The Patriarch (29 page)

To head up the division that oversaw bankruptcies and receiverships, Kennedy hired another brilliant law professor in his middle thirties, William O. Douglas of Yale, who brought Abe Fortas with him as his chief assistant. Douglas accepted the position without ever having met Kennedy because he knew and admired James Landis and, like so many of his generation, was eager to spend time in Washington. He found Kennedy “friendly but brusque.”
²²

Though Kennedy was nearly alone among his senior staff in not having a law degree, there was never any doubt as to who was in charge—or why. He was stern, tough, “funny and quick,” and the most able administrator they had ever met. “Kennedy was very businesslike and polished,” Milton Freeman recalled years later, “the rest of us New Dealers were pretty sloppy in our ways. I remember Kennedy sending out a memorandum saying, ‘The Securities and Exchange Commission is a government organization. Businessmen and the public have to deal with it, and they have a right to have everybody here during office hours, which are 9:00 to 5:30.’ He added that at 9:00 he had called up a number of people who had not answered. He went on, ‘From now on everybody must be at his desk at 9:00 unless he received my personal permission to the contrary.’”
²³

Kennedy need not have worried about his staff not working sufficiently long hours. “The energies of the men seemed endless,” Douglas noted in his memoirs. “We would all work until six, take two hours out for dinner, be back at eight, and work until midnight or later, reporting by nine o’clock the next morning for another day.” Milton Freeman remembered his years at the SEC in precisely the same way: “Everybody was working very hard. We were remaking the world.”
²⁴

The pressure on Kennedy and the SEC commissioners and staff was immense. What was referred to as the Roosevelt bounce, the stock market rise in the six months following the president’s inauguration in March 1933, had restored a bit of confidence in the workings of the economy. But the momentum had stalled. Unemployment was still much too high. What was needed now was private investment to get the economy moving again. Unfortunately, it appeared that the nation’s investment bankers and corporate leaders had gone on strike, unnerved by their own failures, frightened by Roosevelt’s attacks on the “money changers,” nearly unhinged by the Richard Whitney–led assault on the Securities Exchange Act of 1934, and leery of the heavy liabilities placed by that act on corporate directors, lawyers, and accountants who made errors in their registration statements. By the time Kennedy arrived at the SEC in the summer of 1934, the capital markets had nearly ceased to function, with virtually no new offerings of stocks and bonds. Trading had slowed on the major exchanges to the point that, as the
New York Times
reported on August 5, 1934, Wall Street firms had been forced “to cut expenses drastically by reductions in personnel, salary cuts and ‘Scotch weeks’ [a week per month without pay] for employees.” Kennedy’s mandate was to find a way to restore confidence in investors, large and small, who were unwilling to put more capital into the market after having lost much of it in the crash.

Roosevelt had already demonstrated that one way to soothe a frightened nation was to speak to it on the radio. Kennedy followed his lead, secured an invitation to address a luncheon of the National Press Club and fifteen minutes of airtime on the ABC radio network. “The brokerage community,” the
New York Times
reported on July 25, the day of his talk, “is waiting eagerly if not anxiously for the radio address of Chairman Kennedy this afternoon . . . because there is a lot of talk in Wall Street to the effect that the talk may be reassuring if not actually encouraging to better markets. . . . It was facetiously suggested yesterday that the Exchange should either suspend operations for fifteen minutes between 2:30 and 2:45 this afternoon, or provide a loud-speaker to broadcast the talk to members on the floor.”

With so much at stake, Kennedy, a witty correspondent, conversationalist, and storyteller, but not much of a writer, enlisted Swope and Moley to help draft his address. “Here is the smear,” Swope wrote him the day before, “done in rough outline so that you may put in and take out, as you please, and also so that you may word it, wherever you wish, in Kennedyesque fashion. . . . What I want you to do is to strike a note that is definitely your own—one that is marked by courage, by independence and by understanding of the joy you have before you; also by a deep sense of fairness. And now my blessing—and to hell with you.”
²⁵

Kennedy’s radio address did precisely what he had hoped it would. Much like Roosevelt, he was able to project an aura of optimism grounded in his own confidence that he could get his job done and regulate the exchanges without doing them—or investors—any harm. “We of the SEC do not regard ourselves as coroners sitting on the corpse of financial enterprise. On the contrary, we think of ourselves as the means of bringing new life into the body of the security business.” The market—and the businessmen who had made their fortunes issuing and trading securities—had prospered in the 1920s because during the Great War, the public at large had gotten into the habit of investing in war bonds and then “in the period succeeding the war . . . turned to the leading exchanges and to the investment bankers and brokers for further investment.” Having encouraged ordinary Americans to invest in equities, “can there be any doubt the government owes them the responsibility to check improper financial practices—that it owes this vast army responsibility to supervise the industry?”

These were the ethical and historical arguments for government regulation. But there was a compelling practical necessity as well. The securities industry would not prosper again until investor confidence was restored and capital lying idle put to good use. As chairman of the SEC, Kennedy pledged to use the powers placed at his disposal—powers of registration, investigation, subpoena, public hearings, the bully pulpit, and criminal proceedings—to restore confidence and protect investors by weeding out the crooks, the sharks, the swindlers. “The Commission will make war without quarter on any who sell securities by fraud or misrepresentation.” And it would do so without interfering with the work of honest brokers, businessmen, and investment bankers. The rules and regulations it would write and enforce would be “simple and honest. Only those who see things crookedly will find them harsh.”
²⁶

Kennedy’s speech delighted the investment community. As the
New York Times
reported the next morning, for the fifteen minutes Kennedy was on the air, Wall Street’s brokers had “dropped their other duties and clustered around the portable radios in their offices” to hear his address. “Most of them left the loud-speaker with a smile of relief, and some enthusiastically commented that ‘that is all the market needs.’” The speech had gone over brilliantly, Swope telegraphed Kennedy. “Whadya mean I done noble,” Kennedy responded. “You done noble. Everybody seems to have liked it.” Adolf Berle, who had returned to New York after his stint on Roosevelt’s brain trust, congratulated Kennedy on striking “a note which was very much needed for the time being.”
²⁷

Congress had given the SEC until October 1 to register every stock exchange in the nation and every security listed on them. Registering the exchanges was a relatively simple matter, as there were only a few dozen of them. Registering the thousands of securities listed on them and the tens of thousands of unlisted securities sold over-the-counter was going to be more difficult. The SEC solved what could have been an impossible problem by granting temporary registration for companies that applied for it and provisional registration for those that did not. It then set out to write permanent registration requirements and design application forms for every firm whose stock was listed on the twenty-one registered exchanges.

It is impossible to overstate the enormity of the task that lay ahead. Between October 1934 and June 1935, the commission, with Kennedy overseeing every action it took, formulated permanent rules governing trading on the exchanges and outlawing “manipulative and deceptive practices”; cooperated with the Federal Reserve System in setting margin rates; began an “intensive study” of the operation of over-the-counter markets with the goal of establishing registration procedures by January 1, 1936; and wrote and put into operation guidelines for the permanent registration of securities already traded and for new issues.
²⁸

—

K
ennedy managed to get away for a few weekends at Hyannis Port that summer of 1934, his first in Washington, but not many. As his father recommended, Joe Jr. had spent the summer in Hyannis Port preparing for Harvard in the fall. Rose later recalled that he had returned from his trip to the Soviet Union “full of these ideas about the superiority of the communist system . . . over the capitalist system.” After one such dinner table argument, at which Joe Jr. tried to enlighten his father on Soviet communism, “Dad set his knife and fork down,” Ted later remembered. “‘When you sell your Car, and sell your boat, and sell your horse, you can talk to me about that,’ he exploded at Joe, ‘but otherwise
I don’t want to hear any more about it in this house!
’ And boom! up he got, and out the door he went.” Jack had been listening intently on the sidelines and later confided to his mother that “Joe seems to understand the situation better than Dad.” Rose reported Jack’s comments to her husband, who responded that he didn’t “care what the hell they think about me. I will get along alright, if they stick together.”
²⁹

Rose had arranged for Joe Jr. and Jack to go on retreat with the Passionist priests at their monastery in Brighton, Massachusetts, at the end of the summer. When after the retreat, Father Nilus McAllister wrote Rose that he was concerned for her sons’ piety, she forwarded the letter to her husband in Washington. Kennedy wrote Father McAllister directly to say that he agreed with his concerns about “both” of his boys. “I think they have great potentialities, but I think they are also very critical and rather of an inquisitive frame of mind.” As for their relationship to the church, he was not worried that Joe would “become careless now” because at Harvard he would be in “direct contact with the St. Paul Catholic Club.” It was Jack he was “very worried about.” His year at Catholic school had been a failure, and he was now at Choate “with no help or cooperation whatsoever [from the local parish priests]—a fact I believe, to be a disgraceful proceeding on the part of the clergy.” He asked Father McAllister to look after both boys and sent along a check to “defer some of the expenses of this retreat.”
³⁰

If his boys were getting spoiled, it was because he was doing the spoiling, and he knew it. He had sent Joe Jr. to college with a healthy annual allowance to cover his expenses but suggested that he limit himself to an “allotment . . . of $125 a month merely for the moral effect of trying to live as reasonable as possible. If you try this for a couple of months and it doesn’t work, let us look into the subject again.” Joe Jr. got everything he asked for. When he needed a new shaving brush, Kennedy had Eddie Moore send him one. When he needed train reservations from Boston to Miami for spring break, Kennedy put him in touch with Paul Murphy, who worked at his New York office. When Joe Jr. was chosen chairman of the Freshman Smoker Committee, he got Rudy Vallee and his Connecticut Yankees to perform.
³¹

Kennedy kept close tabs on his son and offered constant, often unsolicited advice. Joe Jr. was encouraged to play football at Harvard, because it would give him “a great chance to meet a lot of fellows, and after all, that is the first requisite of a successful college education—learning how to meet people, and getting along with them.” He was reminded to stay in close touch with Sir James Calder and other aristocrats in the liquor business in England: “I think it would be a very good idea for you to drop them a line when you can. . . . You know, all that group may be your partners some day and it is well to build up a background for business reasons.” When Joe Jr. informed him that he intended to study philosophy, Kennedy laid out the case against philosophy, then recommended that he get in touch with Felix Frankfurter, whose “judgment on the whole lay out would be invaluable.” To make sure that Frankfurter said the right thing, Kennedy phoned him and, when he was not in, explained to Mrs. Frankfurter “what I hoped you would be able to do as far as Joe goes.” Recognizing that Frankfurter might think he was being too intrusive and overbearing a father, Kennedy preemptively defended himself: “I really want to do the best thing for Joe. By that I mean that I don’t wish to force on him anything he can’t see himself. I still hope to be able to make suggestions and possibly help direct him. That’s as far as I ever want to go.”
³²

Five months later, in March 1935, Joe Jr. wrote to say that he had decided to major in government, which from his father’s perspective was a great improvement on philosophy. “I think it is frightfully interesting and the type of work you may decide to take up. I wouldn’t lose sight of the fact, however, that economics might be a very good side-line, on the basis that it would have many practical advantages.”
³³

In Rose’s absence—she was taking her “20th anniversary” vacation tour of Europe without her husband—and no doubt because he realized the burden was too great to be left to her alone, Kennedy looked after sixteen-year-old Rosemary that fall. For the past several years, he and Rose had struggled to find the right learning environment for their daughter. They had tried public school, a private boarding school for “slow” children, homeschooling, a Scared Heart convent, but nothing had quite worked out. In September 1934, in large part because her big brother Joe Jr. would be nearby in Cambridge, they sent her to study and live with a private tutor, Helen Newton, in Brookline.
³⁴

Kennedy, who was concerned that Rosemary would misinterpret the reasons for her relocation from the convent school in Providence to a private home in Brookline, asked Joe Jr. in Cambridge to “keep suggesting to her that she should work very hard in order to get all she can. In other words—she must not feel she is there for social purposes and nothing else.” He asked Jack to write Rosemary regularly. “You know it is very important that we have a good job done up there [at Miss Newton’s in Brookline] this year.”
³⁵