In terms of tariff reform, what Hoover really wanted was flexibility in adjusting specific tariffs, instead of waiting for Congress to act. However, Hoover was vague with his wishes, and on 7 May 1929, Representative Willis C. Hawley (R; OR) introduced a lengthy tariff bill to the House which went further than Hoover wanted, raising tariff rates favoring industry over agriculture. Hoover expressed his displeasure with Hawley’s bill, but it was to no avail since special interests were at work pressuring Congressmen to advance the tariff bill. When the proposed increases were made public, the demand for additional tariff increases on more goods followed; in every case the justification was to protect jobs in the US in competitive global industries. Foreign governments such as Canada, America’s largest trading partner, were aghast at these suggested tariff rates. Also under attack in the House was Hoover’s request that he be able to adjust the tariff rates as President.
Hoover’s “Summer White House” along the Rapidan River in VA wasn’t far from DC. Hoover fished and enjoyed solitude, but the location also meant that he could be in DC whenever he wanted, and since the President was near-and-in DC, those in the Executive Branch had to be on the clock. Hoover accomplished some things with Congress out of session, including reducing overcrowding and improving conditions in prisons, focusing on Leavenworth. However, the fate of the tariff bill heading towards the Senate took most of Hoover’s attention that summer. Hoover took some solace that the chairman of the Senate Finance Committee, Reed Smoot
(R; UT), voiced concerns similar to Hoover’s over the House tariff bill. However, Smoot was an evangelist of Protectionism, and he badly wanted to have his name attached to a significant tariff act. The Senate Finance Committee worked during the summer, hearing from over 1000 witnesses, with most of them clamoring for tariff rate increases. It soon became apparent that Hoover was closer to the Democrats than the Republican insurgents in terms of tariffs.
On 2 October 1929, actually still in the extra session from April, the Senate voted 47 - 42 on an amendment to get rid of the Presidential flexible tariff rate adjustments. The remaining seven weeks of that Congressional session led to nothing more than a vocal stalemate between the House and Senate over the two tariff bills. On 22 November 1929 (about a month after the Stock Market Crash), the extra session ended after fruitless weeks trying to bring Smoot’s tariff bill to the Senate floor for a vote. The performance of the Republicans in both chambers, and Hoover choosing to be on the sidelines, came under intense scrutiny. Hoover’s veneer of invulnerability was pierced, and Democrats started to directly attack the President. The tariff bills were the most hotly debated topic in DC, and Hoover badly erred in choosing to remove himself from the intense debates.
By mid-summer 1929, it was also apparent that Hoover wasn’t able to rein in the Stock Market. Bankers in NYC scoffed at accusations that the Stock Market was unsound. The head of the New York Stock Exchange (NYSE) answered to the governor of New York, Franklin Roosevelt, not to Hoover, and he turned a blind eye towards the excessive speculation. However, the Federal Reserve did put pressure on the major NYC banks to quit making loans on margin. But when those banks stopped doing so, banks outside the authority of the Fed filled the void; then the NYC bankers rejoined the fray in issuing loans on margin, deathly afraid that they would miss out on gargantuan profits. In response, the Fed raised the Discount rate from 5% to 6%, trying to temper the excessive speculation.
By then Hoover had reached the point where he felt the only corrective to the irrational exuberance was financial disaster, so Hoover did not support the Fed’s interest rate hike, seeing it as bad for business. There were almost immediate signs that the Fed had pushed too far with the interest rate hike, in that real output fell 2% from August to October 1929, and foreign central banks raised their interest rates in order to protect their gold supplies. Those tight money policies by the central banks pushed Central Europe further into economic depression.
Hoover viewed the Stock Market Crash as an opening to implement the countercyclical policies that he had long advocated, and it was just the kind of emergency in which Americans believed that Hoover would once again come to the rescue. Hoover, using data from the Panic of 1907, tried to limit the financial damage to the Stock Market. Hoover told the nation that the economy was sound, and that the Federal Reserve had been created in 1913 largely to avoid repeating the mistakes that led to the Panic of 1907. The Fed, not unlike after 9/11, acted quickly to try and restore confidence. Among the actions of the Fed was to reduce the Discount Rate to 4.5%, as well as to expedite lending and making it easier to purchase securities. Those measures helped commercial banks stay open, and Hoover correctly credited the Fed . . . but no one, not even Hoover, saw that the Stock Market Crash had weakened most banks to the point where an unprecedented national banking collapse would occur in 1930 . . .