FDR: Wall Street Greed Caused the Stock Market Crash That Brought on the Depression

The Dust Bowl drought, he says with some sarcasm, is the Almighty’s way of compensating for that watering; He lampoons the greedy malefactors of wealth that he blames for the Depression, and their threats, opposition, and personal attacks, writing: “Don’t you know that little pigs are unpopular with the Big Bad Wolf in the White House?”

The Great Depression was the deepest and longest-lasting economic downturn in the history of the Western industrialized world. In the United States, it began with the stock market crash of October 1929, which sent Wall Street into a panic and wiped out millions of investors. Over the next several years, consumer spending and investment dropped, causing steep declines in industrial output and rising levels of unemployment as failing companies laid off workers. By the time the Great Depression reached its nadir, nearly half of the country’s banks had failed, and some 1/4 of Americans were unemployed altogether (with many others earning an insufficient amount to get by). Franklin D. Roosevelt was elected to do something about the country’s economic crisis, and he took immediate action, signing and implementing a wide range of programs that are known as the “New Deal”, programs that many feel pulled the U.S. out of the Depression. And he accomplished this while fighting his political opponents, who were often the monied interests that owned much of the media. Throughout this process, FDR exuded serenity and confidence, and inspired confidence. But what (and who) did he feel caused the Depression, and how concerned was he actually by the entrenched and vocal personal attacks on him by the opposition?

To understand his views a definition is necessary. “Watered stock” is stock that is issued with a value much greater than the actual value of the issuing company’s assets. For example, if Company XYZ has actual assets of $10 million, and then the company’s principals take it public by selling 50 million shares priced at $3 per share, the company would receive $150 million from investors as capitalization against its $10 million in assets. Analysts would say that Company XYZ’s stock is watered. As for the impact on the principals, they could sell their personal holdings in the stock at the inflated value, and might also declare themselves large dividends from the new funds; the company could use the extra capitalization for officers’ salaries and perks, as well as expansion, mergers etc. So the principals stood to greatly benefit from the watered stock, while investors had stock that would be valueless if the principals misused the capitalization.

Roosevelt believed that watered stock was the prime cause of the stock market crash that brought on the Depression. In a campaign speech in September 1932, he stated that companies whose stocks were traded on Wall Street “had been found to be overcapitalized to the extent of $520,000,000. This means, my friends, that the people of the United States were called upon to supply profits upon this amount of watered stock. It means that someone was deriving profits from the capitalization into which he had put no substantial capital himself.” In August 1934, he pursued the same theme, attacking the greedy who believed that “fraudulent securities and watered stock could be palmed off on the public; that stock manipulation which caused panics and enriched insiders could go unchecked”. He put the blame on those who wanted to end all government regulation and let business be unchecked, accusing these people of hoping “the old law of the tooth and the claw would reign in our Nation once more”. In 1936, he would subscribe to his cousin Theodore Roosevelt’s definition of such people as “malefactors of great wealth.” In his book “Roosevelt, the Great Depression, and the Economics of Recovery”, Elliot A. Rosen concurs that this was FDR’s belief, writing that he felt watered stock  “created an environment of excess profits funneled upward to bankers and investors at the top of the securities pyramid.”

The privileged men and women he attacked and blamed in such public fashion despised him, opposed his every measure, and called him a traitor to his class. His name was anathema in many of the great clubs around the country. This is because FDR was born rich, but his ability to understand and empathize with the concerns of the average person led him to take their side. His wife Eleanor believed that his crippling bout with polio had added those qualities to his character. And they, the average people, appreciated and loved him for it. For his part, he felt the privileged were greedy, were being pigs.

On March 4, 1933, in his first inaugural address, Roosevelt told the nation “The only thing we have to fear Is fear itself”. In May, Walt Disney came out with his popular animated film “The Three Little Pigs”, which had a song that became a best seller: “Who’s Afraid of the Big Bad Wolf”, a sentiment that mirrored the people’s resolve against the Depression. The phrase was a household one at the time, and the picture of the wolf trying to “huff and puff” and blow the pigs’ house in was an immediately recognizable one.

Commander George C. Sweet was a U.S. Navy officer significant in promoting the early use of aircraft by the Navy. In September 1908, then-Lieutenant Sweet, serving as a Naval observer, reported favorably on the Wright Brothers airplane demonstration at Fort Meyer, near Washington, D.C. In 1909 Sweet was taken up with the Wright Brothers first Army flyer, becoming the first Navy officer to travel in an airplane. Sweet was then assigned to the Navy’s school for airplane instruction, and was thereafter a Navy engineer in Washington, specializing in steam engines. In early 1919 Sweet was named assistant to the Naval Attache at the American embassy in Paris, a particularly plum posting as the peace conference to end World War I was being carried on in Versailles.

Franklin D. Roosevelt followed in his cousin’s footsteps to fame by serving as Assistant Secretary of the Navy from 1913-1920. He was a prime advocate of naval aviation, and against strong opposition is credited with preserving the Navy’s air arm from demobilization after World War I. He surely met Sweet in his capacity of promoting naval aviation. Roosevelt was called to Paris to join President Wilson at the Versailles Conference in January 1919. According to the Sweet descendants, FDR and Commander Sweet forged a friendship onboard ship, clearly indicating that the two men were passengers on the USS George Washington together in 1919, though whether on the sailing in January or return in July (or both) is not known.

Roosevelt was a careful man, aware that his statements must be made guardedly to avoid giving aid and opportunity to his political enemies. His public correspondence was generally drafted by aides, and was measured, serious, deliberate and discreet. However, the private FDR was outgoing, humorous and frank, the life of the party, and when he corresponded with those he could trust, this side could show through. Sweet was such a man.  We recently obtained this letter directly from the Sweet descendants.

In the spring of 1934, Sweet wrote the President about his farming venture, and complaining about the drought. It is noteworthy that this was the start of the three-year long drought that would lead to the Dust Bowl.

Typed letter signed, on White House letterhead, Washington, May 9, 1934, to Sweet and marked “Private” in his hand. “You are right about the rain, but the fault lies with Wall Street. They watered their stocks so liberally in past years that the Almighty is trying to average up the moisture by withholding rain. Also he is trying to get even with you for raising little pigs! Don’t you know that little pigs are unpopular with the Big Bad Wolf in the White House?” Thus, Roosevelt puts blame for the stock market crash squarely on Wall Street greed, yet with humor rather than rancor. The drought is God averaging out the scales. He then analogizes the greedy to pigs, and says such pigs are not popular with him. He gets the last laugh on FDR-haters, saying he is their Big Bad Wolf.

The location of this original letter was unknown until now, and being in the hands of the Sweet descendants, it has never before been offered for sale. It was published in the book on FDR, “My Own Story: From Private and Public Papers”.