Independent Man: The Life of Senator James Couzens

• 37. THE MISSION THAT FAILED
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• Wayne State University Press
• pp. 245-252
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CHAPTER XXXVII

THE MISSION THAT FAILED

His overnight trip might well have been screen-titled: “Couzens to the Rescue.” Its importance was well underlined in a memorandum that Vandenberg hastily typed on his portable in his Senate office and had delivered to Couzens at the Washington railroad station. “This stupendous journey” was how Vandenberg referred to Couzens’ mission. “We have been in complete and constant touch. You know my views and I know yours . . . I am betting on you!” Vandenberg wrote.¹

Then, for three days, following his arrival in Detroit on the morning of March 1, Couzens was the leading actor in the drama: “The Man with the Plan.” For once even big business executives acted as if they esteemed him. His every word and action was reported in detail and with the greatest respect, even by Bingay. Couzens and Henry Ford met at Dearborn. With their sons, Frank Couzens and Edsel Ford, they posed for newspaper photographers. Said the Detroit Times:

The Fords and the Couzens—father and son in two great families—were evolving a new solution of the banking problem of distressed Detroit today. Behind oaken doors . . . “Henry” and “Jim” talked over the most urgent problem of their twin careers, just as in years gone by they had charted the policies of the Ford Motor Company during the era of its greatest growth. . . .²

2

Actually, this was optimistic overstatement. Behind “the oaken doors,” Couzens and Ford had lunch at a table that buzzed with the conversation of so many Ford executives that there was no chance to talk seriously about the banking crisis.

Then Ford asked Couzens to visit a laboratory to hear a dance orchestra, after which Ford said he had to depart, and did, without letting Couzens raise the question of the banks at all.³

But with others, Couzens made better headway, he thought. He was even praised now for having opposed the $135,000,000 loan because of national considerations. Wilson Mills, who later lashed out at him and blamed him for the closings on this very point, was one who hailed his stand.

FIRST NATIONAL BANK–DETROIT
DETROIT, MICHIGAN         
March 3, 1933               

DEAR SENATOR:

While I saw you only a short time during your visit to Detroit, I cannot let an hour go by after your departure without writing to thank you for coming and for what you have done. I think you made the way seem clear to everyone in Detroit, and I know we are all doing the right thing.

I also want to state to you here and now that last Saturday I could not understand your attitude in opposing a large loan by the Reconstruction Finance Corporation to the two Detroit banks. Of course, being so near to the grindstone, I was looking only at Detroit, and I am bound to say to you that now I think your attitude was the correct one, that is, the National Government and its solvency was, is, and must continue to be the primary consideration of every one of us.

Again my heartfelt thanks.

Faithfully yours,        
WILSON M. MILLS

3

In such an atmosphere then, the leaders of the Guardian and the Detroit Bankers Groups finally agreed upon a simple plan. This was that the Michigan legislature should be asked to pass at once the legislation to permit limited operation of the old banks. Under that plan, the RFC would make loans to the old banks to permit a payoff of 15 per cent initially, with other payoffs to be made later. Governor Comstock and leaders of the legislature were consulted. The machinery was set in motion for the legislation to be passed when Couzens left Detroit on March 3 to be on hand in Washington for Roosevelt’s inauguration.

He was confident that the situation in Detroit was now in hand. He apparently had succeeded in getting the various banking groups, shareholders, and depositors, the Fords and other business interests, to subordinate their rivalries and thus agree on united action behind his plan.

Everyone seemed grateful to him. An official statement by the board of directors of the First National said, “The Senator has been most helpful.”⁴

Best of all, from the standpoint of the bankers, it appeared that the verdict of insolvency for the Guardian National and the First National banks would be escaped. There was general confidence that within a matter of days, the old banks would be reopened.⁵

4

Everyone in Detroit, however, had failed to take into consideration what was happening throughout the nation. In shocking succession, state after state had gone into banking holidays, until, as of March 3, nearly thirty states were involved.⁶

Hoover seemed to clutch at straws. On February 17 he appealed to President-elect Roosevelt for cooperation to bolster public confidence. He asked that Roosevelt join with him in a statement to the public to the effect that under the new President “there will be no tampering or inflation of the currency; that the budget unquestionably will be balanced, even if further taxation is necessary; that the government credit will be maintained by refusal to exhaust it in the issuance of securities.”⁷

Roosevelt’s reply was strangely delayed for twelve days. It was mislaid by a secretary, Roosevelt later explained. Regardless of that, the President-elect made it plain that he would not have made the kind of statement Hoover wished in any event. He considered Hoover’s request “cheeky.”⁸ It certainly was asking Roosevelt to adopt Hooverian policies. As he explained politely, but firmly, to Hoover, his thought was that the bank troubles were “so very deep-seated that the fire is bound to spread in spite of anything that is done by way of mere statements.”⁹

Now, on the eve of disaster, Hoover turned to Roosevelt again.

Through William H. Woodin, Roosevelt’s choice for Secretary of the Treasury, Hoover asked that the President-elect at least “join in a statement reiterating confidence in the fundamental soundness of American banks and appealing to depositors to stop withdrawing funds.” Roosevelt refused to make this kind of statement also. He “felt that a strong, positive, definite action should take the place of appeals.”¹⁰ Hoover then asked if Roosevelt would join him in sponsoring a special session of Congress for enactment of emergency legislation.¹¹ Again Roosevelt’s answer was no. He did not feel that any action taken by him as “a private citizen” would be helpful.¹²

Hoover next considered two drastic, possible steps. Had he actually taken either one or both, the final result might not have been changed, but at least history might have revamped its view of him as a man incapable of bold action while President. First Hoover considered asking Congress, on his own initiative, for a government guarantee of bank deposits, at least temporarily. But before acting, he asked the Federal Reserve Board if it would support “some form of Federal guarantee of banking deposits.”¹³

The Federal Reserve Board declined to support such an idea. “You are, of course, thoroughly familiar with the history of such experiments in some of the States and the inherent dangers in a proposal of this kind,” Governor Meyer wrote him on March 2.¹⁴ So Hoover backed away from the proposal, later adopted as part of the New Deal.

The other step was, by executive action, to close all of the banks in the country—a national holiday which, at least, would halt further withdrawals and maintain the status quo. From the first, Hoover was reluctant to take this action. His view was that “eighty per cent of the banks measured in deposits were still functioning.” despite the numerous state holidays. But by then, with even the banks in New York City tottering, the Federal Reserve Board itself felt that drastic action was necessary. The Board urged Hoover to proclaim a national holiday.¹⁵

Was such action within the authority of the President? It had been suggested that the authority could be found in the Trading with the Enemy Act adopted in 1917 and never directly repealed, according to some lawyers.

Hoover asked the opinion of his Attorney General, then William D. Mitchell. Mitchell “advised that these war powers were so doubtful that they could be safely used only if it were certain that Congress would ratify the action.”¹⁶

Pondering this equivocal opinion, Hoover again turned to Roosevelt, with the thought that if the new President would approve a national moratorium, ratification by Congress would be assured. But through Woodin, Hoover was told that Roosevelt took the position that “President Hoover was free to proceed as he thought best.”¹⁷ This was not, as has been represented, a refusal to approve the moratorium idea. But it certainly was another refusal by Roosevelt to join with Hoover in anything.

5

On the following day, March 3, Roosevelt, with his wife and son James, called at the White House for the traditional day-before-inauguration courtesy call. After tea, and the usual amenities, Hoover took the occasion to broach the moratorium idea to Roosevelt personally. Roosevelt said he believed the power was there, but suggested that if Hoover wanted to close the banks, he should do it, that “it made no difference who did it.”¹⁸

Aside from the crisis, this tea was not a happy affair, either for Hoover or Roosevelt. Indeed, according to Roosevelt’s secretary, Grace Tully, Hoover made one remark which caused Roosevelt to say later, “I hustled my family out of the room. I was sure Jimmy wanted to punch him in the eye.”¹⁹

Such matters aside, it was plain that Hoover could not bring himself to act alone on a moratorium, but he was persistent with regard to Roosevelt. At 11:30 P.M., March 3, he put in a telephone call to Roosevelt at the Mayflower Hotel. There are conflicting versions as to precisely what Hoover said to Roosevelt and what Roosevelt said to Hoover at that eleventh-hour conference.²⁰ But the clear facts were that Hoover again asked Roosevelt to join him in proclaiming a national bank holiday, and that Roosevelt again insisted on taking no responsibility in the crisis until he had assumed the power of the Presidency.

The next morning, a matter of hours before the change in administrations, the final blow fell: In New York, the financial center of the nation, Governor Herbert Lehman proclaimed a banking holiday. Almost immediately, Governor Henry Horner of Illinois followed suit. So did ten other governors. By the time Roosevelt had taken the oath of office, nearly all of the banks of the nation were closed under state moratoria of one type or another.

Armed with an opinion by Attorney General Homer S. Cummings that the Enemy Trading Act was still valid, Roosevelt on Sunday evening, March 5, proclaimed a national holiday for all banks in the nation for four days, later extending it indefinitely. Under the terms of this proclamation, and of an emergency law adopted almost immediately afterward by Congress, no bank anywhere in the nation was to be open except under a special license issued by the Secretary of the Treasury.²¹

6

For Detroit, the result of Roosevelt’s action was that even the Couzens Plan for reopening the Detroit banks had to be abandoned. The new banking legislation superseded and nullified the authority granted to the Comptroller under the Couzens Joint Resolution. The bankers there had delayed too long. The question of whether or not the Detroit banks were to be reopened at all then became a matter solely up to the new administration.

On March 12, when Roosevelt delivered the first of his “fireside chats,” he emphasized over and over again that only sound banks were to receive licenses to reopen. Were the Detroit banks “sound?” Did “sound” mean “solvent?” These became the crucial questions.

For the emergency, Ballantine and Awalt had been retained in office by the new administration. Jesse Jones was slated to become chairman of the Reconstruction Finance Corporation. And these were the men upon whom the new Secretary of the Treasury, Woodin, relied for counsel. Their verdict was that the Detroit banks were not solvent.²²

Couzens, who was to be denounced and slandered by the bankers and bank-stock owners, was almost the one official who tried to save the banks from this verdict.

On March 11, he protested vigorously to Secretary Woodin. Woodin called in Awalt and Ballantine and there occurred a heated scene.

“What is holding up these banks? Why don’t you certify to their opening?” Couzens demanded of Awalt.

“I will not certify to the secretary that these banks are solvent,” said Awalt.

And Ballantine said, “That is true. They cannot open up because they are insolvent.”²³

Couzens demanded proof as to the banks’ insolvency. He threatened to “stay right here until the proof is forthcoming.” He did not get proof, in facts or figures. Unfortunately for the banks, on the other hand, he was not able to present any facts to controvert the position of Awalt and Ballantine.

The Detroit bankers themselves, as he later pointed out, did not present any facts to offset the verdict of insolvency. Moreover, they were still entangled in their rivalries. They had been urged by the Treasury to take the initiative in forming a new bank. But they could not come to an agreement.

On March 14 Acting Comptroller Awalt, backed up by Secretary Woodin, let the sword fall. He named conservators for both the First National and the Guardian National. For those banks, as well as for the two groups of which they were the principal units, the action was the crack of doom. They were never allowed to reopen. Scores of investors had fortunes wiped out by this decision. Many of these then blamed Couzens, hating him fiercely to the end of his life because of this.

7

Yet, ironically, Couzens to the end had tried hard to avert the decision of insolvency. He went to Secretary Woodin and upbraided him in violent terms for having ruled that the banks could not be reopened.

Secretary Woodin—“Wee Willie Woodin,” the press affectionately called him—was a likable personality, a big industrialist with a cherubic face, a financier whose hobby was music, and who had amazed most of his Wall Street associates by supporting Roosevelt and contributing heavily to the Democratic campaign funds.²⁴ But Couzens, characteristically, had been suspicious of him from the outset. Indeed, he had made an effort to hold up Woodin’s confirmation as Secretary of the Treasury until the Senate could be informed about his “holdings.” As president of the huge American Car and Foundry Company, Woodin had done much business with the railroads. On the floor of the Senate, Couzens raised a serious question. Wasn’t it questionable “ethics” for a cabinet officer to be holding shares in a car and foundry company “when there is such close and obvious connection at this time between the railroads and government?” He wanted to be certain, Couzens said, that Roosevelt’s Treasury head would not turn out to be another Mellon.²⁵

Of course, with Roosevelt behind him, Woodin was confirmed promptly. But Couzens was never satisfied. Now he felt that Woodin was acting in the Detroit crisis in a way not at all in accord with the public interest, but more as any Wall Street banker would act. He scathingly reminded Woodin that he had been promised at a previous conference proof of the banks’ insolvency before a final decision would be taken. He stormed at Woodin:

You, during this conference, instructed your subordinates to satisfy me that the Detroit banks were insolvent, but up to this moment, not one word have I received from you or the Department. However, within an hour or so after I left, conservators were appointed for both the Detroit banks, and I was not even done the courtesy of being notified.²⁶

8

Couzens’ protests, and those of the Detroit bankers, were in vain. Washington stood firm.

Then, and years later, there would be rumors that Wall Street, or the Federal Reserve Board, acting under the influence of New York interests, had played a part in this firmness. It would be alleged this was in accord with a longtime conspiracy to place the Ford Company under bankers’ influence at last, though none of this was proved.

The fact was, the Treasury decision was not changed.

On March 21, the government itself, through the RFC, together with General Motors, established a new National Bank of Detroit to replace the two former institutions.²⁷

On the following evening, James Watkins, police commissioner of Detroit, as spokesman for numerous Detroiters, went on the radio to accuse the government of having “played into the hands of Wall Streeters.” Couzens commented in a letter to Madeleine:

“Police Commissioner Watkins raised Hell in his radio talk last night. . . . Over 10,000 telegrams reached Washington as a result. There’s the Devil yet to pay over the Detroit bank problem. Wish I could have remained aloof.”²⁸

To which, it might be added, a better idea he never had . . . too late.

But the government went ahead. It was understood widely that Roosevelt himself had insisted that the Detroit crisis be cleanly and promptly ended. A little later there was established, also by the RFC, but with the Fords cooperating, the Manufacturers National Bank.²⁹ The First National and the Guardian National, with their holding companies, were gradually liquidated. In the history of Detroit finance, this was the end of an era. Almost all that remained of the wonderful group-banking idea in Michigan was the gilded tower of the ill-fated Union Guardian Trust Company, that monument to a fantastic financial era; and a seething mass of undeserved hatred toward Couzens, the one man who, though not financially involved, had tried, with willingness to make great personal sacrifice, to save the situation. And the story was not yet finished, for after an interlude, the whole thing was to flare up again.