In 1933, Ferdinand Pecora, newly appointed Chief Counsel to the Senate Banking and Currency Committee, subpoenaed Charles Mitchell, president of National City Bank (now Citibank). Pecora, a cigar-smoking second-generation Italian immigrant, was a “happy discovery” for the committee: his incisive grilling, which forced Mitchell and then a catalog of other Wall Street tycoons to admit to the litany of irresponsible banking practices that had crashed the economy in 1929, made daily headlines and earned him the title “Hellhound of Wall Street.”
Roosevelt egged him on. Pecora’s dramatic cross-examinations provided the ammunition that the president needed to claim, in his inaugural address, that the “practices of the unscrupulous money changers stand indicted in the court of public opinion,” paving the way for the sweeping financial reforms of the New Deal.
In Busting the Bankers’ Club: Finance for the Rest of Us (University of California Press, 2024), Gerald Epstein investigates what went so wrong in the decades that followed—the ones that replaced “boring banking” with “roaring banking.” His short answer is the “bankers club”: financiers and the lawyers, politicians, and regulators who do their bidding. Most of the book is dedicated to exposing, in fine detail, the anatomy of this club and its stranglehold over American democracy.
Epstein, a professor of economics at University of Massachusetts Amherst and longtime advocate for financial reform, points to the 1930s as a brief moment of political freedom vis-à-vis American finance. The bankers were not only disgraced: in the absence of a bailout, they were also economically ruined, and in no fit state to fight back, despite calls from Richard Whitney, president of the New York Stock Exchange, for a capital strike if the legislation was passed. (Whitney was later convicted of embezzlement). Roosevelt moved quickly: in a matter of months, the Securities Act and Banking Act had both passed, separating services provided to ordinary people and businesses from risky investment activities, curbing excessive speculation by regulating the sale of stocks and bonds, and creating the Federal Deposit Insurance Corporation. These reforms ushered in a brief period of “3-6-3” banking. In Epstein’s words: “Bankers paid depositors 3 percent, lent out the money at 6 percent, and got to the golf course by three in the afternoon. Boring work, pretty good profits, but great golf.”
Borrowing from legal scholar Mehrsa Baradaran, Epstein suggests this involved a kind of social contract: in exchange for government support and backstopping of the financial sector, banks would serve public “missions.” Today, Epstein suggests, only half of that contract remains. The government and Fed bail out the banks (and, more recently, the asset managers) with little expectation that the financial sector will prioritize basic social functions.