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2020 | OriginalPaper | Chapter

2. The Securities Act of 1933

Author : John H. Wood

Published in: Who Governs?

Publisher: Springer International Publishing

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Abstract

The Great Depression of 1929–33 saw large losses in aggregate production, prices, income, and security values, which politicians and the press attributed to financial fraud arising from greed which called for the legal enforcement of transparency. Or were securities firms already transparent and well-behaved, the asset collapses having been caused by business losses? The New Deal was convinced of the former, but its legislative ambitions were modified by private interests, and its regulations have not been fully applied.

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Footnotes
1
For the government’s support of the housing bubble by its pressures on banks to extend subprime mortgages, the promise of bailouts, and the Fed’s easy money, see Hetzel (2012), and Wood (2015, ch. 6). For gold, prices, and causes of the Great Depression, see Eichengreen (1992) and Mazumder and Wood (2013).
 
2
After the Bryan silver scare of the 1890s, it was standard practice for private and government bond payments to be defined in terms of gold. For example, a $20 coupon was expressed as a promise of an ounce of gold (approximately, that is, because gold was valued at $20.67), which became $35 when the gold value of the dollar was reduced in 1934. However, Congress, upheld by the courts, repudiated the promise, and the $20 coupon remained unchanged despite the increase in the price of gold.
The 1841–42 defaults have been attributed by some to bad luck caused by the depression that began with the panic of 1837, but Dewey (1922, pp. 243–46) and Grinath et al. (2004) have pointed out that the aggressive underfunded investments in internal improvements came after 1837 (Hempel 1976, Exhibit 15, and 1971, pp. 108–109).
 
3
Mitchell was found not guilty of criminal charges but had to pay $1,000,000 to the government. Further testimony revealed that the president’s son, unknown to the American bankers, had been a member of a group sharing in the loan placement (U.S. Senate 1932, pp. 1280–81).
 
4
See Lamoreaux (1994) for a discussion of insider lending.
 
5
The Banking Act of 1933 touched on branch banking, deposit insurance, and deposit interest ceilings, as well as the separation of commercial and investment banking. The latter sections are referred to as Glass-Steagall, which is also used for 1932 legislation that permitted the Federal Reserve to use U.S. government securities as collateral for note issues. Both acts are in Krooss (1969).
 
6
July 12, 1937, FDR Public Papers, vi, pp. 299–301. “Most of the great Federal Commissions were set up in the belief,” he said, that “an ounce of prevention was worth a pound of cure. The Federal Trade Commission was no exception to that sound legislative intent. Prevention of unfair business practices is generally better than punishment administered after the fact of infringements, costly to the consuming public and to honest competitors.”
 
7
Hall vs. Geiger-Jones Co., 242 U.S. 539 (1917): “… the prevention of deception is within the competency of government and … the appreciation of the consequences of it is not open for our review.” Also Kohr (1912) on the Kansas law and Parrish (1970, p. 5).
 
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Metadata
Title
The Securities Act of 1933
Author
John H. Wood
Copyright Year
2020
Book
Who Governs?

Print ISBN: 978-3-030-33082-8

Electronic ISBN: 978-3-030-33083-5

Copyright Year: 2020

DOI
https://doi.org/10.1007/978-3-030-33083-5_2

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