FDR, New Deals, and the Limits of Power 183government if their banks failed for up to $5000. Glass-Steagall helped bank
depositors to be sure, but also was created as a way to preserve Capitalism, by
making sure banks used sound practices for loans and investments and could
not invest wildly with billions of dollars of capital.
More important for bankers, FDR also created the Securities and Exchange
Commission [SEC] to oversee and regulate Wall Street. A security is a financial
asset that has a monetary value, like a stock in a publicly-traded company or
a bond issued by a government or corporation, and in the depression too often
such securities became worthless paper. Congress had passed the Securities
Act in 1933 and a year later the Securities and Exchange Act, which set up
the SEC. One of the better examples of the crisis in securities involved
Samuel Insull of Chicago. Insull had helped Thomas Edison set up General
Electric and then on his own gained control of utilities in 5000 towns in 32
states. When many cities began establishing their own utility companies [elec-
tricity, gas, water and so on], Insull began financing politicians to protect him.
Still, customers claimed that he was overcharging them, and the government
began to investigate him. What they found was a huge financial scheme.
Insull had set up a holding company—a firm that has no real assets or opera-
tions of its own but controls the stock of other companies, and often avoids
tax payments on them, also commonly called a “shell company.” Insull’s hold-
ings gave him control over 65 enterprises worth over $500 million, though he
had only $27 million in assets of his own. Insull kept borrowing money, and
then creating new companies so he could borrow more—though none of
them actually produced anything. But Insull had created the illusion that his
businesses were solid and profitable, so thousands invested in them, and when
the stock market crashed, they lost all their money and Insull went bankrupt.
Without any government oversight or regulation [again, as in the 2008 eco-
nomic crash], there was little anyone could do to protect investors against
people like Insull. Thus, Congress created the SEC.
In its simplest form, the SEC required brokerages to give out all relevant
information on the securities they were selling and the risks involved, made
brokers, dealers and exchanges treat investors honestly, and monitored corpo-
rate mergers and takeovers. The 1934 Act also regulated “secondary trading,”
or the resale of securities or assets from the original company that bought
them. The New York Stock Exchange, for example, is a secondary financial mar-
ket where one buys stocks from investors who have sold theirs. To FDR, these