Lords of Creation

by Frederick Lewis Allen

  Finally, during the preceding years there had been a tremendous uprush of trust companies in New York. Somebody had made the discovery that the trust company act was so worded that a trust company might legally do nearly everything which a national or state bank could do, accepting deposits just as if it were a bank, yet riding clear of the restrictions placed upon the banks in the interest of safety. Thus a trust company was not required to keep a 15 or 25 per cent cash reserve, and it might employ its funds freely in the purchase of stocks or of real estate; so it could pay ample interest on deposits, and could lure depositors away from the banks. Most of the trust companies were not members of the Clearing House, since they refused to meet what seemed to prudent bankers to be imperative standards of safety. Of these non-member trust companies, some cleared their checks through member banks, others got along without any facilities whatever for the exchange of checks. Like the banks controlled by Heinze and his kind, the trust companies as a rule did not enjoy the favor of the dominant banking powers of the city: the methods of many of them were considered dangerous—as they certainly were—and their success was uncomfortable. During the period between 1898 and 1906 their total deposits had swelled from a little less than two hundred million dollars to over eight hundred millions.

  When the Mercantile National Bank appealed to the Clearing House for help, and later when some of the trust companies did so, the conservative authorities of the Clearing House apparently realized that they had an opportunity to serve both the public interest (as they saw it) and their own interest. They had large disciplinary powers, and they were in a position to use these powers to eliminate noxious influences in the banking world—and noxious competitors. They swung into action at once, instituting what one of their number aptly referred to as “sanitary measures.” They demanded the immediate resignation of Messrs. Heinze, Morse, and Thomas from all their banking connections. Day after day the front pages of the newspapers blared forth the tidings: on Saturday morning, October 19, MERCANTILE BANK DIRECTORS RESIGN; on Sunday morning, the 20th, C. W. MORSE FORCED OUT OF ALL BANKS; on Monday morning, October 21, THE THOMASES, TOO, QUIT THEIR BANKS.

  It was also announced that the banks which had been under suspicion had been examined and found to be solvent, and that the Clearing House would come to their aid. But somehow this latter announcement did not ease the situation. The revelation that several banks were involved in one way or another in a speculative débâcle and were under suspicion was highly disturbing. Men and women, reading the headlines, began to worry about the safety of their balances, wherever deposited. Corporations prepared to withdraw their balances from any banks or trust companies which might possibly be subject to distrust. Fear was seeping like a fog throughout the city.

  On Monday the situation looked a little easier and the turbulent stock market was quieter, but in reality it was the calm before the storm. Behind closed doors the fate of the big Knickerbocker Trust Company was being anxiously discussed. The president of the Knickerbocker, Charles T. Barney, had been close to Morse. The Knickerbocker had lent money to Morse. How far might it be involved in the unfortunate speculations of the admiral of the Atlantic coast? Better eliminate Barney, too, decided the Clearing House authorities, intent upon their energetic sanitary campaign. After the close of banking hours on Monday there came two more announcements—staggering announcements in view of the already widespread fear and the size and importance of the Knickerbocker Trust Company. First, the Clearing House committee had demanded the resignation of Barney. And second, the National Bank of Commerce, which had been clearing checks for the Knickerbocker, had decided to do so no longer.

  That evening—Monday evening, October 21—the executive committee of the Knickerbocker Trust Company met to decide how to meet their desperate emergency. They met at—of all places—Sherry’s restaurant on Fifth Avenue: “a fashionable restaurant on an autumn evening, filled with leisurely groups, laughing and talking, hearing beyond their laughter the familiar sound of the crowd that ceaselessly streams by along the glittering streets.” Mrs. Burr, in her life of Stillman, has memorably suggested the fatal effect of holding such a meeting at Sherry’s—the rumors running about as to what might be happening in that private room, “the words passing from one to another, without equal significance to all, but to all intensely interesting—that rumor, ignored by the puzzled, smiling women, yet laying a heavy shadow over the faces of the men … the waiters, alive to every whiff of gossip”; the failure to guard the doors of the conference room as time went on; the guests slipping into it from the supper-room, and hearing the talk within; and then the beginning of real panic: men slipping out of Sherry’s through the windy night to the Night and Day Bank on Fifth Avenue, where checks might be cashed even before the Knickerbocker opened its doors for Tuesday’s business.

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  It happened that for several weeks J. Pierpont Morgan, surrounded by bishops, had been enjoying the decorous deliberations of the General Convention of the Episcopal Church at Richmond, where the chief topic of debate had been the question whether ministers of other denominations might be permitted to make addresses to Episcopal congregations. During the last few days of the convention it had been noticed that Morgan received frequent telegrams from New York which presumably dealt with matters more mundane than the sanctity of the Episcopal pulpit. “If one came during a meal,” writes Bishop Lawrence, “he tore it open, read it; then putting the palms of both hands on the table, a habit of his, he looked straight ahead with fixed eyes and deep thought for a few minutes. One day a member of the party said, ‘Mr. Morgan, you seem to have some bad news.’ He shot his eyes across the table at the speaker and said nothing. No question of that sort was asked again.” By Saturday afternoon the 19th—the day when Charles W. Morse was being thrown to the lions by the Clearing House committee—the Convention had adjourned, and that night two special cars drew Morgan and the bishops back to New York.

  “Sunday morning, as we ran into Jersey City,” continues Bishop Lawrence, “we went into Mr. Morgan’s car for some bread and coffee before arrival, and found him sitting at the table with a tumbler turned upside down in each hand, singing lustily some tune which no one could recognize. Arriving in New York, he put us into cabs.… As we parted, we asked him if we should see him at Saint George’s, and he called out, ‘Perhaps so.’ He went to his library.”

  The old banker’s first thought on returning from Richmond had doubtless been to defend his own interests against a possible storm. The fortunes of the Knickerbocker were no immediate concern of his, and it had been mixed up with the detestable Heinze and Morse. When three representatives of the Knickerbocker called upon him early Tuesday morning—a few hours after the meeting at Sherry’s—and asked for help, he would do nothing.

  In fighting panics, as in fighting forest fires, it is important to decide upon what line one shall make one’s battle. Just where Morgan would set up his defenses was not yet certain. Nor, for that matter, was it yet clear that the panic would be really formidable. But one thing was already clear: so far as Morgan was concerned, the Knickerbocker lay beyond the line of battle. It was with heavy hearts that the representatives of the Knickerbocker repaired to their bank.

  At nine o’clock that Tuesday morning a casual saunterer in Fifth Avenue might not have noticed anything amiss at the splendid marble-columned building which housed the main uptown branch of the Knickerbocker Trust Company at the northwest corner of Thirty-fourth Street, opposite the Waldorf-Astoria. But the checks which were being presented by messengers within the bank were for killing sums, and the lines at the paying tellers’ windows were growing swiftly. By ten o’clock they reached far outside the building and up the Avenue. Carriages and automobiles were crowding to the curb to discharge depositors who had heard the rumors of disaster. A line of spectators had gathered on the opposite curb. Guests looking out of the windows of the Waldorf were asking one another what was amiss. All over the city—by word of mouth, by telephone, by t
hose mysterious channels through which fear communicates itself from person to person—filtered the report: “There is a run on the Knickerbocker Trust Company.”

  Meanwhile within the bank, as within its downtown headquarters in lower Broadway, the cash was melting away rapidly. There had been eight million dollars or more when the doors were opened that morning. A little after noon they were gone. The Knickerbocker Trust Company was forced to suspend payment. The announcement of suspension to the men and women waiting in line at the Fifth Avenue branch was greeted by “groans, shouts, and catcalls.”

  The sudden closing of such a large institution immediately put a new and alarming face on the situation. The Secretary of the Treasury rushed posthaste from Washington to New York, after leaving instructions for the deposit of six million dollars in government funds in the leading national banks of the metropolis. That evening he and old Morgan and those two masks of silence, Baker and Stillman, gathered in conference with other high chiefs of the banking world in Cortelyou’s rooms at the Manhattan Hotel. The Secretary agreed to throw additional currency into the breach. Not yet, however, was it clear just where the lines of defense would be drawn up, and the uncertainty was increased by something which happened at the close of that meeting at Cortelyou’s rooms in the Manhattan on Tuesday evening.

  George W. Perkins, a partner in the House of Morgan, talked with the reporters who were waiting for news of the conference; and the next morning there appeared in the New York Times and Sun an “official” statement which contained the scarcely diplomatic sentence, “The chief sore point is the Trust Company of America.” Though the statement continued with reassurances that the conferees believed the company to be sound, that it had twelve million dollars in cash, and that as much more as might be needed had been pledged, the effect of that sentence was immediate. On Wednesday morning there was a terrific run upon the Trust Company of America.

  As to the circumstances which led to this run there is unhappily a confusion of testimony. It is undeniable that while the Knickerbocker was collapsing, rumors were rife that the Trust Company of America would be the next to go. Barney, the president of the Knickerbocker, was a director of this other company and had borrowed from it $175,000, secured by Knickerbocker stock. This fact was a matter of common gossip in Wall Street—and the rumors which were flying about also charged that the funds of the Trust Company of America were invested in “cats and dogs” and that it was heavily involved with Heinze and Morse. A State bank examiner had visited it that very day to check up on these rumors. On the other hand, President Thorne of the Trust Company of America testified in the Stanley inquiry that the withdrawals on Monday and Tuesday, while large, had not been especially alarming: his net loss in deposits on Tuesday had been only a little over a million and a half dollars (as against thirteen and a half millions the very next day). Thorne testified that he had not sought aid for his bank on Tuesday, and in fact had not appreciated the gravity of the situation; that he had gone home that evening and then had been invited by telephone to come to the Union League Club to confer with Perkins of the House of Morgan and the young vice-president of the First National Bank, Harry Davison; that they had asked him about the condition of his bank, and he had told them, and they had “said they were very much pleased to know that it was in as good shape as it was”; and that he was not invited to go along with them to the conference at the Hotel Manhattan from which the “sore point” statement emanated. The whole burden of Thorne’s testimony was that his bank was getting along pretty well until that statement focused the panic upon it.

  Perkins, on the contrary, testified to the Stanley Committee that he distinctly remembered “Mr. Thorne coming to see us and saying that he had had heavy withdrawals and must have assistance and being very much alarmed that afternoon and evening over his condition.” Perkins also denied having authorized any statement that evening, though he admitted that he gave the reporters “such information as I could that would be helpful.”

  The logical conclusion to be derived from this conflict of testimony would seem to be that the powers whom Perkins represented were distrustful of Thorne’s bank (as the rumors gave them reason to be); that they were considerably less careful of their words than the situation warranted; and also, probably, that at this time they were not so much concerned with preventing the lightning from striking as with seeing that the stroke, if it came, did not damage the institutions in which they had full confidence.

  Whatever the exact degree of alarm actually felt by Thorne on Tuesday evening and the exact significance of the “sore point” statement, early on Wednesday morning there were several hundred people standing in line in Wall Street to draw their money out of the Trust Company of America. In a vain effort to get rid of that line of depositors, that all-too-visible advertisement of public distrust of the bank, President Thorne put seven paying tellers at work disbursing cash; but the line did not diminish. Thorne sent frequent messages to the Morgan offices to inform them of the rapid shrinkage in his funds, and at half-past one or two o’clock he walked up Wall Street to the Morgans’, saw Morgan, Stillman, and Perkins, and told them that if help did not arrive very soon the bank would have to close. The big bankers hesitated. They fully realized by now the violence of the panic and the necessity for combating it with all their power, but they were not yet sure of the soundness of Thorne’s bank, and apparently had not yet decided whether it should be included within their lines of defense or should be allowed to go under. Only at the very last moment—a few minutes before three o’clock—was Thorne supplied with a loan of a million dollars, contributed by the House of Morgan, Baker’s First National Bank, and Stillman’s National City Bank. This loan was just enough to see him through till the clock struck three, for his cash was almost gone. Thirteen and a half million dollars had been removed from his bank that day.

  It was a very narrow squeak. To the historian who enjoys the comfortable advantage of hindsight, the hesitation of old Jupiter, coming on top of the drastic sanitary measures of the Clearing House committee and the “sore point” statement of the previous evening, might seem to have been perilous. But it must be remembered that everything was shrouded in a fog of uncertainty. Morgan did not know how seriously the Trust Company of America might have been involved in dubious speculative enterprises; the Clearing House examiners were at work within its walls, but had not yet reported; and the rumors about it which flew through Wall Street were disquieting. Furthermore, Morgan had undertaken to bring together the presidents of the various trust companies and get them to organize and raise a fund for the support of their weaker brethren, and at that very moment these presidents were sitting in Morgan’s front office and hesitating to come to the relief of the Trust Company of America or of the Lincoln Trust Company, which also was experiencing a run. Morgan, picturing the panic as a “trust company” panic—which it had now become—had told these gentlemen that the responsibility for saving Thorne’s company rested upon their shoulders; and he was waiting for them to act. Only when it was clear that they were not ready to, did he step into the breach.

  Late on Wednesday afternoon, Benjamin Strong, one of the men who had been examining the affairs of the Trust Company of America, came to Morgan with his report. Old Jupiter was sitting in a rear room of his banking house with Baker and Stillman, while the trust company presidents still squirmed and debated in the front room. Strong reported that he was satisfied that the Trust Company of America was solvent. “This, then, is the place to stop this trouble,” said Morgan briefly.

  From that moment on, there was no question where the lines of defense were to be drawn. Thorne’s bank lay inside them and would be protected. Nor was there any further doubt as to the unified leadership of the forces of defense. Morgan was seventy years old, but in the days which followed he was completely the master of Wall Street.

  Old rivalries and animosities were forgotten as Harriman and Rockefeller and other one-time foes of the Morgan empire put their forces
at his disposal. The Secretary of the Treasury deposited in all thirty-six million dollars in the national banks of New York, specifying that ten millions of it was to be used for the benefit of the trust companies, but leaving the use of the rest of it virtually in Morgan’s hands. The situation was ironical: President Roosevelt had spoken of malefactors of great wealth in terms which implied that Morgan might be included in their number, yet here was his Secretary of the Treasury accepting Morgan’s judgment as to how these funds should be disposed. Cortelyou, however, was merely acknowledging, as did Harriman and Rockefeller, that circumstances alter cases. There was a panic raging, it must be stopped, Morgan knew better than anybody else what to do and how to do it, and people did what he told them to.

  Always thereafter, so long as the panic lasted, the place where Morgan sat—whether in his office at Broad and Wall Streets or among the Peruginos and Pinturicchios in his gorgeous library uptown—was headquarters. Say what one will about Morgan’s hard financial tactics in previous years or the ultimate advantages to his empire which accrued from the decisions of those troubled days, at least his dominance in the counsels of the bankers was the dominance of sheer personal power, utterly respected and obeyed. The crisis which had come was ideally suited to bring out the best in him. Corporate aggrandizement was not an issue, nor inflation of capital stock, nor the relations between owners and workers, rich and poor, Wall Street and Main Street. This was a crisis among bankers, and the interest of the general public was for the moment almost identical with that of the bankers themselves. The great need was for courage and leadership, and these Pierpont Morgan could provide. He was a rock to which frightened men might cling.

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  The battle now had to be conducted on many fronts at once, for it seemed as if everything were going wrong. On the very Wednesday when Morgan said, “This, then, is the place to stop this trouble,” there were runs on several other banks and trust companies, the Westinghouse electrical concern was tottering, the Pittsburgh Stock Exchange closed, the New York Stock Exchange was panicky, and the call-money rate for financing brokers’ purchases of securities advanced to 125 per cent. That evening the trust company presidents were called into session again and subscribed ten million dollars for the relief of the Trust Company of America—but not until Perkins had secured for them from Cortelyou ten millions in government deposits.