Most of the world was in even worse shape than the United States. Unlike the United States, which had experienced a period of relative prosperity in the 1920s, most belligerents had never fully recovered from the devastation of the world war. Their citizens had less of a cushion to buffer them from the impact of the global economic meltdown. Trouble loomed everywhere.
Benito Mussolini was firmly ensconced in power in Italy after eleven years of dictatorial rule. Adolf Hitler and his National Socialists had come to power in Germany by exploiting both postwar grievances and economic hardship. Only a week before Roosevelt took office, Hitler had used the Reichstag fire to consolidate his dictatorial stranglehold over the country, unleashing vicious attacks on German Communists, Social Democrats, trade unionists, and left-wing intellectuals.
Trouble was also brewing in Asia. In September 1931, Japanese forces had seized Manchuria, a resource-rich and contested region situated between the Soviet Union, China, and Korea, and renamed it Manchukuo in 1932. In response to international protests, Japan left the League of Nations in 1933.
Despite the devastation wrought by the Depression, the mood was decidedly more upbeat in the United States. On the day of Roosevelt’s inauguration, a New York Times editorial captured the excitement that surrounded the change of administrations:
Americans are a people of invincible hope…. But seldom can their eagerness to see a new President inaugurated have equaled that of this year…. they have exhibited an extraordinary patience in enduring hardships which millions of them have somehow come to believe will be mitigated or removed by the mere fact of Mr. ROOSEVELT’S entering the White House…. Mr. ROOSEVELT has… given an impression of buoyant optimism in the face of a great complex of knotty problems awaiting him…. Even citizens sunk in gloom… will preserve a remnant of admiration for a President who begins his turn by acting on the belief that “nothing is impossible for the United States.” …no President of the United States ever came to greater opportunities amid so great an outpouring of popular trust and hope.2
Roosevelt decided to act boldly. The country was behind him. The Democrats controlled both houses of Congress and people wanted action. Will Rogers commented on the president’s early days: “If he burned down the capitol, we would cheer and say, ‘Well, we at least got a fire started anyhow.’”3
Roosevelt’s much-anticipated inaugural address rallied the nation to the fight. His declaration that “the only thing we have to fear is fear itself” seems, in retrospect, to have been out of touch with reality, given the magnitude of the problems. But Roosevelt connected with a deeper reality: Americans’ desperate need for renewed hope and confidence. And that he set out to restore.
He identified those responsible for the current dismal state of affairs: “The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.” He called for “strict supervision of all banking and credits and investments” and “an end to speculation with other people’s money.”4
Roosevelt had given little indication of the kind of policies he would adopt once in office. At times, during the campaign, he attacked President Herbert Hoover from the right for spending too aggressively and unbalancing the budget. At other times, he acknowledged the suffering of the people and called for a “new deal.” Now he had to solve some very real and very practical problems. Hoover accused him of deliberately making a bad situation worse by ignoring Hoover’s pleas for joint action during the four-month interregnum between the election and Roosevelt’s taking office in March. Now the waiting was over. First up was the banking system.
Between 1930 and 1932, one-fifth of U.S. banks had failed. Many others were tottering. On October 31, 1932, with the Nevada governor off in Washington seeking a federal loan, Lieutenant Governor Morley Griswold declared a twelve-day bank holiday, preventing depositors from withdrawing their funds and thereby safeguarding against a run on the banks. Mayors and governors across the nation anxiously eyed the situation, hesitating to follow suit. Things began to unravel when Michigan declared an eight-day bank holiday on February 14, closing 550 state and national banks. The New York Times assured nervous readers that “there is no reason why [Michigan] should be taken as a precedent.” Maryland and Tennessee saw sufficient reason to act, as did Kentucky, Oklahoma, and Alabama, as panicky depositors lined up to get their money out while they still could.5 By the time Roosevelt was inaugurated, banking had been halted completely or sharply limited everywhere.
Conditions were ripe for dramatic changes in the banking system. Public anger against bankers had been building since the stock market crash. The year before, in February 1932, New York Times reporter Anne O’Hare McCormick had described the widespread antipathy toward Wall Street bankers afoot throughout the land: “In a country which suffered more than 2,000 bank failures last year… the tendency is to blame the bankers for almost everything that has happened at home and abroad…. Not in a generation at least has the feeling against money barons been so bitter…. The average citizen always suspected the morals of the financial hierarchy, but now his distrust goes further: he doubts its intelligence.”6
A year later, mistrust of Wall Street financiers was at an all-time high, fueled by Senate inquiries into the banks’ role in precipitating the economic collapse. Peter Norbeck, the chair of the Senate Committee on Banking and Currency, appointed former New York County Assistant District Attorney Ferdinand Pecora to run the hearings. Pecora blistered the nation’s leading bankers. When announcing, in early February, that Charles E. Mitchell, the powerful chairman of the board of National City Bank, the world’s largest bank, was being called to testify, Norbeck, a Republican from South Dakota, issued a statement: “The investigation so far shows that some of the large banks were highly responsible for the wild stock market boom… some banks were in on the promotion scheme…. It was just a polite way of robbing the public.” Norbeck added that when the Federal Reserve Board in Washington tried to slow down the stock market boom, Mitchell, chair of the New York Federal Reserve Bank, had “defied the board and speeded up the boom. He took a ‘go-to-hell’ attitude toward the Board and got away with it.”7
News of the hearing was splashed across the front pages of newspapers. Pecora exposed fraud and wrongdoing on the part of the nation’s top bankers, including obscene salaries, unpaid taxes, hidden bonuses, unethical loans, and more. Mitchell, one of the most powerful men in the country, was forced to resign. He managed, however, to win acquittal on charges of defrauding the government of $850,000 in income taxes, narrowly escaping a possible ten-year prison sentence.
Magazines began calling bankers “banksters.” The Nation observed, “If you steal $25, you’re a thief. If you steal $250,000, you’re an embezzler. If you steal $2,500,000, you’re a financier.”8 In this climate, Roosevelt had pretty much a free hand to do what he wanted. Brain Truster Raymond Moley noted, “If ever there was a moment when things hung in the balance, it was on March 5, 1933—when unorthodoxy would have drained the last remaining strength of this capitalist system.” Senator Bronson Cutting concluded that Roosevelt could have nationalized the banks “without a word of protest.” Rexford Guy Tugwell, director of the Agricultural Adjustment Administration, and other advisors urged Roosevelt to do just that.