FDR had a very good reason for wanting to involve Joe Kennedy in his first administration. Kennedy had helped him get elected.

In 1932, FDR was attempting to prevent a deadlocked convention. Kennedy aligned himself with the powerful Bernard Baruch. Kennedy, having made his millions in the market, and the equally wealthy Baruch spoke with the loud voice of money. For his part, Kennedy contributed $50,000 of his own to FDR's campaign, and helped raised another $200,000.

FDR wanted to ignore them but couldn't. He told one aide that if Baruch and Kennedy were statesmen, "my definition of the public interest was all wrong." But FDR fed them with the impression that he cared deeply about their concerns, even if he had his own serious reservations.

Kennedy approached William Randolph Hearst to say that a deadlocked convention may pick Newton Baker, a man detested by Hearst. Hearst then convinced John Nance Garner to give his delegates to FDR. In those days that ensured that Garner would be selected vice presidential job instead.

[Baruch gave FDR the following advice: "Balance budgets. Stop spending money we haven't got. Sacrifice for frugality and revenue. Cut government spending - cut it as rations are cut in a siege. Tax - tax everybody for everything."]

So FDR defeated Herbert Hoover in a landslide and began to work on his New Deal. Joe Kennedy wanted to be Treasury Secretary. There was no way Roosevelt was granting that wish. But he did have something else in mind for Kennedy.

Among its many features, the New Deal created four regulatory bodies: National Labor Relations Board, Civil Aeronautics Authority, Federal Communications Commission, and the Securities and Exchange Commission.

The SEC was created by an act of Congress on June 6, 1934 for the purpose of protecting the public and investors against malpractice in the financial markets. While Wall Street was not exactly enamored of the coming regulation, Congress was armed to bear as the Street was seen as an easy target for the Crash and the Depression which followed.

Commenting on the creation of the SEC, Texas congressman (and future Speaker) Sam Rayburn admitted he didn't know whether the legislation passed so readily because it was so good or so incomprehensible.

In his book "Freedom From Fear," historian David Kennedy has the best summary on the importance of the SEC: "For all the complexity of its enabling legislation, the power of the SEC resided principally in just two provisions, both of them ingeniously simple. The first mandated detailed information, such as balance sheets, profit and loss statements, and the names and compensation of corporate officers, about firms whose securities were publicly traded. The second required verification of that information by independent auditors using standardized accounting procedures. At a stroke, those measures ended the monopoly of the Morgans and their like on investment information. Wall Street was now saturated with data that were relevant, accessible, and comparable across firms and transactions. The SEC's regulations unarguably imposed new reporting requirements on businesses. They also gave a huge boost to the status of the accounting profession. But they hardly constituted a wholesale assault on the theory or practice of free- market capitalism. All to the contrary, the SEC's regulations dramatically improved the economic efficiency of the financial markets by making buy and sell decisions well-informed decisions, provided that the contracting parties consulted the data now so copiously available. This was less the reform than it was the rationalization of capitalism."

So the SEC prohibited the "pools" and other devices used by the likes of Kennedy to amass their fortunes. While manipulation of the markets was still possible, there were now risks.

Meanwhile, FDR decided he had to do something with Kennedy so he chose to name him the first commissioner of the SEC.

Thus Joseph Kennedy was appointed to oversee the very activities he had participated in. FDR was initially accused of selling out to Wall Street. But FDR argued that Kennedy was the right choice since he was the only one with intimate knowledge of the very acts that the SEC was set up to prevent. It was a classic case of the fox guarding the henhouse.

As one of his first official duties, Kennedy delivered a national radio address: "We of the SEC do not regard ourselves as coroners sitting on the corpse of financial enterprise…We do not start with the belief that every enterprise is crooked and that those behind it are crooks."

Wall Street breathed a little easier. After all, regulation did not always mean prosecution.

Joe Kennedy proved to be a highly effective leader of the SEC. And, while he stayed in the position only one year (leaving to pursue other interests), it was a crucial one as far as establishing the credibility of the organization.

Historian John Steele Gordon described his reign: "Kennedy knew where the bodies were buried. But he regarded his job to be not only to restore the confidence of the country in Wall Street, but, equally important, to restore the confidence of Wall Street in the American economy and government. Kennedy's first priority was to end the 'strike of capital,' in which the great Wall Street banks, and innumerable small ones, shell-shocked alike, were refusing to underwrite new issues of securities and to lend money, no matter how good the collateral or how solid the project." Eventually, Wall Street and the country recovered.

Kennedy quickly established himself as a fair-minded, yet tough, leader. He set up the procedures for investigating and prosecuting misdeeds by investment bankers and brokers and for all this, his place in financial history is secure.

Sources:

"Freedom From Fear," David M. Kennedy
"Monopolies in America," Charles Geisst
"The Great Game," John Steele Gordon
"It Was a Very Good Year," Martin Fridson
"One World Divisible," David Reynolds
"The American Century," Harold Evans

Brian Trumbore