Epilogue – Part III

The following is an excellent excerpt from the book “AMERICA’S BANK: The Epic Struggle to Create the Federal Reserve” by Roger Lowenstein from Chapter Fourteen “Epilogue” on page 266 and I quote: “Carter Glass, who as a junior representative had studied banking in his hotel room at nights, became a Senate authority on finance. He sponsored an amendment to create the Securities and Exchange Commission as a stand-alone agency rather than, as had been proposed, part of the Federal Trade Commission. Thus, he played a pivotal role in the three major financial reforms–the Fed, the SEC, and the Glass-Steagall Act–of the twentieth century. Within the upper chamber, he oversaw the Banking Act of 1935, which strengthened the Reserve Board–the little “capstone” that had once appalled him. The 1935 act divorced the board from the executive branch, removing the Treasury secretary and the comptroller of the currency from the directors’ table, and lengthened terms to fourteen years (all as Vanderlip had proposed in 1913). Otherwise, Glass was a persistent thorn in the New Deal’s side. He remained committed to states’ rights and helped to block federal efforts to lift the poll tax. When he died in 1946, he was the last member of Congress born in the antebellum South. The New York Times eulogized, “He is generally regarded as the father of the Federal Reserve Act.”
For as long as they lived, the framers fought bitterly over this assessment. Eight of the founding generations wrote memoirs or accounts of the creation of the Federal Reserve. [Robert] Owen and Glass got into a nasty scrap over who was entitled to the lion’s share of the credit for the bill’s passage. Owen hit the press first, with a slim volume in 1919. He later denounced the Fed, which he said had become a tool of the big banks. Glass was less bothered by Owen than by Charles Seyour, a Yale professor who got access to the files of Colonel House, from which he stitched a sensational narrative, The Intimate Papers of Colonel House, exaggerating House’s role in the Fed’s enactment. Glass’s own memoir, An Adventure in Constructive Finance, published in 1927, devoted nearly fifty pages to refuting Seymour. whose book he termed “an amusing fiction,” and which he did not find amusing at all.
Glass’s account was highly self-serving, unctuously praising Wilson as the unerring helmsman and leaving no doubt that the honor of realizing Wilson’s program had belonged to Glass. By overstating Wilson’s role, Glass was able to ignore those who had preceded Wilson–and who had preceded Glass. Parker Willis, who wrote an exhaustive, 1,750-page history of the bill, took a more expansive approach, although he also concentrated on the period after he and Glass had begun to draft the bill. Neither Glass nor Willis cited Victor Morawetz–a stinging omission, since Morawetz had been the first to propose a regional banking plan. Even more unkindly, Willis all but ignored his former professor, James Laughlin, to whom he had eagerly turned for advice when he was sketching out a plan in 1912. Willis’s comment on the plan that Laughlin had helpfully supplied when Willis and Glass were preparing to see Wilson was especially uncharitable. “This bill,” he coldly informed posterity, “when received by Mr. Glass was filed with numerous other bills. . . transmitted to the Committee and received the same consideration.”
Willis reserved his greatest animus for the Aldrich Plan and for its intellectual author, Warburg. Unlike Glass, who came to appreciate the German-born banker despite their disagreements, Willis resented Warburg’s reputation for brilliance and lobbied to keep him off the Reserve Board. In his book, Willis ungraciously characterized Warburg’s role as “simply that of a critic. . . and a critic whose recommendations were not adopted”–a narrow and highly misleading synosis. Willis also claimed that of all the antecedent bills from which the Federal Reserve Act borrowed, it was least indebted to the Aldrich Plan. Willis managed to make this topsy-turvy assertion even while acknowledging that in drafting the Act, he had made “use of such features of the Aldrich bill as were considered to be desirable or even in various places the use of language drawn from or modeled after the language implied in the Aldrich bill.” In other words, he had copied from it.
Willis’s book did not provoke a response, at least immediately, but Glass’s did. Samuel Untermyer, whose feud with Glass had never been repaired, quickly responded to excerpts of An Adventure in Constructive Finance with all of his old vinegar, calling it an “interesting work of imagination.” Untermyer said Glass had slighted the contribution of Owen (not a disinterested comment, since he, Untermyer, had worked with Owen in the spring of 1913). Moreover, Untermyer claimed that the Reserve Act was “the direct outcome of the disclosures of the dangerous concentration of the control of money and credits by the Pujo investigating Committee”–of which, of course, Untermyer had been counsel. In other words, Untermyer’s investigation led to the Federal Reserve Act.
Warburg claimed that Glass’s book inspired him to write his two-volume tome on the Fed’s enactment and early years, The Federal Reserve System. Warburg probably would have written it anyway, but Glass’s book, which Warburg privately referred to as “vicious,” gave Warburg his purpose: he wanted to add historical perspective and balance to the Glass narrative of a Democratic Congress legislating over the will of Republicans and of truculent bankers. Warburg saw the Act–which was the work of Democrats–as the culmination of many previous proposals, including by Republicans and bankers such as himself. He wanted the Federal Reserve to be seen as one of America’s great monuments–“like the old cathedrals of Europe”–whose preservation would require a national and shared committment. When Warburg was writing, in the late 1920s, America had lived with the Fed for less than twenty years. If the agency were to survive–by no means assured then, and perhaps not today–it was imperative, he wrote, that it have bipartisan support, and therefore, that it be seen “not as the work of a single party,” but as the product of years of work by people across the spectrum.
To rebut the notion that financiers had been antagonistic to reform, Warburg emphasized the role of bankers and economists who had instigated the reform discussions arising out of the 1907 Panic. Even in 1913, he rightly pointed out, bankers were hardly the uniformly hostile lobby that Glass depicted, the savage critiques of the American Bankers Association notwithstanding. Most of all, Warburg sought to establish a place of honor for the Aldrich Plan. While Glass portrayed the Aldrich Plan as a counterreform intended to institutionalize the Money Trust and block any genuine reforms, Warburg presented it as an evolutionary step that, in conjunction with the Citizens’ League publicity campaign, prepared the public for eventual legislation.
Warburg’s book was also self-serving, and his sarcasm betrayed his dislike of Willis and of Glass. However, he presented his case as perhaps only he could, methodically setting forth the Aldrich bill and, on facing pages, the Reserve Act. This “juxtaposition of texts” which stretched to over two hundred pages including explanatory comment, demonstrated, even to Glass’s admirers, that the Aldrich bill was the nearest ancestor to the Glass-Owen bill. Milton Friedman and Anna Schwartz would call the bills “identical in many details” and “very similar in general structure.” It is doubtful that the Reserve Act would have passed without Wilson’s leadership or Glass’s tenacity, but it would have looked quite different without the Aldrich bill, which itself sprang from Congress’s idea (in hindsight, and inspired one) of creating a commission to study reform. The Aldrich trip to Europe was vital because the models for central banking came from Europe. Warburg supplied the intellectual rigor. Having traced the failings of American banking to the country’s phobia of centralization, he labored unceasingly to cure it. Warburg was the anti-Jackson. But as Warburg acknowledged, there were many theories and contributors besides himself. Asked once about the identity of the Fed’s “father,” he replied that he didn’t know, but that judging from the number of men who claimed the honor, “its mother must have been a most immoral woman.”
As the joke implied, the Fed’s parentage was mixed. It drew form both American traditions, Hamiltonian and Jacksonian. Some said the banks got all they wanted–tat in effect, the Money Trust won out. But they did not get control of the Reserve Board, and that was a very great concession. For National City to submit to Washington, in so many particulars and regulatory details, was more than it had ever done before. Control was to be shared–private or quasi-private banks but a government board. Similarly, the organization was split–Federal on top, regional below. The character of the money was also a compromise. The essential bargain was to respect the federalist character of American politics while overcoming its fierce resistance to centralization.
The Federal Reserve Act did not guarantee sound monetary policy any more than the establishment of Congress could guarantee good laws. Policy would be the burden of those in power–as disputatious today as in 1913. However, the Act unified the banking system, which unquestionably made it stronger. It created an institution for regulating the money supply, a difficult task but a necessary one for societies too advanced to depend on the vagaries of mining gold. It provided flexibility to respond to financial shocks and economic headwinds and this made the system more resilient. It was an imperfect bill–nonetheless, after a decade of debate, division, panic, study, conspiracy, party platforms, elections, and legislative work, it was a highly worthy achievement.”
(THE FOLLOWING IS THE SECOND PART ON THE INSIDE OF THE JACKET COVER AND I QUOTE:
“Roger Lowenstein–acclaimed financial journalist and bestselling author of When Genius Failed and The End of Wall Street–tells the drama-laden story of how America created the Federal Reserve, thereby taking its first steps onto the world stage as a global financial power. America’s Bank showcases Lowenstein at his very finest: illuminating complex financial and political issues with striking clarity, infusing the debates of our past with all the gripping immediacy of today, and painting unforgettable portraits of Gilded Age bankers, presidents, and politicians.
Lowenstein focuses on the four men at the heart of the struggle to create the Federal Reserve. These were Paul Warburg, a refined, German-born financier, recently relocated to New York, who was horrified by the primitive condition of America’s finances; Rhode Island’s Nelson W. Aldrich, the reigning power broker of the U.S. Senate and an archetypal Gilded Age legislator; Carter Glass, the ambitious, if then little-known, Virginia congressman who chaired the House Banking Committee at a crucial moment of political transition; and President Woodrow Wilson, the academician-turned-progressive-politician who forced Glass to reconcile his deep-seated differences with bankers and accept the principle (anathema to southern Democrats) of federal control. Weaving together a raucous era in American politics with a storied financial crisis and intrigue at the highest levels of Washington and Wall Street, Lowenstein brings the beginnings of one of the country’s most crucial institutions to vivid and unforgettable life. Readers of this gripping historical narrative will wonder whether they’re reading about one hundred years ago or the still-seething conflicts that mark our discussions of banking and politics today.”
THIS IS THE THIRD EXCERPT THAT I PUT ON FROM THE EPILOGUE CHAPTER FROM THIS BOOK AND THIS EMPHASIZES THE VALUE THAT GLASS-STEAGALL HAD AND WHY KEEPING THE BIG INVESTMENT BANKS SEPARATE FROM THE COMMERCIAL BANKS WAS SO IMPORTANT BECAUSE IT WORKED. WE STAYED AWAY FROM THE BIG INVESTMENT BANK CRASHES THAT WE HAD IN 2008. SENATOR ELIZABETH WARREN, WHO SITS ON THE SENATE BANKING COMMITTEE, IS PROBABLY ONE OF THE MOST INTELLIGENT PERSONS WE HAVE TODAY COMPARED TO WHAT THE GLASS-STEAGALL ACT WAS. THE BIG INVESTMENT BANKERS, ALONG WITH PRIVATE EQUITY, WOULD JUST AS SOON GET RID OF OUR SMALLER COMMERCIAL BANKS THAT ARE SO ESSENTIAL IN THE FACT THAT THEY ARE SPREAD OUT ALL OVER OUR COUNTRY HELPING OUR SMALL FARMERS AND BUSINESSES. THAT’S WHY SEN WARREN, WHEN SHE TALKS ABOUT THE WORTHLESS, UNREGULATED, TOXIC DERIVATIVES, AS WELL AS BITCOINS, WHICH THE BANKS TRY TO PASS OFF AS REAL ASSETS, CAN GET US INTO TROUBLE AGAIN JUST LIKE IN 2008. YOU READ THE HISTORY OF OUR COUNTRY, YOU STILL HAVE TO DEFINE A REAL ASSET LIKE GOLD, SILVER, LAND AND ALL THE COMMODITIES THE LAND PRODUCES WHICH ARE SOLD ON THE CHICAGO MERCANTILE EXCHANGE. THAT’S WHY ALL THE BANKS MUST BE REGULATED AND SEPARATED FROM THE STOCK MARKET WHICH IS JUST ANOTHER FORM OF GAMBLING AND I DON’T KNOW IF A LOT OF THEIR ASSETS EVEN HAVE ANY VALUE.
LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen Member and USAF Veteran

Advertisements

About tim074

I'm a retired dairy farmer that was a member of the National Farmer's Organization (NFO). Before going farming, I spent 4 years in the United States Air Force where I saved up enough money to get my down payment to go farming. I also enjoy writing and reading biographies and I write about myself as well as articles and excerpts I find interesting. I'm specifically interested in finances, particularly in the banking industry because if it wasn't for help from my local Community Bank, I never could have started farming which I was successful at. So, I'm real interested in the Small Business Administration and I know they are the ones creating jobs. I have been a member of Common Cause and am now a member of Public Citizen as well as AARP. I have, in the past, written over 150 articles on the Obama Blog (my.barackobama.com) and I'd like to tie these two sites together. I'm also on Twitter, MySpace and Facebook and find these outlets terrifically interesting particularly what many of these people did concerning the uprising in the Arab world. I believe this is a smaller world than we think it is and my goal is to try to bring people together to live in peace because management needs labor like labor needs management. Up to now, that hasn't been so easy to find.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s