Just like year, the unlikely reformer, carter glass and financial regulation. The format today, matts going to talk for however long he wants. We have a few images to supplement then hell take some questions, so come on up. Welcome. Id like to thank chuck and the other people at the Historical Society for having me here today. This is a strange introduction. I had a funny thing happen getting here. I live in chevy chase, maryland, and i didnt want to drive and look for a parking space so i called lyft and they came within a minutes. I was barely putting on a tie, learning how u to tie a tie again and when i get in as he was pulling away, i realized i did not put a belt on my trousers so i had visions of being on cspan with my trousers falling down, luckily, chuck brought me a belt. Youre saved from that, if not my speech. Ill talk for 20, 25 minutes then take your questions. Carter glass was a major figure in American History. A recent writer, richard farley, called him quote, the single most important lawmaker in the history of American Finance. I think thats absolutely true, but very few people know about him today. I spoke recently at the Historical Society in lynchburg, virginia, where hes from, and nobody knew anything about glass. So thats what led me to my book. I want to say three things about glass. This is kind of my conclusion. Three points. Glass was a racist and a complete reactionary. He made his fame by getting the virginia constitution amend ed t the turn, the end of the 19th century, to prevent 95 of blacks in the state of virginia from voting. He was a democrat. He opposed 80 of the new deal. He was a total reactionary racist and he was that way in his own personal life. He hated change or reform, whatever you call it. He came to the senate in 1920. The senate then when glass arrived there, had operated, an operator run phone system, if you wanted to call somebody, you got the operator, agave he or show the number, they switched on automatic where you could actually dial yourself. Glass insisted they go back to operator and they did. Another example, he lived in lynchburg, virginia on the weekends, but at the may flower hotel in Downtown Washington for 25 years. He came in one morning to find out that the may flower had renovated its lobby and left the hotel in a huff. He did not like any kind of change. So the first point, reactiona ona rrr rrreactionary, both in personal and political life. Second point, he made a major exception in the case of laws dealing with finance. He not only supported, but he authored three very important laws designed to curb the power of American Finance. The Federal Reserve act of 1913, the glass steeg steagall act o and portions of the securityies and change act of 19346789 so glass dislike d and distrusted government. He dislike and distrusted even more, wall street. The third point about glass is i think the most interesting. He, like me other wilsonian progressives, believed the way to deal with finance was not to attempt to regulate it. That regulation eventually would always fail. Instead, the way the deal with financial power was to break it up. Fragment it. So those are the three points about glass. Reactionary, but made an exception of laws curbing finance and third, that he believed the way to curb finance was not through regulation, but through fragmentation. Now let me talk about glass background. He was born in lynchburg, virginia two years before the civil war. 1858. Lynchburg was a perfectly southern town. Glass remembered seeing rebel confederate soldiers up in the hills around lynch burg and he remembered the Union Cavalry riding through lynchburg. His family, like many southern families, was devastated by the civil war and reconstruction. Glass had to stop his education at age 14. He was largely selfeducated. He read shakespeare, like lincoln, he was selfeducated and well educated. When he went to work at age 14, he started by selling newspapers on the corner in lynchburg. Then became the assistant to the printer of the paper, called the printers devil, then a printer, then reporter, theb then one of the editor, then the editor and when the owner of the paper wanted to sell it, he wanted to sell it to glass. Glass was this great figure, young man in lynchburg, so the own owner arranged for people in lynchburg with money to lend glass the money to buy the newspaper. Glass was an extremely successful publisher of the lynchburg news. He bought the other morning paper. Bought the afternoon paper. He installed presses. Wrote editorials dealing with everything from the case in france to reconstruction in the United States. He made for that time and that area, a lot of money. So like a lot of successful Business People, he decided to go into politics in the late 19th century. There was only one party to be in in virginia then and in the south. The Democratic Party. So he became a democratic politician. He was elect ed to the state senate and he made his fame, virginia was redoing its constitution and like all the southern state, it was trying to find way not to give blacks civil rights and the right to vote and glass was the guy who came up with a formula in the virginia constitution that prevented most blacks and a lot of whites, from voting. Believe it or not, that made glass a hero to white virginia. He was a big figure in the state, so he was elected to congress in 1902. Glass is now in congress in 1902 as a democrat and he might as well not be there because the republicans had firm control of the national government. Teddy roosevelt was in the white house. Both houses had overwhelming republican majorities. So democrats like glass were pretty isolated. He wanted to go on the Foreign Affairs committee. He did not get that. He was put on the house Banking Committee. He had no background, no interest in bank iing, but that where he was put and glass, always the conscious driver read every article and book. He selfedge kayed himself on finance just as he had on shakespeare and the english poets. That the time, beginning of the 20th century, the United States was the only Major Industrial country in the world that did not have a central bank or similar mechanism to control the currency or address financial panics. Engineland had the bank of engl, frans the bank of france, germany, the bank of germany. There was no such entity in the United States. A few Business People and intellectuals worried about this, but nobody paid much attention. The economy was doing well. Teddy roosevelt, the president , found banking very boring, which i agree with him, so nobody dealt with banking issues. Then comes the panic of 1907. The worst financial panic this nation had had until 1929. A number of banks and trust companies in new york city fail. They threaten ed to bring down brokerage firms, Insurance Companies and the New York Stock Exchange. And indeed the city itself. There is no state r or federal entity that can deal with this kind of panic. We dont have a central bank or similar mechanism. The panic is stopped when one individual, j. P. Morgan, had a small veinvestment banking firm went around and raised money from his friends on wall street and they raised money and res e rescued a number of failing banks and trust xcompanies. The panic stopped. Morgue wan was kind of a hero a suddenly, congress realized we cant go on like this. As one of them said, were going to have panics in the future and we wont have j. P. Morgan with us forever. So there was a realization, at least mofrom the people who car about this stuff, that we need Something Like the bank of england or germany. The republicans are in full control of congress and they name a very powerful senator from rhode island, probably the most powerful republican senator. I cant think of anyone today of that stat chure and power. Had a special committee of congress to draft legislation to provide the equivalent of the bank of england or germany. He assembles every expert he can think of in the United States. Businessmen, bankers, profess professors. Students of finance generally. They go overseas. Meet with people in london, paris, berlin. And they develop a model called the aldrich plan for a very powerful u. S. Central bank model largely on the bank of germany. Its going to be one main office. Probably in new york city. Its not going to be government controlled. Its going to be controlled by private bankers. Its going to be a very powerful, Private Banking organization as the u. S. Central bank modelled on the german central bank. I think had aldrich and his colleagues introduced that plan in 1908, 1909, 1910, even early 1911, it probably would have got enact ae chltd we came out of te panic. There was a sense we had to do something. Aldrich had the power of the Business Community behind him, but republicans didnt act. One gets the feeling that they thought they were going to be in power forever. They had largely run the government since the civil war and probably they thought they would run it for another 50 years so they didnt do anything in those years. It wasnt until 1912 that aldrich introduces his plan in congress and by that time, the country had swung in a progressive way. The democrats had taken control of the house and with progressive republicans, they now had control of the senate and these democrats and republicans were not about to enact a conservative, private bank like aldrich was proposing. So the aldrich plan died. The house is now controlled by the democrats, the ball is in their court. And who do they name to prepare their version of a central banking type bill but carter glass. They dont know very much about him, but hes probably the only guy, at least in the Democratic Party in the house, who had ever studied banking issues, so almost by default, glass, a largely unknown, middleaged southern democrat, gets named to devise a democratic plan. Glass comes up with a scheme that very few people had talked about or thought of. He is not going to have a single central bank as they have in england, france and germany. Hes going to have a series of Regional Reserve banks in 12 or 20 cities around the country. Because he does not want all finance centered in new york. He wants it scattered around the country. He wants a bank, a central bank in the richmond area to help virginia banks. And farmers and merchants. He wants a California Bank in sacramento or San Francisco to help california farmers, merchants and bankers, so he comes up with this Regional Reserve banking system. Of x number of reserve banks. He realizes he has to have somebody on top of this to at least coordinate these dozen or 20 reserve banks so he says ill use control of currency. Hes the top federal banking official whose main job it is to create, to authorize banks. If you want to get a bank charter at that time, you go to the state or federally and if you went federally, the control of the currency was the guy who gave you your license and oversaw you, so glass picks the control of the currency to sit on top of this regional ver aal banking system. One author had a very goodizati goodization. The aldrich plan was called a national association. Glass called his the Federal Reserve association because it was federal in nature. Now when glass comes up with this scheme, we dont know who the next president is going to be because its early 1912 and were headed toward the most famous election probably in American History, the 1912 president ial election. Because we have three major candidates. The republican president , William Howard taft. Teddy roosevelt, who had been a republican president , but now broken with taft, forms the progressive party. And third, wood row wilson, a democrat governor of new jersey. Nobody knows when glass comes up with this plan, whos going to be the next president. Turns out wilson gets about 40 of the vote. Is elected president. He and glass had never met, but glass contacts him and goes to visit him and glass says i got a great deal for you. Ive come up with this banking scheme and glass and wilson kind of fall in love with each other. Theyre both southerners. Theyre both virginians. Theyre both racists. They both dont like a strong federal government, so glass plan is just the kind of thing wilson would like and he does and he says, gee, carter eer, i like to just make one change. I dont want to give the job to the controller to be on top. Why dont we have an independent board of disinterested people will sit on top of this regional system. Glass exceeded to this, so we now have plan for a Federal Reserve system of 12 or 20 reserve banks in areas around the country under the general supervision of a board in washington, d. C. This gets presented in congress and all hell breaks loose. The republicans, most of them, conservatives, love the aldrich plan, and this is complete heresy. Some h some hay seed from a country town in virginia is propose iin Regional Reserve plan when aldrich had proposed the greatest thing ever so they cant wait to kill glass plan. A lot of the democrats are from the south and the west. Anything with the name bank, they hate. Andrew jacksons successors. So they oppose the idea of anything dealing with a National Banking system or a federal banking system. So complete fragmentation but glass is very clever. While he makes deals left and right, gets the bill through the house of representatives, now goes to the senate. Glass plays a big role in getting the bill through the senate. Its almost regarded as a miracle, but on christmas day, Woodrow Wilson signs into law the Federal Reserve act. And glass, while most americans dont know him, glass is a huge figure in American Finance now and american politics. A year before, nobody knew his name. Now hes a major figure, expert on American Finance and american politics. An opening happens in the secretary of treasury. So wilson names glass to become secretary of the treasury. A virginia senator dies and the governor of virginia names glass to a term in the senate and glass is elected four more times. So there he is in 1920. The United States senator. I ought to go back and say, i said the most interesting thing about glass i thought was he didnt believe in regulation. The Federal Reserve believed in fragmentation. The Federal Reserve act reflects that kind of fragmentation. Instead of one central bank, he has 12 Regional Reserve banks. Fragment economic power. Glass is now a senator. Well respected. Hes on the cover of Time Magazine a couple of times. And glass like anybody else watching the country in the late 1920s noticing the roars stock market. The stock market is going up 1927, 1928, 1929. And glass, like any other Observer Says notices whats happening is money from across the country is pouring into wall street. There were no federal or state limits on how much you could borrow. Just what a bank would allow. In 1928 if you had 2,000 you could buy 10,000 worth of stock. It was 20 margin around. That meant if the stock went up another 2,000, you doubled your money because you were very highly leveraged and a lot of people did this. My wifes grandfather owned a farm outside of philadelphia. He put all of his money in the stock market on margin. My family was an immigrant family in new york and my fathers older brother put all of his money in the market. And glass says, where is this money coming from . Its coming from all across the country. The bank in sacramento or wichita is not lending to local farmers and merchants. The bank in wichita is lending to chase manhattan in new york which is lending to Merrill Lynch to its customers. All the money not all the money, but a lot of money from across the country the pouring into wall street for brokers loans. Glass is horrified by this. Hes even more horrified when he finds out that the 12 Regional Reserve banks are lending money to the local banks who are lending that relending that money to Chase Manhattan Bank or city bank or to Merrill Lynch or my uncle and my wifes grandfather. So the system glass had created in the Federal Reserve act to prevent concentration in new york is being used as a very efficient way to get that concentration. Hes created i think the 12 reserve banks, 12 funnels make it easy for the money to go to new york city. And glass is horrified. His scheme designed to keep money in localities has been dashed by circumstances. And glass jumps up and down. He goes to the Federal Reserve board which he created and says you ought to do something. They say, its not a bad idea. It is a little dangerous. We have to think about it. They blow him off. He gets ridiculed and he has a few colleagues in the senate, republicans and democrats, he gets ridiculed by wall street and lawrence publishing a book in may of 1929 called wall street and washington which calls glass and his colleagues a bunch of hay seeds. These uneducated country rubes are making fun of the greates