How Finance Rigs the Rules of the Market to Its Own Advantage

A new book by a pair of academics explains how banks undermined post-WWII regulatory safeguards to sabotage the functioning of the free market

Patrick J. Sauer
Published in
10 min readJan 30, 2020


Photo: picture alliance/Getty Images

InIn January 1933, Ferdinand Pecora, a “soft-spoken son of Italian immigrants,” assembled a committee to investigate what in the hell led to the 1929 stock market crash. There were, of course, many fathers of the Great Depression, but a 2011 Smithsonian article lays out one of the basic underpinnings of the longest and deepest financial calamity in American history:

“The ‘Pecora commission’ [made] front-page news when he called Charles Mitchell, the head of the largest bank in America, National City Bank (now Citibank), as his first witness. ‘Sunshine Charley’ strode into the hearings with a good deal of contempt for both Pecora and his commission. Though shareholders had taken staggering losses on bank stocks, Mitchell admitted that he and his top officers had set aside millions of dollars from the bank in interest-free loans to themselves. Mitchell also revealed that despite making more than $1 million in bonuses in 1929, he had paid no taxes due to losses incurred from the sale of diminished National City stock — to his wife. Pecora revealed that National City had hidden bad loans by packaging them into securities and pawning them off to unwitting investors. By the time Mitchell’s testimony made the newspapers, he had been disgraced, his career had been ruined, and he would soon be forced into a million-dollar settlement of civil charges of tax evasion. ‘Mitchell,’ said Senator Carter Glass of Virginia, ‘more than any 50 men is responsible for this stock crash.’”

It wasn’t happenstance, or bad luck. It was sabotage, a willful act of destruction to game the system. And it led to important changes on behalf of average citizens. The reforms that came out of the Pecora commission were substantial. They included the Securities Act of 1933, which outlawed filing false information about stock offerings; the Securities Act of 1934, which formed the SEC; and the Glass-Steagall Banking Act of 1933, which separated commercial and investment banking.