White Powder, USA, 1929

The new Republican President never touched liquor before his March, 1929 swearing-in ceremony. Indeed, nearly three decades earlier he palmed off all hospitality cordials on his Chinese interpreter, who sometimes had trouble navigating after Hoover’s visits to hosts.

Peter Lorre movie poster

Chapter 43

White Powder

In New York there was something of a stir when, Superintendent of Banks Warder suddenly resigned his post and was replaced by Joseph A. Broderick. Awkward questions were being raised before a grand jury in connection with the handsome sums Mr. Warder had been receiving quite apart from his salary as a public official. So awkward were the questions and vexing the official secrecy surrounding Mr. Warder’s beneficiary, the failed City Trust bank, that Manufacturers Trust cancelled its planned takeover of the institution. City Trust’s depositors had no such easy way out.[1]

Two federal agents paid a discreet visit to the Hubinger corn sugar plant in Keokuk, Iowa, on February 23, but left with the impression that the plant owners had not grasped the seriousness of the situation. The presence of federal agents at the Hubinger corn sugar factory was not reported, but the sentencing of the former mayor of Herrin to two years at Leavenworth for alcohol was widely covered. On Capitol Hill, the Jones Five and Ten bill passed the House February 28 and became law March 3. Herbert Hoover was inaugurated the following day promising vigorous enforcement of every such law.[2]

The U.S. Embassy in London continued to assemble newspaper clippings on the Naarden narcotics conspiracy and send them to the State Department, while the London Times praised the U.S. government for helping to stamp out opium traffic even as the League of Nations rushed in to claim it’s share of the credit.[3] The grand jury probe ground on and the House voted to investigate federal judge Winslow—with the Senate first horning in on the act, then blocking the investigation entirely.

On the Teapot Dome front, Edward Lawrence Doheney Jr.—the oilman’s son who had allegedly delivered $100,000 to Interior Secretary Albert Fall—was murdered by his personal secretary who immediately shot himself February 16.[4] On the income tax front, beleaguered Staten Island brewer J.J. Dunne was indicted for income tax evasion and former judge Nash Rockwood pled guilty to the same charge.[5] Back of all this lurked the latest round of WWI reparations talks. Germany now sought to blackmail American investors by holding private loans hostage to a reduction in reparations payments awarded to the European Allies.[6]

Excerpted by permission from Prohibition and the Crash by J Henry Phillips

[1] (NY World Almanac 1930 98, 99) (NYT 3/2/29 7)

[2] (Lawrence 1929 97; 119) (Docket 11070 4) (NY World Almanac 1930 100; 1931 358) (Hoover 1929 1974 2-10)

[3] (Taylor 1969 231f) (NYT 2/19/29 2:1; 2/21/29 12)

[4] (NY World Almanac 1930 99)

[5] (NYT 2/21/29 2; 3/3/29 9; 2/27/29 48, 25:2; 3/26/29 33)

[6] (NYT 2/13/29 1, 6; 2/22/29 1)

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Then and now, asset forfeiture crashes

1987DJIAAccording to Ronald Reagan, on Thursday, September 11, 1986, lunch with VP George H.W. Bush was followed by a lengthy cabinet meeting over proposed prohibitionist legislation.

Those were the heady days of “Just Say No,” when the Soviet Union was going broke and the Reagan administration was looking for ways to cut off all sources of income for the communist empire. The 9/11 drug bill in question contained items like using the military to invade other countries to enforce prohibition, an extra hundred million dollars to hire a drug army, Federal funds for state prisons, and “introduction of illegally obtained evidence at criminal trials in cases where a police officer acting in good faith makes an error in a warrantless search situation” … “forfeiture of substitute assets“,  “drug tests for all U.S. government employees in “sensitive” positions” and so on.  Reagan signed the resulting bill and called it a “National Crusade.” The way these laws are written, they only take effect a year after they are signed. You wouldn’t want cause and effect close enough together to draw attention to the financial charts.

1932banksuspensionsThe same sort of thing had been happening 55 years earlier, Herbert Hoover was president, beer was a major felony, several large banks in New York City had been involved in financing illegal alcohol and drugs, and Ronald Reagan had just turned 20.

President Wilson’s son-in-law, William McAdoo, suggested that Congress pass a law confiscating all money owned by drug and alcohol operators. Pres. Hoover had already more than doubled the number of convicts in prison for victimless crimes. Money the government didn’t have was being appropriated for building new prisons and hiring hordes of agents an prosecutors.

In June 1932 the Senate passed the revenue act containing the asset forfeiture provisions, along with major tax hikes. Hoover lost the election in November, but would still be president until March 4, 1933. In the meantime banks for closing right and left because citizens, fearful of asset forfeiture confiscations, we’re removing all of their deposits, thereby contracting the amount of available credit. Tax revenue fell by nearly half before anyone had ever heard of the Laffer curve. Stockbrokers were only making money by selling short. Huge bootlegging and narcotics trials of wealthy and important defendants from arrests made back in 1928-1932 were running out of delaying tactics.

GOPNSDAPFinally, on December 13, 1932, President Hoover signed executive order 5970 –Inspection of Income Tax Returns–which allowed States to look at Federal income tax forms filed by corporations within their borders.

This was done quietly, with no fanfare in the newspapers. Few even realized what had happened until Hoover’s press conference of January 20 subtly spilling the beans. This realization dawned ten days before Hitler was named Chancellor of the same German Reich Hoover had nurtured and protected by his moratorium on war debt collections (the Moratorium on Brains). The House promptly cut off all funding for wiretaps and entrapment buying. Corporations began withdrawing money from banks, and over the course of the following month every single bank in the United States shut down even before Franklin D Roosevelt was sworn in to become President for Life and declare a “holiday,” complete with fines, imprisonment and forfeiture language.

Religious conservatives have since that time pronounced the word “liberal” (in favor of repealing prohibition) the way their German counterparts pronounced the words “liberal” and “Jewish” (meaning laissez-faire).  In the rest of the English-speaking world, liberal still means the same thing that it meant–-even to religious conservatives–-in America before 1932.

Stay tuned for how these events relate to the Crash of 2007-8 and the ensuing Depression. Need an interpreter?
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