Lords of Creation

by Frederick Lewis Allen

  Thursday came, October 24, and not only was there another long line of depositors waiting to draw this ten million dollars out of the Trust Company of America, but the trouble on the Stock Exchange reached a climax: there seemed to be no money at all for the purchase of securities, and prices were going down the chute. The Morgan forces were supporting United States Steel at 22, and it held fast, but Union Pacific dropped that morning from 108½ to 100, Northern Pacific from 110 to 100½, Reading from 78⅝ to 70½. Toward the end of the morning, sales almost stopped on account of the scarcity of cash. President Thomas of the Stock Exchange consulted Stillman. What could be done? Stillman told him to go to Morgan; and so, like everybody else who needed money in those days, Thomas proceeded to 23 Wall Street. Arriving there, he found the outer office full of excited men. He sent in his name and sat down to wait. Twenty minutes went by. Then old Morgan, who had been apprised of Thomas’s need by Stillman, came out of his inner office.

  “We are going to let you have twenty-five millions,” said he shortly. “Go over to the Exchange and announce it.”

  Thomas did so, the panic was quieted for the moment, and the money rate dropped forthwith to six per cent; stocks rallied a bit. Morgan, acting on behalf of the bankers in whose institutions Cortelyou had made deposits, had thrown into the Stock Exchange panic an amount almost exactly equal to that of these deposits. Yet the relief even from this audacious stroke might prove to be merely temporary. How would the next turn of the panic be met?

  As Friday dawned (October 25) there seemed, in the words of Perkins, to be “not a ray of hope in the situation.” Here were millions of dollars being paid out right and left and there was no doubt what was becoming of them: they were being hoarded, they were being swallowed up in safe-deposit boxes, and still depositors and brokers called for more cash. How on earth could it be found? What would happen on the Stock Exchange today? Would the Trust Company of America survive another few hours of this madness? As early as six o’clock that morning Perkins and Cortelyou were sitting on the edge of the latter’s bed at the Hotel Manhattan, debating what on earth could be done next. Perkins went on to Stillman’s house; Stillman communicated with some of his wealthy allies, and among them Rockefeller is said to have put up ten millions for relief and to have pledged fifty more. Morgan stormed at the trust company presidents again, and when they showed further reluctance to support the Trust Company of America, he went to the Clearing House and labored with the Clearing House bankers to scour up another fifteen millions. It was barely enough to bridge over the situation in the call-money market; as Perkins later testified, “If twenty millions had been needed that day, the Stock Exchange and a hundred or more firms would have gone up, it was just that close. It was touch and go.” And still the siege of the Trust Company of America continued; and that day a number of small banks failed.

  On Saturday, October 26, the clouds lightened momentarily. The decision was made to issue Clearing House certificates to serve the banks temporarily for cash. On Sunday, however, the storm advanced from a new quarter. The authorities of the City of New York informed Morgan that they had thirty million dollars’ worth of short-term obligations coming due which it would be impossible to meet in view of the disordered state of the money market, and that unless they were assured of a loan of thirty millions, the city would go bankrupt. For two days Morgan considered this new problem; then on Tuesday he called to his library the Mayor and other city officials, and seating himself at a big desk, wrote out with his own hand an agreement to organize a syndicate to float thirty million dollars’ worth of six per cent City bonds. This act relieved the City’s financial distress, and served notice on the community that Morgan was not afraid to go on doing business. Once more the skies seemed brighter.

  Brighter, in fact, they remained during the rest of that week, despite a series of untoward events—the suspension of grain trading at Duluth, the declaration of banking holidays in several states, other indications that the panic had now spread throughout the country, and continued nervousness on the Stock Exchange.

  Day after day Morgan sat in his office, a big black cigar in his mouth, and the princes of the financial world came in one by one and took his orders—delivered with gruff finality and sometimes with scorn, as when a bank president complained that his reserves were being gravely reduced, and Morgan withered him with “What! Do you realize what you are saying? Tomorrow you may have no reserves at all.”

  On more than one night the lights burned late in that graceful white building the notepaper of which was headed, with royal brevity, simply

  The Library

  Thirty-three East Thirty-sixth Street

  while financiers who had been summoned by Morgan argued over the possible ways and means of meeting his demands upon them.

  The west room of the Morgan Library was walled with red silk damask, patterned with the arms of the Chigi family of Rome; on the walls hung splendid Florentine masterpieces of the fifteenth and sixteenth centuries; upon the bookshelves stood a bust by Michelangelo and a rock-crystal bowl said to have been mounted for Queen Christina of Sweden; the mantelpiece and the gilded ceiling had been made for great Italian houses. Morgan sat in a red plush armchair by the fire in this great room, smoking his black cigar and playing solitaire, with a Madonna and Child by Pinturicchio looking down over his shoulder, and Fra Filippo Lippi’s altar-piece of St. Lawrence and Saints Cosmo and Damian facing him from the opposite wall. It was not his way to wrangle over methods of financial relief; he left that to lesser men to do in another room, while he sat in the red plush chair with the card-table before him and slowly puffed on his cigar, and carefully placed the five of clubs on the two, and the eight on the five, and the jack on the eight.

  From time to time the assembled bankers would send a delegate in to him with their conclusions, and he would say curtly “Yes” or “No,” and the delegate would retire again to the east room, and the weary bankers would resume their discussion of reserves and margins and collateral, while the game of solitaire continued under the watchful eyes of the Madonnas and the great ladies of Florence, until at last the conclusion which Morgan wished had been reached and the immediate objective in his battle gained.

  So the fight went on. But as the week drew to an end, the hope that victory might be achieved by sheer dogged endurance began once more to fade. A new crisis was at hand, and the men who would have to face it were almost worn out by the strain of the preceding ten days and nights.

  6

  The new crisis was of a double nature.

  In the first place, the run on the Trust Company of America was continuing relentlessly, and the cash already raised was petering out. Morgan figured that at least twenty-five millions more would be required—if indeed even this would save the day. The bank was sound, but panic is unreasoning.

  In the second place, a broker named Grant B. Schley—he was George F. Baker’s brother-in-law—was in difficulties. He was heavily in debt to his firm, the firm in turn was in debt to various banks; and among the securities which he had put up as collateral for his loan from the firm, and which the firm in turn had used as collateral for its loans from the banks, were a large number of shares of the Tennessee Coal & Iron Company, a big steel concern. These shares, while potentially of great value, were not readily salable except at a great sacrifice in price. Schley’s failure might precipitate another agonizing crisis on the Stock Exchange, and that in turn might mean more trouble for the banks, so dependent was their whole structure of collateral loans upon the stability of security prices.

  On Saturday evening, November 2, there was a great gathering of financiers at the Morgan library to consider these two new crises. It was as if the full cast of characters in the banking drama had assembled for their most critical scene. James Stillman was there, that eagle of the financial world, cold, astute, money-minded—a man whose fury at human errors filled his underlings in the National City Bank with terror, whose outbursts of kindliness to friends an
d children were like flashes of sunshine through the clouds on an overcast day. The bewhiskered George F. Baker was there, curt, absorbed, ready as always to suggest the strategy which Morgan’s gruff authority would enforce. Perkins and Steele of the House of Morgan were there, worn by arduous days and nights of labor; and the correct and diplomatic Gary, with Filbert of the Steel Corporation at his side; and the lawyers Ledyard and O’Brien; and a host of bank presidents and trust company presidents and their young executives.

  For the time being, Morgan had left the crimson-brocaded west room and had retired to a small room at the rear of the Library. In the west room sat the trust company presidents. In the high east room, hung with tapestries and surrounded by gallery upon gallery of bookshelves, sat the Clearing House bankers. Hour after hour dragged by, while in the rear room Morgan and, his immediate advisers wrestled with the double emergency which now faced Wall Street.

  A loan of cash, or of bonds on which cash might be raised, would probably save Schley and would thereby ease the situation for those banks which were nervous about the presence of so much Tennessee stock in the collateral which Schley’s firm had put up. But Morgan had a better plan than making a loan to Schley. Somebody had suggested a way in which he might kill two birds with one stone—rescue Schley and do what might prove a good stroke of business for his Steel Corporation at the same time. If the Steel Corporation bought from Schley and others the control of the Tennessee Company, and paid for it with Steel Corporation bonds, Schley would be saved, the banks would rest more easily, and the Corporation would secure iron mines which might be of increasing value.

  Of this ingenious scheme few of the men outside that small room were aware. Most of them knew only that Morgan was working out a plan and that they might be needed. Toward midnight, however, as Morgan debated the technicalities of his project with Gary and the lawyers, word was circulated among the waiting bankers that “a new situation” (which meant the Schley-Tennes-see situation) had arisen, that it would require twenty-five million dollars, but that Morgan had decided to take care of it if the trust company presidents would raise another twenty-five millions to take care of the Trust Company of America and other imperiled institutions. That was Morgan’s ultimatum.

  The news created consternation among the bankers and most of all among the trust company presidents, who hung back in very natural trepidation at tying up further funds at such a time of panic. What would their directors think? How on earth could the president of an institution accept single-handed such a crushing responsibility? Was this the only way out? More hours dragged by, hours of consultation and indecision. The long suspense was telling upon these men. Benjamin Strong, who had been making another prolonged examination of the affairs of the Trust Company of America, has told how, as he sat waiting to make his report to Morgan, he dozed off to sleep; and James Stillman, sitting next to him on the lounge, asked him when he had last been to bed, and he said Thursday night. (It was then early Sunday morning.) There must have been other equally exhausted men among those who waited there and paced up and down the marble hall; these hours among the parchment-bound books and the Renaissance paintings must have been to some of them a gorgeous nightmare. But nobody could go home. Morgan had seen to that. If any banker had tried to walk out, he would have found the massive front door of the library securely locked. Morgan had the key in his pocket!

  At last old Jupiter, knowing that it was now or never, walked out to the crimson west room and confronted the trust company presidents. He told them that the panic must be defeated. His lawyers had prepared a subscription blank providing for a subscription from each trust company (computed on the basis of its resources) to a loan fund totaling twenty-five millions. One of the lawyers read the document aloud.

  “Then”—to quote from Lamont’s life of Davison—“they laid it on the table. Mr. Morgan waved his hand invitingly towards the paper. ‘There you are, gentlemen,’ he said.

  “The bankers shifted from one foot to another, but no one stepped forward. Mr. Morgan waited a few moments. Then he put his hand on the shoulder of his friend, Edward King, and gently urged him forward. ‘There’s the place, King,’ he said kindly but firmly, ‘and here’s the pen,’ placing a handsome gold pen in Mr. King’s fingers. Mr. King signed. The ice was broken. They all signed.”

  Morgan had triumphed—and in that triumph had reached the pinnacle of his career.

  Now the front door might be unlocked. The Trust Company of America was safe for the time being—and, as events were to prove, permanently. The Tennessee negotiations, too, were past their worst stages. At a quarter to five on Sunday morning the weary bankers walked out into the dark and empty streets.

  More conferences followed on Sunday, and on Sunday evening Gary pointed out a hitherto unregarded obstacle which might wreck the whole Tennessee plan. The President—the stiff-necked President, with his prejudice against Wall Street and his hatred of monopolies—what would he say to the acquisition of the Tennessee Company by the monster of the steel trade? Roosevelt’s consent must be secured, and this must be done at once—before the Stock Exchange opened for Monday’s business, so that the announcement of the purchase might be made at the opening. A little telephoning secured a special train on the Pennsylvania Railroad, consisting of a locomotive and a single pullman, with a right-of-way over everything else to Washington. Gary and Frick, having wrung from the President’s secretary an early morning appointment with Roosevelt, boarded the train.

  On Monday morning they were at the White House. The President interrupted his breakfast to see them.

  They told him that “a certain business firm” would undoubtedly fail unless help were given, that among its assets were a majority of the Tennessee stock, that the purchase of these assets would be of “little benefit” to the Steel Corporation but would be the “only means of avoiding failure.” They thought the purchase ought to be made unless the President objected to it.

  Roosevelt had to decide instantly. Naturally—the panic having reached the stage which it had—he told them he felt it “no public duty of his to interpose any objections.” At five minutes before ten—just as the Stock Exchange was about to open—Perkins, sitting in the Morgan office with a telephone at his ear connected with the White House, heard Gary’s voice telling him that it was all right. The announcement was duly made, the stock market rallied with delight, and every banker heaved a sigh of relief.

  From this moment on, the skies slowly cleared. The worst of the panic was over.

  That Gary’s explanation to Roosevelt was somewhat disingenuous is obvious. Roosevelt might not have been impressed had he been told that the immediate beneficiary of this transaction was a brokerage firm, that of George F. Baker’s brother-in-law; that no single loan to the Schley firm was secured wholly by Tennessee stock; or that the development of the open-hearth process of steelmaking was increasing the potential value to the Steel Corporation of the Tennessee’s properties. It is also equally obvious that Roosevelt preferred not to question Gary and Frick too closely lest he discover something which it would be inconvenient to know. He could have pressed them for the name of the concern which was threatened with failure, but he chose not to. It is also clear that the transaction was not precisely an act of open-handed generosity on Morgan’s part. It was a piece of business which he hoped would in time yield the Steel Corporation a good profit.

  Do these cold facts somewhat dim the glory of that all-night meeting in the Morgan library, at which Morgan induced the trust company presidents to sign the subscription blank on the ground that he too was putting up twenty-five million dollars in another way? Perhaps; but the answer to this question must be made in the light of certain other facts as well. The blank which Morgan induced the trust company presidents to sign did not, of course, involve a gift, but a loan with interest: their action, too, would be profitable if all went well. Furthermore, the announcement that the Steel Corporation was taking advantage of the crisis to enlarge its holdings wa
s just the sort of announcement which would cause the men of Wall Street to cease thinking of the panic as a time to hoard cash and would persuade them to think of it as a time to pick up bargains. Morgan’s contribution lay simply in having nerve enough to go ahead and do business and dragoon other men into doing it too.

  Some of his friends have implied that in such negotiations as these he was quixotic. One may reasonably doubt this; quixotism does not flourish in Wall Street, and Morgan had flourished there for nearly fifty years. The truth is that in those long vigils in the Library he simply showed more solid courage than any other man.

  7

  Gradually the situation improved, and before long observers were able to survey the field of battle and take stock of its results.

  Let us set some of them down categorically:

  1. Inevitably, the panic was followed by a depression. But the depression did not long remain severe. The economic structure of the country was still strong at bottom, weak as the top had proved itself to be.

  2. As to the weakness at the top, the panic had taught at least one lesson. There ought to be some systematic method of mobilizing bank reserves, as Morgan had mobilized some of them by sheer force of will. The result, after long and obstinate delay, was the creation of the Federal Reserve System. Other lessons of the panic, however—such as that the banks were insufficiently safeguarded either by law or by tradition, and too easily fell a prey to stock-market-minded men, if not to predatory gamblers—were not destined to be fully learned for at least another twenty-six years.