"Read the Bill!"

(See front cover)

The first term of the first U. S. President was just ending when the New York Stock Exchange was founded under the buttonwood tree in Wall Street in 1792. No broker ever became President and few much of anything else. But in the last 142 years the members of the Stock Exchange have perfected a method of buying & selling securities which functions with mathematical precision and a code of financial conduct which is the highest in the world. Its 1,375 members, the best-dressed group of men in the U. S., have conferred on their officials absolute and arbitrary powers. The governors of the New York Stock Exchange can do anything they want, and from their decision there is no appeal. No rule or regulation can surpass the finality of the Exchange's famed blanket clause: "A member who shall have been adjudged . . . guilty of conduct or proceeding inconsistent with just and equitable principles of trade, may be suspended or expelled." Its only peer is the 95th Article of War, with its famed phrase "conduct unbecoming an officer and a gentleman."

To defend the adequacy of rule by gentleman's thumb has been during the recent year of recrimination the duty of Richard Whitney, himself unmistakably a gentleman. That duty he prepared to perform in Washington this week for possibly the last time. For the Senate of the United States, snobbish though it is concerning itself, refuses to recognize gentleman-as-such and is about to entertain a bill which would give the Government more actual rule than any previous bill over not only the New York Stock Exchange and the dozens of other exchanges throughout the land but also over all incorporated business, big or little.

Richard Whitney became a public figure on the day that the roaring 1920s came to an historic end--Oct. 24, 1929. More precisely, his fame dates from 1:30 of that dark Thursday afternoon when he strode across the floor of the Stock Exchange and bid $205 per share for 25,000 shares of Steel, presumably for the account of J. P. Morgan & Co. By evening the story of his attempt to rally the market had become the first Depression legend.

Born in Beverly, Mass. of an old New England family which had prospered in the East India trade, he went to Groton, where he was a Big Man, and to Harvard where he got his degree in three years. His muscular 6-ft.-2-in. frame bent an oar in the varsity crew and he became a member of the exclusive Porcellain Club. After graduation he went to work for the conservative old Boston banking house of Kidder, Peabody & Co.

"Dick" Whitney's uncle, Edward F. Whitney, was a Morgan Partner, his elder brother George married the daughter of the late Morgan Partner Robert Bacon, later became a Morgan Partner himself. "Dick" married a daughter of a president of the Union League Club. By the time that "Dick'' Whitney formed his own firm, Richard Whitney & Co., in 1916, he could pass the portal of the House of Morgan without a trace of awe.

Still vastly athletic, the owner of an estate in Far Hills, N. J. and a stable of thoroughbreds, he is president of the Essex Fox Hounds and a faithful huntsman. Last week he was re-named head of the hunts committee of the National Steeplechase & Hunt Association.

Richard Whitney did not have to be told that he was going to Washington in behalf of a lost cause. Nothing could divert the Administration from its determination to put the Stock Exchange into a Federal straitjacket. All President Whitney could hope for in the political battle ahead was to keep that strait-jacket from squeezing the breath of life entirely out of the stock trading business.

Last week in Manhattan Mr. Whitney put in a good hard week's work against the Exchange Bill. Summoning the senior partners of the biggest wire houses, he outlined the bill's high points. Soon the private wire systems flashed to managers and resident partners in 1,200 branch offices messages like this: "National Securities [Exchange] Act is a matter of grave concern to every owner of real estate or securities, to all officials of corporations or banks. . . . It is no exaggeration to say that very few of your friends or clients can afford to disregard this new menace to national recovery. . . . Please discuss it with others and urge them to acquaint themselves with some of these vicious provisions.''

Much shrewder and more to the point, Mr. Whitney last week wrote a letter to each & every one of the 800 corporation heads whose stock is listed on the Exchange. This list, on which the public value places a valuation of $50,000,000,000, is not only a roster of U. S. Big Business but it also blankets most of the work of the nation and the livelihood of millions and millions of people. Through corporation presidents and officers Mr. Whitney was, in effect, aiming his appeal at the smallest stockholder and the lowliest employe. Said he in his letter:

'This bill while purporting to regulate stock exchanges, in fact contains so many provisions which would seriously affect listed corporations and their officers, directors and principal stockholders that I have taken the liberty of sending you a copy.

"Sec. 11 ... requires corporations which are listed upon an Exchange to file with the Federal Trade Commission a registration statement . . . [which] must include an undertaking by the corporation to abide by all future rules and regulations. . . . Elaborate financial and other statements . . . must be filed. . . .

"Sec. 12 ... requires every listed corporation to file with the Exchange and the Commission . . . annual and quarterly reports, including both a balance sheet and profit and loss statement . . . monthly reports including among other things, a statement of gross sales or gross income. . . . Sec. 18 (B) permits the . . . Commission to prescribe the forms which must be used; the items and details to he shown . . . also the methods to be followed in preparation of accounts, in the appraisal and valuation of assets and liabilities, in the determination of depreciation and depletion. . . .

"Sec. 15 requires every director, officer or owner of more than 5% of any class of a listed security to file . . . at the time of listing or when he becomes a director, officer or such owner of securities and also within ten days after the close of each calendar month in which there has been any change in the amount of such securities owned by him, a statement indicating the extent of his ownership. . . . It further prohibits any director, officer or such owner . . . from purchasing such listed security with the intention . . . of selling the same within six months. . . . From selling such listed securities which he does not own [selling short]. . . . From disclosing any confidential information. . . .

"These powers are so extensive that the Federal Trade Commission might dominate and actually control the management of each listed corporation.

"The other provisions . . . will affect listed corporations only indirectly by destroying the market for their securities. . . . The prevalent belief that the bill applies only to stock exchanges and dealers in securities has led many people to over look the provisions which it contains directly affecting corporations and subjecting them to the control of the Federal Trade Commission. Faithfully yours. . . . ''

What Mr. Whitney wished he could do in addition last week was to sit down and have a heart-to-heart with every small businessman in the land. The Stock Exchange president was sure that he had a case which could win countless little fellows over to his side -- the man with the small tool factory in Indianapolis, the owner of a little cannery in California, the proprietor of Grand Rapids' biggest department store. Each of these little corporations had stock which was unlisted on any exchange. The Exchange Bill, as Mr. Whitney wanted to tell each small businessman, made this stock ineligible as collateral for loans either at banks or brokerage offices. The local corporation might get it listed on some registered exchange but, if so, the corporation officers would be brought directly under the power of the Federal Trade Commission and would incur all the contingent liabilities provided for in the proposed law. Mr. Whitney's whole argument was based on the idea that the little businessman would feel the pinch of the Exchange Bill just as much as the big businessman.

Hard on the heels of the Big Board in trying to build up a businessman's counterattack against the Exchange Bill was the New York Curb, second largest exchange in the U. S. Able young President E. Burd Grubb, elected only last week, lost no time in emulating President Whitney's methods. President Michael J. O'Brien of the Chicago Stock Exchange, third largest in the U. S., did the same thing.* To businessmen throughout the land who thought that the proposed legislation was no concern of theirs, lawyers, brokers, bankers and dealers preached the same simple gospel: ''Read the bill! Read the bill! READ THE BILL!"

No man alive has covered more acres of newsprint with demands for Federal regulation of stockmarkets than Lawyer Samuel Untermyer. Yet when he read H. R. 7852 at his Palm Springs, Calif, retreat, his old grey head shook in dismay. No one could accuse the investigator of the Money Trust before the Pujo Committee in 1912 of being a friend of Wall Street. Yet last week Samuel Untermyer sounded this grave warning: "[The bill] is more hopeful than anything that has preceded it, except that it goes too far and is likely to defeat its own purpose. It is inevitably the characteristic of a people long denied their rights . . . that the pendulum should swing to the other extreme and unreasonably demand impractical, impossible things."

The proposed Exchange Act of 1934 is a typical product of the liberal legalities of the New Deal. It was drafted largely by bright young men who know how to get from A to B by glittering legal steps, regardless of the economic consequences. It is the same type of legislation as the Securities Act of 1933, which was passed with hardly a peep of protest.

High priest of the bill was Ferdinand Pecora. From his vast experience in unsavory business practice gained while counsel to the Senate's Banking & Currency Committee, he knew just where to apply the strait-jacket the tightest. Right at his elbow was James McCauley Landis, who climbed from a chair in the Harvard Law School to a seat on the Federal Trade Commission by collaborating with Felix Frankfurter on the Securities Act of 1933. Lean, brilliant and 34, Trade Commissioner Landis is a disciple of Supreme Court Justice Brandeis whom, like many another liberal legalite, he once served as secretary. Commissioner Landis' only previous public service was helping reorganize the city government of Cambridge, Mass. In the House hearing which began last week he requested even broader powers for the Federal Trade Commission.

Many another New Dealer chimed in his suggestion. Even such articulate liberals as John Flynn and Max Lowenthal had their say. Most of the actual drafting was done by shy Benjamin Victor Cohen of PWA's railway division and Thomas Corcoran, RFC counsel. Lawyer Corcoran used to work in the Manhattan legal firm of Cotton, Franklin, Wright & Gordon. Lawyer Cohen is a protege of Felix Frankfurter. Both are young, brilliant, determined. Both live with a half-dozen other New Dealers in "Bachelor Hall," a large, comfortable house in Georgetown. There they all share a housekeeping butler and liberal ideal, live on $50 per month each. Lawyers Cohen and Corcoran are typical of the host of radical young lawyers in Washington who keep well in the background while they fabricate the advanced measures Congress is supposed to pass without reading.

Though the bill was written by New Dealers, the White House has gone to great pains to assure everybody that it is not an Administration measure. With the Securities Act in line for modification, it is practically certain that the harshest features of the Exchange Bill will be softened before it is passed. The degree of modification will depend on how much the Senators hear, not from Gentleman Whitney, but from Big John Businessman and his little brother.

*Last week a Chicago Tribune newshawk called up one of the six Michael J. O'Briens listed in Chicago telephone directories. What did Mr. O'Brien think of the Exchange Bill? 'I'm heartily in favor of it," rumbled Mr. O'Brien. "I do not view the margin requirements as excessive. . . . I believe the stock business is in need of much reform. . . . I wish to see wild speculation barred forever." The Tribune duly recorded these views along with objections by other Chicagoans. The Chicago Evening American headlined: HEAD OF STOCK EXCHANGE FOR FEDERAL CURB. Not until next day did the Tribune learn that it had quoted the wrong Michael J. O'Brien.

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