The Banking Acts of 1933 and 1935 (HOM 34-B)

all right welcome to part b of lecture 34 let's take a look at the banking acts of 1933 and 1935. all right so in part a fdr signed an emergency banking act declaring a bank holiday four day long federal reserve sent additional currency to the bank fdr delivered fireside chat trying to reassure the american people about the banking system a few weeks later he signed an executive order banning the ownership of more than five ounces of gold in the country whether gold coin gold bullion gold certificates and you had to sell your gold to the federal reserve system at twenty dollars and six and seven cents an ounce and then congress a few months later delivers that gold to the u.s treasury transfers it to the treasury and declares that that gold will be worth 35 dollars an ounce so you know huge huge movement here the federal reserve note is no longer redeemable in gold at the us at the us treasury and this coin is no longer in existence so see change in the american monetary system what about the banking system now in november of 1933 fdr made this statement the real truth of the matter is as you and i know that i've that a financial element in the larger centers has owned the government ever since the days of andrew jackson this country is going through a repetition of jackson's fight with the bank of the united states only on a far bigger and broader basis it's fdr in november 1933 that was a letter that he wrote to a former advisor to woodrow wilson woodrow wilson doesn't is no longer alive but a former advisor of woodrow wilson colonel house so what what is fdr talking about here what's what's this uh this financial element well in 1933 there were several power blocks several financial power blocks jp morgan company is huge it's still far and away the most powerful bank in new york city jp morgan and company began largely as an investment bank but has broadened out into commercial banking accepting deposits from clients and and using some of those deposits as a base from which to to invest in securities and and and and other investment banking actions but jp morgan company has rivals and uh and some of them have become quite prominent in the last decade bank of america operating out of california as a big rival commercial bank and the president of bank of america met privately with fdr early in his administration then we have two uh relatively newcomers in the in the investment banking world lehman brothers and goldman sachs bank of america is a commercial bank primarily lehman brothers and goldman sachs were primarily investment banks they didn't take many deposits from from clients as a commercial bank would these are investment banks and then the in new york you have national citibank which later became citibank national city bank of new york the president national city bank of new york was james perkins in 1933 he was a rock he was a rockefeller ally in rockefeller orbit and he met with roosevelt shortly after the inauguration to talk about banking policy and then we have uh two other banks chase man chase national bank and the bank of the manhattan company now in the 1950s these two banks will merge and become chase manhattan at the time near separate banks investment bank commercial bank and in 1930 there was a power struggle at chase national bank and john d rockefeller jr snatched it from the morgan empire and the chase national bank uh the largest shareholder in his bank became john d rockefeller jr and then the chairmanship of this bank was then handed over to winthrop aldridge winthrop aldrich was the son of nelson aldrich who you will recall when we were talking about jekyll island and and the federal reserve act in 1913 winthrop baldrich was his son a banker and the brother-in-law of john d rockefeller jr so this is obviously firmly in the rockefeller camp and winthrop baldrige also had private meetings with the president the fact that matter is that fdr uh you know he was an eastern establishment man came from uh you know a wealthy family you could say you know quasi-aristocratic family in in new york and so he has friends in high places primarily among these rival these these financial rivals of the morgan bank why is this important well in 1933 congress passed the banking act and there are many different levels to this so we'll tackle one at a time but it's also known as the glass-steagall act named after the the co-sponsors in the senate glass-steagall act first of all separated commercial and investment banking so if you're a bank you have to either be a commercial bank or you have to be an investment bank but you can't do both you can't you know take client deposits as a commercial bank and then use their deposits to speculate in securities okay by the way glass-steagall act was repealed in 1998 under the uh built under the clinton administration but between 1933 and 1998 you were not allowed to combine those two modes of banking this was a big blow to jp morgan and company because well most of these banks specialize in one or the other jp morgan company did quite well in in combining those those two functions which had helped them to establish a hegemonic semi-hegemonic role in new york finance so jp morgan and company very very opposed to this new separation of commercial banking investment banking and lobby to get it repealed doesn't work and actually winthrop aldrich of chase national bank and the head of national citibank james perkins personally lobbied fdr to have this separation so some bankers supported the separation morgan bank does not what else does the banking act of 1933 do bank act in 1933 established the fdic the federal deposit insurance corporation which insured consumer bank deposits up to five thousand dollars today it's up to two hundred and fifty thousand dollars interestingly fdr was unsure about this component of the banking act of 1933 because he feared that by the government guaranteeing deposits that this would encourage banks to take too many risks with consumer deposits and this is one of the reasons why well you know okay well we'll separate commercial banking and investment banking so that consumer bank deposits won't be rated to to speculate in securities by the way there was one one exception to the to the rule that commercial banks could not invest in securities and that was uh government securities commercial banks were allowed to invest in government securities government always looking out for itself uh but you know seen as a safer investment perhaps perhaps fairly um another thing that did i didn't write down on this on this slide the banking act of 1933 also prohibited banks from paying interest on demand deposits so if you're a commercial bank you could no longer pay interest you can no longer pay your clients interest on their demand deposit you can only pay interest on a on a time deposit what was the motive there well fdr said that interest payments on on demand deposits encourage hoarding so it's a inherently deflationary because you're essentially paying consumers to keep their money in the bank which is if fdr wanted to combat deflation that's not something you want to do the flip side of that [Music] many of the smaller banks small and local banks not these guys not the big players but smaller banks many of them were offering higher interest payments on demand deposits than the big banks were willing to pay and that was cutting into a lot of their business and presented an element of competition to them well eliminate that and and that advantage that some of the smaller banks had was taken away unintended consequences to to laws or perhaps intended depending on on uh who was behind it then the other component this was a huge act banking act of 1933 was mega established the fomc fomc the federal open market committee okay meaning for now on open market operations and decisions about monetary policy the big decisions will no longer be independently determined or set by each federal reserve bank but will be determined by this committee now according to the act of 1933 the fomc consisted of all 12 of the federal reserve bank presidents okay all 12 of the federal reserve bank presidents then in 1935 congress passed a banking act which further revised the federal reserve system so that the fomc would include all the members of the federal reserve board in washington plus a rotating uh five bank presidents so not all of the 12 federal reserve presidents but five of them the new york fed the president of new york fed had a permanent seat on the federal res on fomc so that it was actually a rotating four the entire the federal reserve board the new york fed and then a rotating four of the 12 federal reserve banks and that was the fomc why is this important this was a signal that all right power now nfl reserve system is being shifted from the new york fed to the federal reserve board in washington okay it's big so the federal reserve board in washington gains a lot of power here relative to the 12 district banks in the bank of banking act of 1933 and especially the banking act of 1935. by the way the banking act of 1935 also stipulated that the federal reserve board in washington dc has veto power over the selection of a president at any of the 12 federal reserve banks okay so and who controlled the new york fed ah it was in morgan hands morgan hands uh so you know morgan the morgan bank is furious with fdr is furious with this banking act of 1933 and with the banking act of 1935 at the last minute when congress was debating this banking act of 1935 morgan morgan lobbyists attempted to persuade congress to put an immense you know slip an amendment in there that repealed this separation but they failed in that and so morgan had to finally throw up its hands and a group of executives within jpmorgan left informed morgan stanley jp morgan went commercial banking morgan stanley went investment banking but you know quite quite upset with the fdr administration now if you're into conspiracy theory as all this is going on the most decorated marine in u.s history up to that time smedley butler who i've mentioned before in previous lecture veteran of world war one won a medal of honor on two separate occasions published his book wars a racket criticizing the military industrial complex smelly butler came forward and said that he was approached by some men who purportedly represented morgan interest and was told that was asked to lead an army of 500 000 veterans into washington dc to topple the roosevelt administration the plan was have these veterans half a million of them dc force fdr to recognize a new administrative position which would have been called the secretary of general affairs butler would have been named secretary of general affairs butler was popular among countrymen and very popular in the military and then fdr we've been reduced to a figurehead role and uh but butler a patriot exposed the plot went to testified before the house and and and made the statement about how he had been contacted to in a plot to overthrow the roosevelt administration historians call this the business plot now you know was there any truth to it historians have different opinions we don't know 100 percent the house determined that there was truth to it um there might have been some element of truth there but maybe butler was also being deceived the new york times called it an elaborate hoax jp morgan jr of course denied it maybe truthfully and uh but anyway an interesting uh little subplot in the whole thing butler you know butler had you know in 1932 very very recently butler had appeared in the summer that summer in washington dc to support the bonus army which was a group of world war one veterans who had marched to washington dc in order to demand an early payment of their uh the bonus that they were supposed to receive for their service in world war one butler was supportive of them so you know butler had some history here uh but you know whether or not there was any truth to it you know again historians disagree but there's butler making his statement so let's hear what he had to say i appeared before the congressional committee the highest representation of the american people under subpoena to tell what i knew of activities which i believe might lead to an attempt to set up a fascist dictatorship the plan as outlined to me was to form an organization of veterans to use as a bluff or as a club at least to intimidate the government and break down our democratic institutions the upshot of the whole thing was that i was supposed to lead an organization of 500 000 men which would be able to take over the functions of government i talked with an investigator for this committee who came to me with a subpoena on a sunday november 18th he told me they had on earth evidence leaking my name with several such veteran organizations as a fencing to me to be getting serious i felt it was my duty to tell all i knew of such activities to this committee my main interest in all this is to preserve our democratic institution i want to retain the right to vote by the right to speak freely and the right to write if we maintain these basic principles our democracy is safe no dictatorship can exist with suffrage freedom of speech and friends wow all right so you know was there anything there well you know i perhaps will never we'll never quite know i'm undecided about it but you know it's a scary time it you look at 1933 1934 unemployment is just off the charts the country is anxious uh and then you look at what's happening in europe at the time in europe and in the soviet union germany italy there's a lot of a lot going on and then when you also consider the fact that especially the morgan interest was furious with the move away from gold okay and then the these the series of banking acts that appear to target much of their financial and economic power you could see it possibly as being a a real conspiracy on the other hand perhaps there was nothing there i don't think butler was just outright lying but perhaps he was deceived but anyway in any event we will uh we'll go ahead and end there and uh for next time we will uh take a look at the new deal uh the results you know how does the new deal do right did it work uh we're going to take a look at the economic data and there's a recession in 1937 1938 we'll take a look at that as well and evaluate fdr's economic performance see you there for part c

Channel: Professor Barth

Views: 12,491

Keywords: Franklin Delano Roosevelt, J.P. Morgan, Lehman Brothers, Goldman Sachs, John D. Rockefeller Jr., Winthrop Aldrich, Chase National Bank, National City Bank of New York, James Perkins, Bank of America, Federal Deposit Insurance Corporation, Federal Open Market Committee

Id: Kc7Qyom2Jgg

Length: 18min 53sec (1133 seconds)

Published: Tue Nov 24 2020