Prohibition and The Crash, 1929


1929electoralvote

Chapter 39

The City Trust Mystery

            The Steinhardt affair dominated New York headlines, even though the accompanying news stories contained no intelligible information whatsoever. On February 1, 1929, Frank M. Ferrari, president of the City Trust Co., died in New York City as the stock market was making broad advances. The Times quietly tucked the story away on page 27 and few took notice. Then came the embarrassing League of Nations revelations regarding European drug manufacturers, which drew attention to other narcotics-related disclosures and generated more news stories.[1] Behind the scenes Mabel Willebrandt wrote Attorney General Mitchell blaming “disorganization” in the office of the United States Attorney for the Eastern Division of New York, on one William A. DeGroot.[2]

The Federal Reserve Board had meanwhile produced the broker’s loan figures and—in the wake of an increase in the Bank of England’s interest rate—issued another warning against “speculation.”[3] At the same time a settlement was reached in the 1922 Big Four case in which the wealthy bootlegging Savannah gentlemen—already in prison for income tax evasion—were finally assessed $140,000.[4] Bearing hard on the issue of tax evasion was a United States Court of Claims ruling that the Commissioner of Internal Revenue had absolute authority to determine what inventories businesses could and could not use in filing tax returns. Judge Nicholas Sinnott wrote the opinion, which was not at all reassuring for preparers of corporate income tax returns.[5] The Federal Reserve Board soon issued another scolding, hinting at danger to the nation’s gold reserves.[6]

On top of this came the Harris amendment calling for another $25 million in prohibition enforcement appropriations. From January 12 to February 8, when it was deadlocked between House and Senate, the proposal had been the focus of constant and acrimonious debate.[1] By February 13, the commotion reached the floor of the House in the form of a pre-impeachment resolution denouncing Federal Judge Winslow, and across the border into Canada in the form of a massive manhunt for fugitive lawyer Steinhardt.[2] These publicized events at home and in Geneva were attended by flurries of stock liquidations which sent prices tumbling. The New York Stock Exchange, Curb Market and Philadelphia Exchange all announced they would be closed Saturday, February 9. In discussing the market nosedive newspapers avoided touching on the Naarden case, prohibition funding, or the backstage struggles in enforcement offices, pointing instead to recent scoldings by the Federal Reserve Board and to England’s interest rate hike. Even the closure was downplayed as due to an outbreak of the flu among brokers.[3]

Yet there had been signs of uncertainty surrounding the City Trust Company since before January 8, when vice-president Frederico Ferrari signed a report denying the bank had excessive loans. Unbeknownst to newspapers and the public, New York Bank Examiner Frank L. Warder had, on January 15, received a $20,000 payoff to overlook the insolvency of the City Trust Company and forego shutting it down.[4] The market break occurred one week after City Trust president Francesco Ferrari’s death and four days before the closing of the bank’s five locations by the State Department of Banking. The International Radiotelegraph Convention proclaimed January 1 contained the signature of one Frn. Ferrari binding the Republic of San Marino to the treaty. San Marino—barely two miles wide—lay wholly inside Italy nor far from the Ferrari automobile plant. Folks began to wonder just how important this Ferrari fellow had been.[1] The investigation would continue to yield unsavory surprises for another three years. No mention was made of the Bank of United States money which National City Bank placed on deposit at the Petrograd branch of City Trust.[2]

Rioting was rampant in Bombay, with another 28 deaths reported February 11. New outbreaks of political turmoil in Afghanistan already had Great Britain in a stir. And policy recommendations from the League Opium Advisory Committee were extremely unpopular among ruling officials yet popular with the native masses in British India. Ordinary citizens there, as in China, felt themselves exploited by the British opium and salt revenue monopolies. For years now “holy” pictures of Mahatma Gandhi had sold briskly at every market and bazaar in India. People everywhere wore Gandhi caps and picketed and boycotted liquor stores to starve the government of revenue. Gandhi was imprisoned for “sedition” in 1922 but released in 1924 after an appendectomy out of fear he might die in prison. The Indian Congress had recently resolved in favor of independence if Dominion status were not granted India by the end of 1929. Britain’s very sovereignty had thus been called into question, and the clock set ticking for a showdown over the Empire’s hegemony in British India. British newspapers were still having a field day with the Naarden drug conspiracy case, doubtless overjoyed to have Europeans share some blame. Yet such publicity could only worsen matters in India—where the body count from the latest riots stood at 113—and make a poor impression on the incoming Hoover Administration.[1]

In Williamson county, Illinois, three city officials—a district attorney, coroner, and chief of police—were on trial for liquor conspiracy with the Mayor of Herrin. Chicago Alderman Titus Haffa was also on trial as a kingpin in a liquor conspiracy implicating three prohibition agents.[2] Nor was the situation very comfortable in New York, where officials were busy making sure no “startling evidence” involving public figures with Arnold Rothstein’s drug ring saw daylight. With the grand jury closing in on Judge Winslow, whose narcotics cases included the Unger trial and involved agent Kerrigan’s death, this was no small task. In Miami, Dade County Solicitor Robert Taylor questioned Al Capone, who indignantly declared: “I never was a bootlegger in my life.”[3]

Em português no meu outro blog.

Next: The Valentine’s Day Massacre

[1] (NYT 1/19/29 3) (Taylor 1969 204-5) (Van Tyne 1923 111, 120)

[2] (Pasley 1930 206) (CT 2/16/29 5; 2/17/29 25) (NYT 2/16/29 5:5) (Irey and Slocum 1948 22)

[3] (NYT 2/14/29 1) (CT 2/15/29 3) (Schoenberg 1992 216-217)

[1] (Treaties, Etc. 1938/1968 5031; 5095)

[2] (NY World Almanac 1930 98, 99) (NYT 5/15/28 36)

[1] (NYT 1/12/29 1:2; 1/13 1:7; 1/14 4:4… 2/8 1:4)

[2] (NYT 2/13/29 1, 2)

[3] (WSJ 2/8/29 1)

[4] (NYT 7/3/29 25) (CT 9/7/29 4)

[1] (Taylor 1969 231)

[2] (Hoover 1929 1974 131-2)

[3] (WSJ 2/8/29 1) (Lawrence 1929 437)

[4] (Brown 1984 62, 274)

[5] (CT 2/6/29 1 Commerce)

[6] (Lawrence 1929 437)

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