When you find the old video of him on YouTube, the first thing you notice is the look of defiance and the arrogance in his voice. He was perhaps the most respected person on Wall Street, but already he was hiding a secret life that one day would land him in prison, stripped of his reputation and hated by a public that was struggling through tough economic times.
If you feel you have heard this story before and recently, think again. The man in the YouTube video is not Bernie Madoff, whose crimes were so enormous they may stand forever as an exclamation point at the end of a historic bull market. No, he is Richard Whitney, and his crimes are associated with the Great Depression.
Madoff had been chairman of the NASDAQ stock exchange. Whitney was president of the New York Stock Exchange. Both were regarded as expert investors who knew how to weather tough times. As it turned out, however, Whitney had no idea how to invest intelligently. He had been born into wealth and promoted because of pedigree. His brokerage made bad investments, and he kept borrowing from friends and relatives to cover his losses. He tried to take advantage of the end of Prohibition by investing in a liquor distribution company, but it lost almost all its value by 1937. That's when Whitney started to take money from his wife's trust, the New York Yacht Club and a gratuity fund for the New York Stock Exchange that was supposed to help widows and orphans, all to cover himself.
Everything unraveled like a cheap quilt in March of 1938, and within a few weeks Whitney was shipped off to Sing Sing, his departure watched by a farewell party of about 5,000 angry New Yorkers. The New York Times wrote about this in detail, right down to how he emptied his pockets of cash — $11.85 — before trading in his "well-tailored blue serge suit, polo coat and gray felt hat" for "a baggy suit of gray prison shoddy and an ill-fitting cap."
Why do I bring up this piece of long-gone history, other than that this month is the 71st anniversary of Whitney's arrest? Because I see some lessons in it, and they may not be the kind everyone else sees.
These days, it is popular to look on the recession as an argument against capitalism, or at least for a version of it that is kept on a shorter leash. The president spoke last week about the need to move away from an economy of boom and bust, as if there is a third way in a nation driven by inventiveness and the drive to succeed.
But Madoff and Whitney remind us that the only stuff we have with which to devise an economic system is human beings. That also is the only stuff we have to work from when forming a government.
In 1938, the New York Times called Whitney the biggest Wall Street inmate since Ferdinand Ward, who drove President Ulysses S. Grant to ruin. In fact, the nation has a long line of financial crooks dating back to William Duer, whose bank speculations ruined many people around the year 1800. The latest edition of American Heritage Magazine summarizes many of the worst rogues.
But in all walks of life, including finance and government, the vast majority of people are honest, and a certain percentage are not — sometimes spectacularly so.
The video now on YouTube (what video isn't on YouTube?) was filmed in 1934. In it, Whitney is reading from a prepared statement opposing President Franklin D. Roosevelt's plan for a National Securities Exchange Act, which ended up forming the Securities and Exchange Commission to regulate investments. This, he said, "will not only destroy our securities markets, but will as a necessary consequence interrupt the flow of credit and capital into business."
That's ironic, of course, given all he was trying to hide. But it was ironic in another sense, too. Roosevelt's regulations didn't prevent Bernie Madoff. Con men succeed by gaining our confidence. Why should we believe further regulation could keep the world safe from them forever? Who are the angels in government who will make it so?