The Financial Crisis Inquiry Commission, convened by Congress to investigate the 2008 economic collapse, has referred a few individuals to the Department of Justice for potential prosecution. The commission modeled its work on the 1932-34 Pecora Hearings, in which the Senate probed the causes of the Great Depression. Did anyone go to jail for precipitating the 1929 collapse?

No. The rampant speculation and eventual crash of 1929 weren’t caused by fraud or illegality, but by unreasonable optimism and loose financial regulation. Federal prosecutors eventually brought charges against a couple of the era’s most important and aggressive bankers, but the lack of pre-existing rules undermined the government’s efforts. Take Samuel Insull, an early associate of Thomas Edison who sold millions of dollars worth of stock to build a heavily leveraged utilities empire. The Depression ruined his companies, and investors lost nearly $800 million. After appearing before the Pecora Commission, a terrified Insull fled the country in June of 1932, just eight months before prosecutors charged him with fraud. When authorities dragged him back to the United States nearly two years later, Insull beat the charges. He argued that his methods—which included paying dividends in stock of his own holding companies rather than cash, aggressively puffing his investments in circulars, and offering special benefits to a small number of preferred investors—were all in line with contemporary business practices. Insull’s acquittal led to the Public Utility Holding Company Act of 1935, which limited the size of utilities and barred them from speculating in the market. Congress repealed the law in 2005.

The government also went after Charles “Sunshine Charley” Mitchell, president of National City Bank, now Citibank. Mitchell divided National City into a banking arm and an investment arm, with the latter selling up to $2 billion annually in speculative securities and shaky bonds. Before the Pecora Commission, Mitchell acknowledged that he knew his salesmen were pushing bad investments on unsophisticated customers, many of who then borrowed money from his banking arm to finance their investments. While National City’s behavior shocked the nation, the company’s salesmen hadn’t broken any laws. (In a déja vu moment, a Goldman Sachs employee admitted to Congress in April 2010 that he sold investments that he thought were a “shitty deal.”) Mitchell himself resigned his post and was charged with tax evasion for selling company stock to his wife at a loss, but he got off with a fine. His performance at the Pecora Hearings led to the Glass-Steagall Act of 1933, which prohibited banking companies from speculating in the market. The law was repealed in 1999.

The Pecora Commission humiliated others, including Richard Whitney, the head of the New York Stock Exchange. He would later go to jail for stealing from the NYSE pension fund, but that was nine years after the 1929 collapse. The legendary J.P. Morgan was forced to admit that he hadn’t paid any taxes whatsoever in three years due to investment losses, but several days of questioning failed to reveal any illegal behavior.

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Explainer thanks Michael Alan Bernstein of Tulane University, Michael D. Bordo of Rutgers University, Robert S. McElvaine of Millsaps College, and Richard Sylla of the NYU Stern School of Business and co-author of A History of Interest Rates.

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