Wall Street Wars – Book Review by CFA Institute
In 1928, the aircraft manufacturer Boeing was planning an initial public offering of its stock, to be led by the securities affiliate of National City Bank, the predecessor of Citigroup. Overriding the recommendation of one of his investment bankers, National City chairman Charles Mitchell declared that the deal was too risky for a public offering. Instead, National City Company organized a private offering, bought the entire issue, and placed the shares with its officers and directors, J.P. Morgan & Company bankers, Shearman & Sterling lawyers, and various other friends.
David Einhorn's Greenlight Capital was down 0.1% for the first quarter, underperforming the S&P 500's 6.2% return. In their letter to investors, which was reviewed by ValueWalk, the Greenlight team said a lot happened during the first quarter even though they made just a handful of changes to the portfolio and essentially broke even. Q1 Read More
Nine days after the private offering closed, National City Company applied to the forerunner of the American Stock Exchange to list Boeing as a public stock. When exchange trading began, the shares soared to a 50% premium over the private placement price. The insiders pocketed a profit equivalent to $21.5 million in today’s dollars.
This example of financial manipulation and others equally egregious came to light in hearings on stock market practices conducted in 1933 by Ferdinand Pecora, chief counsel of a subcommittee of the Senate Banking and Currency Committee. The public outrage over the revelations gave impetus to the passage of the Glass–Steagall Banking Act of 1933, the Securities Act of 1933, and the Securities Exchange Act of 1934, which, together, laid the foundations of modern US securities regulation. Attorney Richard E. Farley of Paul Hastings, LLP, ably chronicles the passage of those laws, as well as the Emergency Banking Act of 1933, in Wall Street Wars: The Epic Battles with Washington That Created the Modern Financial System.
Farley notes the parallels between recent events and the debates in the early 1930s over securities regulation. He is most interested in scandals surrounding the 2000cand the Global Financial Crisis of 2008–2009. Equally striking, however, is the early version of quantitative easing that President Franklin Roosevelt won authorization for through an amendment to the Agricultural Adjustment Act of 1933. Joseph Kennedy, the first chairman of the Securities and Exchange Commission (SEC), criticized short-term trading, a reproach recently echoed in presidential candidate Hillary Clinton’s proposal to curb the activity by taxing it.
Even readers who are generally familiar with the history of the New Deal will acquire significant new information from Farley’s rendition. For example, the Securities Act of 1933 assigned enforcement of its provisions to the Federal Trade Commission (FTC). The SEC came into being only in 1934 as a political victory for the New York Stock Exchange, which considered the FTC staff anti-business. Also interesting is the way Roosevelt held off deciding which of the competing versions of the 1934 securities exchange bill to endorse while he tested the political winds. Another choice tidbit involves Kennedy, who, while walking to the White House to tender his resignation as SEC chairman, spied a newspaper headline reporting that the Supreme Court had struck down as unconstitutional the National Industrial Recovery Act, a cornerstone of the New Deal. Worrying that the high court might next take aim at the recent securities legislation, Kennedy concluded that his timing was wrong and tore up the resignation letter.
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Wall Street Wars – Description
In the depths of the Great Depression, Franklin Delano Roosevelt’s administration set out to radically remake America’s financial system—but Wall Street was determined to stop them.
In 1933, the American economy was in shambles, battered by the 1929 stock market crash and limping from the effects of the Great Depression. But the incoming administration of Franklin Delano Roosevelt, elected on a wave of anxiety and hope, stormed Washington on a promise to save the American economy—and remake the entire American financial system. It was the opening salvo in a long war between Wall Street and Washington.
Author Richard Farley takes a unique and detailed look at the pitched battles that followed—the fist fights, the circus-like stunts, the conmen and crooks, and the unlikely heroes—and shaped American capitalism. With a disparate cast of characters including Joseph P. Kennedy, J.P. Morgan, Huey Long, Babe Ruth, and Henry Ford (who refused to bail out his son’s bank, thus precipitating the meltdown of the entire banking system), Farley vividly traces the history of modern American finance and the establishment of a financial system still bitterly debated on Capitol Hill.
Wall Street Wars – Review
“Farley tells a compelling, amazingly colorful story about the great financial battles that shaped public life in the 1930s and the financial institutions that both protect and imperil us now. Along with fresh details about familiar figures like FDR, Huey Long, and Joseph Kennedy, we meet several characters nearly lost to history who are more fascinating than any we have today.” (Jonathan Alter, bestselling author of The Defining Moment: FDR’s Hundred Days and the Triumph of Hope)
“Richard E. Farley combines several things not often found in the same author: knowledge of the financial markets, then and now; a very good understanding of how Congress operated in the 1930s—and to a great extent still does; and a knack for writing about complex subjects in an interesting way. The result is a book which enlightens and entertains on a subject which has become as relevant as it was eighty years ago.” (Barney Frank, former US Representative)
“Richard Farley has written a comprehensive and entertaining account of the battles with Wall Street during the Depression that gave birth to the FDIC, the SEC, and the basic depositor and investor protections that we too often take for granted today. The conflicts and combatants chronicled in Wall Street Wars: The Epic Battles with Washington that Created the Modern Financial System are similar in so many ways to those we fought during and after the 2008 Financial Crisis. This is required reading for a true understanding of why our financial system has come to work the way it does, and why we must be ever-vigilant to maintain these hard-fought protections.” (Shelia Bair, former US FDIC Chairperson)
“Wall Street Wars is a fine work of popular financial history… its extensive recounting of financial misdeeds prior to the 1929 stock market crash teaches a pertinent lesson amid talk of the need to restore trust in the financial industry.” (Martin S. Fridson CFA Institute)