The Banking Act of 1933, also known as the Glass-Steagall Act, established the Federal Deposit Insurance Corporation (FDIC), which guaranteed banking deposits up to a specified amount, and joined two Congressional projects sponsored by Representative Henry B. Steagall. That is, the Act combined both the creation of a federal system of bank deposit insurance and the regulation of mingling commercial, investment banking and other “speculative” banking activities.
Though synonymous to one another, the Glass-Steagall Act today usually refers to the four provisions that separated commercial banking from investment banking. Of these provisions, section 16 prohibits Federal Reserve Member banks from acquiring securities on their own account. Sections 16 and 21 further prohibit member banks from accepting deposits for the buying or selling of securities. Section 20 disallows these banks from having any association with companies that deal with securities, including employee relationships with (i.e. sharing employees with) as stated under section 32. Moreover, Regulation Q forbade banks from paying interest on demand deposits and capped interest rates on other deposit goods.
Technology has strongly changed the way stocks are traded from a decade ago to today. Historically, stock markets like the NYSE are a physical location for buyers and sellers to meet and negotiate trades. However, in the 20th Century technological improvements in stock trading have made the physical location to meet irrelevant, giving rise to electronic trading.
Before the telegraph arrived in the 1950s, brokers would place agents on top of hills and buildings between Philadelphia and New York City with signal flags and telescopes to rely stock prices between cities in about half-an-hour. Homing pigeons were also used to transmit information.
Later on, “runners” in the 1860s would carry stock prices handwritten on large chalkboards from the exchange to brokerage offices, so that the brokerages would be aware of a stock’s price. The NYSE was referred to as the “Big Board” supposedly because of these large chalkboards.
Fractional currency notes were issued by the US federal government from 1862 to 1876 in denominations of 3, 5, 10, 15, 25 and 50 cents to combat the shortage and hoarding of coins, which contained metals more valuable than the money the coins represented during the Civil War. The currency notes were originally called “postage currency,” but they officially became “fractional currency” after the passing of the Congressional Act of March 3, 1863.
Several fractional currency notes are on display in the Museum’s “Money: A History” exhibit. One particularly fascinating currency note is the “five cents” issue, lent to the Museum by collector and honorary curator of engraving Mark D. Tomasko. This particular “five cents” issue is the third version of the fractional currency note, and the first issue to contain signatures in order to prevent counterfeiting that had occurred with the previous issues. The currency note features the face of little-known Spencer Morton Clark, who served as the first Superintendent of the National Currency Bureau, which is now the Bureau of Engraving and Printing (BEP). The BEP was in charge of the production of these notes, and a large sensation erupted when Clark’s face appeared on the new print of “five cents” notes.
It is said that Congress initially intended the currency to honor William Clark of the Lewis and Clark expedition, but they failed to specify which “Clark.” Spencer M. Clark took the opportunity to instead make himself the model of the portrait on the bill. A much less famous Clark, Spencer Clark was already under investigation for embezzlement, fraud and sexual harassment. By the time the government began to take action, Clark had already printed the notes in significant quantities.
Nineteen days after the new bills went into circulation, an outraged Congress passed a law forbidding the portrait of anyone living to be used on US currency, stamps or coins. Interestingly, Francis E. Spinner, the US Treasurer at the time, didn’t make much of a fuss when Clark placed him on the 50 cent note without his consent. Although he had the authority to select portraits on new notes, Spinner was pleasantly surprised by the choice.
Clark was able to keep his job only because of the interference of Treasury Secretary Salmon P. Chase. These notes still remain in legal tender today, as the law did not null notes with living portraits if the bills had already been printed before the passing of the law.
Julia Yeung is a summer museum intern at the Museum of American Finance and attends Pace University studying Business Economics. Her twitter handle is @YeungJulia.
Lily Goodspeed is a summer museum intern at the Museum of American Finance and a History major at Brown University. Her twitter handle is @lilygoodspeed.
The Museum is opening a new exhibition, Scandal! Financial Crime, Chicanery and Corruption that Rocked America, on April 29th and we’ve been doing a lot of research on different topics ranging from the first major financial scandal in the United States to the history of Ponzi schemes and instances of egregious disregard for corporate governance. Unfortunately, we won’t be able share all of the information and interesting tidbits we’ve amassed over the last few months. Instead of letting these juicy facts go to waste, we’ve decided to share some of them via the blog.
It wouldn’t be possible to put on an exhibition on financial scandals without a portion dedicated to Charles Ponzi, the namesake of the Ponzi scheme. We’ve been researching Charles Ponzi and two other infamous Ponzi artists. Each of the three men paid for their crimes after their schemes unraveled. Although all three men’s fates have garnered attention and been featured on the covers of newspapers around the world, Charles Ponzi’s is probably the most prolonged and intriguing.
Ponzi’s scheme was exposed in 1920 by investigative reporting by the Boston Post (the paper is now defunct, but won a Pulitzer in 1921 for their coverage of Ponzi’s crimes) and financial reporter Clarence Barron (founder of Barron’s and a famous financial journalist of his time). Ponzi was charged by the Federal Prosecutor for two indictments to which he reluctantly pled guilty and served only three and a half years of a 5-year sentence in federal prison. During his federal prison sentence the state of Massachusetts additionally charged him with 22 charges of larceny for the same scheme, and he was forced to immediately return to court. Nearly penniless in jail, Ponzi represented himself in court, and to the surprise of many (especially the prosecutors), Ponzi was actually quite deft in the courtroom. On the state charge of larceny he argued that a promise of profits is not a crime because it is simply a promise and in regards to investments, promises may be broken when circumstances change. His aptitude for law panicked the state prosecutors who changed the charge to only 12 indictments (this seemed advantageous to Ponzi at the time but worked to his disadvantage when he was tried for them in another case later) and was acquitted on all charges by a jury.
After his early release on parole in 1924, Ponzi’s freedom didn’t last long because only a few months later the state of Massachusetts responded with a vengeance and charged Ponzi with five of the remaining indictments he had originally been charged. He was forced back to court in February 1925. This trial ended in a deadlock, requiring a third state trial later that year. Having effectively been tried four times for the same scheme, Ponzi was found guilty again on this third state trial. Before he was sentenced, though, he escaped to Florida and elsewhere in the South where he attempted another scheme but gave up, traveled around the Southern United States where he requested a deal of a presidential pardon in exchange for his immediate deportation (which neither President Coolidge not Mussolini acknowledged) and eventually surrendered himself to authorities to serve seven years in jail. Ponzi was released early again on parole in February 1934. As the Bennington Evening Banner from July 1934 here reports, the United States continued hunting Ponzi after his release from state prison and pursued his deportation. He petitioned the charges against him, claiming double jeopardy, as the Bennington Evening Banner reports on his request for pardon from Massachusetts Governor Joseph Ely:
He urged that the state conviction and a federal conviction of using the mails to defraud were based on the same offense and that only one charge of moral turpitude was involved. Whether or not he succeeds in halting execution of the federal deportation order which has been pending for some months since his release from the Massachusetts state prison Ponzi will remain in this country until Sunday at least.
In the meantime he planned to apply for a writ for habeas corpus.
Ponzi’s appeal was denied yet again, and he was deported back to his homeland in Italy where he lived for a short while before moving to Brazil. He attempted to find his fortune there but died in poverty there in 1948.
Born into poverty in Ohio in 1838, Victoria Woodhull went on to become one of the most notable—and perhaps most infamous—women of her time. In addition being the first woman to address Congress and the first woman to run for president, Woodhull was also the first woman to open a brokerage on Wall Street when she started Woodhull, Claflin and Co. with her sister Tennessee in 1870. She was an outspoken suffragist, activist and proponent of free love—which in the late 19th century, meant a woman’s freedom to choose whether to remain married, or indeed, whether she wanted to marry at all.
Many of her views were formed as a result of her first marriage– at 15, she married Dr. Canning Woodhull, who was 26, and who turned out to be an alcoholic. She had two children by him, one of whom was severely mentally handicapped. Woodhull attributed his disability to his father’s alcoholism, and was embittered by society’s expectation that she should stay with her husband in spite of it.
Woodhull and her sister used the proceeds from their very successful brokerage business to publish their radical newspaper, Woodhull and Claflin’s Weekly. In it, they waged war against Victorian morality, and covered many controversial issues that included suffrage, free love, vegetarianism and spiritualism. Part of the driving force behind the newspapers was Woodhull’s second husband, Colonel James Blood.
In 1872, the Weekly broke a story that Henry Ward Beecher, famous minister of Plymouth Church in Brooklyn who had denounced Woodhull’s views on free love, had been having an affair with one of his congregants. Woodhull was arrested later that year for sending obscene materials (her newspaper) through the mail. Beecher was sued by his mistress’ husband in 1875, in a highly-publicized trial that was followed around the country.
Woodhull remained a focus of public attention and controversy until she left the United States in 1877, after divorcing Colonel Blood. She remarried John Biddulph Martin and lived out the rest of her life quietly in England.