Roosevelt understood that he faced two tasks: reform the way securities were sold, and reform the stock exchanges themselves. He began with the first task, introducing a bill written by FTC Commissioner Houston Thompson modeled on the blue sky laws. "It puts the burden of telling the whole truth on the seller," FDR announced. (Seligman, 54)
This Brandeisian approach, the idea that the way to reform the securities market was to shine light and learn the truth, was soon all that remained of the Thompson bill--Congress found it too stringent in some areas and too lenient in others. Texas Congressman Sam Rayburn asked FDR aide Raymond Moley for an alternative. Moley contacted Harvard Law professor Felix Frankfurter, a disciple of Louis Brandeis, whose influence with FDR was unparalleled.
To draft the bill, Frankfurter tapped a determined and tense young Harvard Law professor named James M. Landis and a brilliant but retiring lawyer named Benjamin Cohen. Frankfurter believed that Thomas "Tommy" Corcoran, a sharp, extroverted crusader already working in government, would be a good foil for the two. In April the trio holed up in Washington's Carlton Hotel and drafted the bill.
Under Rayburn's expert stewardship, the momentum gained by the ongoing Pecora Committee hearings, and the sheer confusion of FDR's "First Hundred Days" in which fifteen other statutes covering banking, agriculture, and national recovery were passed, the Securities Act of 1933 glided through Congress with ease.
Landis wrote a distinctive idea into this bill. He believed that effective regulation demanded more than simply a new law. That, he realized, could be defeated by subterfuge and technicalities. Instead, Landis envisioned a regulatory agency that could focus narrowly on one objective and apply the necessary expertise to get the job done.
Under the Securities Act, that responsibility went to the Federal Trade Commission, a Progressive Era agency. Roosevelt appointed James Landis to run the FTC's new Securities Division. Landis, committed to full disclosure, may have let principles get in the way of practicality. The FTC's "Schedule A" required detailed current and historical corporate financial information from corporations issuing securities. Critics raised the question: even if sunlight could clean up the markets, could too much sunlight--by making it difficult for corporations to issue securities--impede recovery? Neither Pecora nor Landis thought so, but business was convinced it could.
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