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WWFDRD2AIG?

March 17, 2009, 1:06 pm

Jesse Jones, head of the Reconstruction Finance Corporation, writes of how the New Deal dealt with an insurance company.

The RFC acquired voting control of Maryland Casualty in April, 1934, when we first bought preferred stock in the Company. At that time we sent Silliman Evans to Baltimore to take the presidency of the company and Edward G. Lowry, Jr., of our legal department, to be its vice president and special counsel, each being elected as director. Mr. Evans later became chairman of the board…. When we got into the company, the situation was so much worse than had been represented that we felt it necessary to replace the management.1

I imagine this would have some present-day relevance to a White House stuck with an insurance company whose position turned out much worse than represented.

Then there is this to consider:

For political reasons, Jesse Jones often toyed with the salaries of corporate management, especially if they were, in his mind, “over-paid” Wall Streeters. Jones and Roosevelt knew that RFC loans always had the potential of political trouble—stirring up liberal Democrats and progressive Republicans who were blaming businessmen for getting the country into such an economic mess. Salary reductions were one way of showing that RFC, even while it was pouring billions into private business, was not enriching corporate management. Amendments to the RFC Act in 1933 required Jones to certify the appropriateness of the salaries paid by every corporation accepting loans and investment money. Jones devised a declining scale of salary reductions. Corporate management receiving annual salaries of $150,000 or more would be cut to $60,000, $100,000 or more to $50,000, and other reductions accordingly.2

Which might also seem apposite.

UPDATED to add a special bonus New Deal version of how to deal with rude letters from corporate types—in this case, the chiefs of the New York Stock Exchange, asked by the SEC to reorganize in light of recent events.

… the matter of reorganization was referred to the Exchange’s Law Committeee—in other words, to Richard Whitney…. After due deliberation, the Law Committee concluded that reorganization … was impracticable, and that negotiations with the SEC should therefore be broken off. It drafted a harsh letter to [William O.] Douglas saying so…. [W]hen an Exchange lawyer delivered it to Douglas in Washington a few hours later, the SEC chairman merely nodded and said grimly, “All right, then, we’ll take the Exchange over.”3


1Jesse Jones, Fifty Billion Dollars, 158.

2James S. Olson, Saving Capitalism, 126.
3John Brooks, Once in Golconda, 245.

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