Fresh from this victory, while Douglas remained committed to the SEC’s assertion of government control over the financial world, he nonetheless adopted a more conciliatory approach with Wall Street. In 1938, he worked with Connecticut Senator Maloney to allow organized market organizations to regulate what were then wholly unregulated over-the-counter markets. He pressed Congress for bankruptcy reform to allow employees, creditors and stockholders a legal interest in bankruptcy proceedings. He worked with Senator Majority Leader Alben Barkley (D-KY) to regulate trust indentures.
Douglas having won, in the holding company and Stock Exchange battles, the New Deal’s most significant economic regulatory victories, became convinced that the real challenges to the regulatory power of the SEC had passed. Even as many New Dealers were calling for stronger measures, Douglas sought to work with his former opponents through negotiation and conciliation. Douglas began a new series of round-table negotiations with utilities executives to insure legal compliance. "We are a capitalistic economy," Douglas said. "[A]nd only so long as we remain a capitalistic economy will we remain a democracy. Capitalism and democracy are Siamese twins; they cannot live if separated... Let us not look to government for leadership, except where self-help breaks down."(1)
In early 1939, Douglas and the SEC, trying to regain that New Deal luster, launched an investigation of the insurance industry as part of his role on the Temporary National Economic Committee. His assistant, Gerhard Gesell, conducted the investigation of the insurance industry that eventually led to reform legislation. But Douglas, like the New Deal, was running out of steam. The growing threat from Nazism and Fascism in Europe and Asia led many to believe that the Douglas’s activist style at the SEC was no longer needed, especially when the coming tumult would likely require cooperation rather than confrontation.
Douglas had become the "most accomplished" SEC chairman in its short history because he understood the role of modern administrative government and how to use politics to build an agency and enforce public policy. "We had an able, earnest, and dedicated group of people administering these acts," Douglas would reflect on the 25th anniversary of the 1934 Act. "We had youth and idealism on our side" and we had caught "some of the vision of Franklin D. Roosevelt and the manifest destiny he represented. None in those early days would have dreamed of leaving his government post to go to work for the people he regulated." (2)
He was willing to fight the hard battles with all the might the SEC could muster, but he also believed that economic cooperation whereby national businessmen wrote and enforced their own rules which were then monitored by SEC administrators, made common sense in a modern economy. He reshaped the SEC as an agency that followed the pragmatic legal theory that he had taught before coming to Washington, and used his realist sense of the law to meld political power with administrative law and function.
Douglas’s legacy at the SEC did not end on March 20, 1939 with President Roosevelt’s nomination of him to serve on the Supreme Court. His legacy continues in the operation of the SEC, which became through his leadership the most lasting and significant New Deal agency in America’s growing and sophisticated economy.
(1) Robert Sobel, NYSE: A History of the New York Stock Exchange, 1935-1975 (New York: Weybright & Talley, 1975), 63.
(2) William O. Douglas, Foreword, The George Washington Law Review (October 1959), 1-5, 5.
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