blind trust, he doesn't do it himself, but certain companies that the federal government is regulating, who he is, in fact, allegedly investing in, is that unprecedented?

I know we talked about Pecora in the beginning, in the 1930s.

Is that, has there ever been a President who did that?

- No.

You know, there were certainly political scandals involving Presidents, there were certainly financial scandals involving Presidents, but the scale and scope of what we're seeing now is certainly unprecedented.

If you look at those- - Why does it matter?

Why does it matter?

- Why does it matter?

- Yeah.

- Because, yeah, so go back to those Tammany Hall leaders, you know, starting with Boss Tweed in the mid-1800s and going through some of the worst Tammany leaders in New York.

What was the purpose of government?

The purpose of government was not to make lives better for the citizens of the country, or of the city.

It was to line their own pockets, to, greed, right?

And what happens if we take that to the national level?

What happens now if the general perception is that the purpose of government is to line in the pockets of whoever happens to be sitting in the Oval Office at any time?

- A Democrat or Republican.

- Democrat or Republican.

- And by the way, Joe Biden, to be clear, I don't wanna open up another Pandora's box, but Hunter Biden made money, and I'm curious as to what skills and tools he had to do that, question as to how that was connected potentially to his father's presidency, but pick up the point, Michael.

- So, you know, and I wanna get into the weeds of the Hunter Biden story.

- No, no, but it's- - But I will say this.

Let's assume that, you know, Hunter Biden used his relationship to the President of the United States to make some money for himself.

- Okay, is it different if it's the President himself or herself?

- Absolutely, right?

You know, if it's the President doing it, so let's think about where we are now.

You know, Hunter Biden, you know, does whatever he's alleged to have done.

The scale and scope now is magnitudes larger, right?

You know, we have pardons being doled out, it seems, for monetary advantage.

We have foreign governments making major investments into Trump cryptocurrencies.

We have the President receiving jets from foreign entities.

- Qatar, a few seconds left, go ahead, Michael.

- The point is that, you know, it is all at a level of corruption that I don't think we've ever seen in this country.

- I sense another book from Michael Perino.

This one is awesome.

It is called "The Hellhound of Wall Street: "How Ferdinand Pecora's Investigation "of the Great Crash," 1929, "Forever Changed American Finance."

The author is Michael Perino.

He's also a professor at St.

John's University School of Law.

Michael, I cannot thank you enough.

Absolutely love this book, and it's even better meeting you in person, talking to you.

All the best, Michael.

- Thank you very much.

- I'm Steve Adubato.

What happens on Wall Street matters in all of our lives, whether you're invested in it or not.

See you next time.

- [Narrator] One-On-One with Steve Adubato is a production of the Caucus Educational Corporation.

Funding has been provided by New Jersey Sharing Network.

Hackensack Meridian Health.

South Jersey Industries.

The Fund for New Jersey.

Delta Dental of New Jersey.

NJM Insurance Group.

IBEW Local 102.

United Airlines.

And by NJ Transit.

Promotional support provided by ROI-NJ.

And by NJBIA.

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