TAMING THE STREET

A history of the difficult work of wrestling Wall Street into regulatory compliance over the course of Franklin Roosevelt’s presidency.

It was among the greatest accomplishments of Roosevelt’s New Deal that agencies such as the Securities and Exchange Commission succeeded in “clearing out the vicious jungle that was the nation’s financial landscape in the 1920s and replacing it with a well-tended terrain where ordinary Americans could save and invest with confidence,” writes Henriques, a George Polk Award winner and the author of The Wizard of Lies and A First-Class Catastrophe. Before the SEC came along, Wall Street was an arena for insider trading and self-dealing, where private investors mostly worked at a large scale and smallholders in the financial arena were frequently victimized by those larger players. While serving as New York’s governor, Roosevelt made tentative steps to regulate the financial industry, and he rejected Robert Moses for the role of czar. It was Roosevelt’s lieutenant governor, a scion of the Lehman dynasty, who put Moses in the job, and Moses successfully articulated “the folly of trusting bankers to police themselves.” Even after the SEC was established, Henriques observes, the financial markets were occasionally roiled by downturns, though honest ones that largely reflected the business cycle rather than the vast Ponzi scheme that manifested itself in the meltdown of the first years of the Great Depression. Some of the practices that the SEC attempted to curb are back in full force, including short selling. Even if the Chicago School acolytes urge that the government has no business in the marketplace, the “rich man’s panics” of old are fewer than before, with a scaffolding of “safeguards against market rigging” in place—at least for the moment.

Defenders of regulatory watchfulness will find much ammunition for argument in this readable history.