80 years apart, state's senators have similar role in wake of crisisIn the years following the Crash of 1929, hopes of reforming the financial industry were heaped largely on the unlikeliest of politicians: a South Dakotan with a Scandinavian accent and little experience in the ways of Wall Street. As the nation now struggles to wrest itself from a modern financial crisis, another South Dakotan finds himself in the vanguard of the reform effort.
By: Seth Tupper, The Daily Republic
In the years following the Crash of 1929, hopes of reforming the financial industry were heaped largely on the unlikeliest of politicians: a South Dakotan with a Scandinavian accent and little experience in the ways of Wall Street.
As the nation now struggles to wrest itself from a modern financial crisis, another South Dakotan finds himself in the vanguard of the reform effort.
Back then, it was Republican Sen. Peter Norbeck, who was chairman of the Senate Banking and Currency Committee. Today, it’s Democratic Sen. Tim Johnson, who is second in seniority on what’s now called the Senate Banking Committee and is chairman of the Financial Institutions Subcommittee. The Banking Committee is conducting hearings on a proposed overhaul of financial-industry regulations.
Johnson said in a recent interview with The Daily Republic that he’s cognizant of the late Norbeck’s contributions to Depression-era Wall Street reforms.
“He’s one of my favorite Republicans,” Johnson said.
Norbeck, who also served as a governor and state legislator, is known mostly for his instrumental role in securing funding for the carving of Mount Rushmore, his contribution to the formation of Custer State Park and his advocacy on behalf of scenic road-building in the Black Hills. One of the most scenic drives in the Black Hills is now named the Peter Norbeck Scenic Byway.
Less is known about Norbeck’s role in reacting to the calamity that befell the nation in October 1929. During one week of that month’s “Great Crash” — an early event in the Great Depression — the stock market lost $30 billion in value.
‘Wall Street has gone crazy’
When the crash happened, Norbeck had already been chairman of the Senate Banking and Currency Committee for two years. Gilbert Fite, author of the definitive Norbeck biography, “Peter Norbeck: Prairie Statesman,” said it’s unclear why a man whose primary occupation had been well-drilling was assigned to the committee. According to Fite, who conducted an extensive review of Norbeck’s personal papers, the senator lacked an understanding of national banking and currency problems.
Nevertheless, Norbeck was appointed and became the committee’s most senior Republican in 1927. He thought of declining the chairmanship to which he was entitled, but he feared doing so would cause him to lose prestige.
“It was a task for which he was hardly prepared,” Fite wrote of Norbeck’s ascendancy, “but one which subsequent events demonstrated to be part of his most significant and lasting work.”
Norbeck did not play a conspicuous role in attempting to curb the “wild gambling” on Wall Street prior to the Great Crash, Fite wrote, but he did indicate his awareness of an impending disaster. On Sept. 20, 1929 — about a month before what came to be known as “Black Thursday” — Norbeck expressed his views about Wall Street in an article printed in the Mitchell Evening Republican (the precursor to The Daily Republic).
“I think Wall Street has gone crazy,” Norbeck said in characteristically plainspoken style. “Prices are badly inflated. What goes up must come down. A boom always bursts. The innocent people are the sufferers. There was a time when business was organized and conducted for a business profit. It is now organized for a promotion profit. The new motto is to sell stock to suckers and take up a new line.”
‘Country hick’ at the helm
In 1932, then-President Herbert Hoover called upon Norbeck and another member of the Banking and Currency Committee to begin an investigation into the structure of Wall Street. Many observers expressed doubts about Norbeck’s ability to handle the job.
The biographer Fite, a 91-year-old, rural Wessington Springs native who now resides in Florida, said Norbeck’s image as a Scandinavian-sounding well driller from the wilds of Dakota did little to inspire confidence.
“The easterners, they wouldn’t use this term, but they thought here’s this ‘country hick’ out here trying to deal with bankers in New York and elsewhere,” Fite said during a recent interview. “There was a great bit of feeling at the time that he just wasn’t able or capable, and that he didn’t have the experience to deal with the problems before the country.”
Eventually, Norbeck’s “country hick” methods proved a great boon to the nation, according to Fite. When other politicians and financial titans angled for something less than a full probe into Wall Street’s inner workings, Norbeck exhibited some of the stubborn persistence he had earlier shown in drilling hundreds of artesian wells back home in Dakota.
“We are going to carry this investigation through to the end,” Norbeck was quoted as saying in April 1932. “It will not be dropped in the middle or soft-pedaled.”
One of Norbeck’s most important actions — and one of his last as committee chairman before the Democrats swept into power in 1933 — was his selection of Ferdinand Pecora to serve as the committee’s chief counsel. The evidence and testimony brought out by Pecora during committee hearings led to legislation that created much of the financial industry’s modern regulatory framework.
That legislation included the Securities Act of 1933, which was the first major federal legislation to regulate the offer and sale of securities; the Banking Act of 1933, which established the Federal Deposit Insurance Corporation (FDIC); and the Securities Exchange Act of 1934, which created the Securities and Exchange Commission (SEC).
Legacy of bipartisanship
Norbeck received little credit for the results of the Wall Street investigation, but Fite said he deserves some.
“I would say his guts in getting that finished and what came out of it, which was some very constructive legislation, was his main contribution,” Fite said. “I don’t know whether we’ve got a senator today that would make the fight he did.”
The late John T. Flynn, an aide to Pecora during the Wall Street investigation, agreed and wrote that Norbeck gave the probe “its tone, its character, and direction.”
Johnson said the primary lesson today’s politicians should learn from Norbeck is bipartisanship. It was Norbeck’s willingness to work with Democrats in Congress and Democratic President Franklin Roosevelt, Johnson said, that led to legislative successes like the creation of the FDIC.
Johnson said modern efforts at financial reform are “intensely political” on both sides of the political aisle.
“I’m not impressed with the bipartisanship up to now,” Johnson said. “This committee has historically been a bipartisan committee, but that seems to be breaking down right now.”
During recent Banking Committee hearings, Johnson has called for modernization of insurance regulation, questioned Federal Reserve Chairman Ben Bernanke about economic policies and discussed a White House proposal to create a Consumer Financial Protection Agency. Johnson said he hopes the current Banking Committee’s legacy will be as lasting and positive as that of its Depression-era predecessor.
“You can never tell what the future may bring,” Johnson said, “but I’m hopeful that with bipartisanship, we may be as progressive and responsible as the leaders during the Great Depression were during their era.”