by James Grant
Baruch was not so progressive that he welcomed governmental intrusion in the market, and in 1913 he helped to compile a book for the Stock Exchange that laid out the case against unreasonable intervention. Short Sales and Manipulation of Securities, his anonymous contribution to the Money Trust debate (although it was common knowledge that Baruch had had the booklet privately published, he declined to sign his name to it), was a sixty-seven-page collection of documents on financial regulation. The gist of it was that short sales were salutary, and that government meddling in the speculative arena usually did more harm than good, but that there was room for improvement in self-regulation. A distinction was drawn between honest and dishonest manipulation of prices. If, for example, a man gave a buy order to one broker and a sell order to another, both in the same stock, and if neither broker knew what the other was doing, then the manipulation was aboveboard. (The point of the exercise would be to attract public participation by creating the appearance, or indeed, for the moment, the reality, of trading activity. Such a feint, wrote Baruch, was recognized as “a necessary and useful part of the machinery of speculation.”) If, however, the brokers arranged the trade in advance, then the manipulation was fraudulent and punishable under both common law and the rules of the exchange. Altogether Baruch’s public-policy vistas were widening. In 1909, he became interested in the New York mayoral candidacy of William Gaynor. Victorious, Gaynor appointed Baruch a trustee of City College in 1910. The mayor was a Tammany Democrat of an eccentric, Jeffersonian stripe—Albert Jay Nock called him “by far the ablest man in our public life”—although Baruch, in national politics, was a progressive Republican. He cast his first presidential ballot for a Democrat, Grover Cleveland, in 1892, but in 1896 oddly lacked a conviction on the monetary question and was unable to recall on which side he had ended up. (Never an ideological person, Baruch came around to the gold standard later in life but made no public protest when President Roosevelt embraced a quasi-paper standard.) He said that he had probably voted for McKinley, a Republican, in 1900 over the admonition of his great-uncle Fischel Cohen, a Confederate veteran, who said that the marking of a GOP ballot would cause a southern arm to wither. He was all for Theodore Roosevelt in 1904 and for William Howard Taft in 1908. However, when Mayor Gaynor, who wanted to be President, allowed a delegation to travel to the Democratic National Convention in Baltimore in June 1912 to put up his name for the candidacy, Baruch was in the entourage.[22] He was settled in a chair in the Fifth Regiment Armory on the night that William Jennings Bryan, champion of silver money and foe of Wall Street, offered a startling resolution:
Resolved, That in this crisis in our party’s career and in our country’s history this convention sends greetings to the people of the United States, and assures them that the party of Jefferson and of Jackson is still the champion of popular government and equality before the law. As proof of our fidelity to the people, we hereby declare ourselves opposed to the nomination of any candidate for President who is the representative of or under obligation to J. Pierpont Morgan, Thomas F. Ryan, August Belmont, or any other member of the privilege-hunting and favor-seeking class.
Be it further resolved, That we demand the withdrawal from this convention of any delegate or delegates constituting or representing the above-named interests.
The house dissolved in a roar. Baruch cast an anxious glance at Ryan, who rose defiantly from his seat in the Virginia delegation. Fistfights erupted. One man cursed at Bryan until he actually frothed at the mouth. The moneychangers in fact remained in the temple, but the party’s nominee, Woodrow Wilson, took the sanitary precaution of refusing to accept campaign contributions from “three wealthy Democrats,” presumably the trio excoriated by Bryan.
It was late in the campaign before Baruch met Wilson. The introduction took place at the Plaza Hotel through the offices of William McCombs, a fellow trustee of Baruch’s at City College and chairman of the Democratic National Committee. Baruch, who was summoned at the Oakland Golf Club, proceeded to the Plaza where he was met by James Gerard, the future ambassador to Germany, and Edward Mandell House, Wilson’s right-hand man. Sensitive to the political risks of meeting alone with a Wall Street man, Wilson summoned aides to sit in as witnesses.
Insofar as one virile man can be said to fall in love with another, Baruch that day fell for Wilson. He was smitten by his bearing, by the beam of his gray eyes, and by the fact of his southern birth. He admired the fight he made at Princeton against the eating clubs (an admiration undiminished by his own success in scaling the walls of the Oakland). Wilson was a low-tariff man, and Baruch had, or recently had had, a vested interest in protection by reason of his holdings in the American Beet Sugar Company. But Baruch was in broad sympathy with reform and he heard out Wilson approvingly. Regarding competition and monopoly, the candidate pointed to a telephone, “Here you have a monopoly,” he said. “But it is a reasonable monopoly. It represents a necessary concentration of capital under private control. But just the same, I believe it should be regulated.” Whatever the abstract merits of the New Freedom for Baruch, the program first and foremost was something that Woodrow Wilson expounded.
Baruch was far from the only moneyed man to appear in the progressive camp in 1912, but he was one of the few Wall Street men to give handsomely. He gave $12,500. Ryan, who had supported Wilson’s gubernatorial run in New Jersey in 1910, was, as noted, persona non grata. Jacob H. Schiff, the Kuhn, Loeb partner, also gave $12,500; Cleveland H. Dodge gave $35,000, and Henry Morgenthau, the banker and father of the Treasury Secretary under Franklin D. Roosevelt, gave $30,000. William R. Rust, the Tacoma smelter man whom Baruch had surprised with a big check in 1905, contributed $7,500. Samuel Untermyer, the Guggenheim lawyer turned chief inquisitor at the Money Trust hearings, gave $10,000.
A curiosity of party finances that year is that Baruch’s money was found palatable while Morgan’s, Belmont’s, and Ryan’s was not. Baruch took umbrage neither at the ostracism of Ryan nor at his party’s professed hostility toward Wall Street. Out of fear that the presence of a prominent speculator in Wilson’s ranks might embarrass the party, he hung back in the shadows of the campaign, giving only his money.
When Baruch alighted from his crag on the seventh floor of the Trinity Building, it was sometimes in the company of his old friend Middleton Schoolbred Burrill. A Wall Street lawyer by profession, Burrill remained an active stock trader, and he comprised, along with the broker Harry Content and the Housman firm, the heart of what was sometimes identified in newspaper stories as the “Baruch interests.” In 1911 the attention of that body turned to the American Beet Sugar Company.
Beet Sugar, which had farmland or factories or both in Colorado, California, and Nebraska, was a prototypical agribusiness. It raised enough beets and refined enough sugar in 1910[23] to generate profits of $1.7 million and sales of $7 million, a record little changed from the showing in 1909 and 1908 but double the results of 1905. The shares, of which only 150,000 were outstanding, were listed on the New York Stock Exchange. No common dividend was paid and there was no long-term debt.
In 1910 Burrill was elected to the board of directors. The next year came reports that Baruch headed a “pool” in Beet Sugar or was at least a substantial holder of the shares. In July 1911 an apparently well-briefed financial columnist speculated on the company’s prospects:
Some of the keenest operators in Wall Street continue to predict big things for a little stock—American Beet Sugar. They are even prophesying that in the course of the next year or so this issue will cross the old Havemeyer specialty—American Sugar. I understand announcement will soon be made of the passing of the control of the American Beet Sugar Co. into new up-to-date hands. The quiet absorption of the common and preferred shares of this company during the past six months has embraced, I am informed, the old family holdings of two of the original interests in the property whose stocks have been purchased in the open market and much to the surprise of the family interests in question have not b
een for sale again. The Burrill-Baruch-Housman interests together with two large banking houses now control this company and dividends at the rate of 4 percent payable quarterly are to be commenced at no distant day on American Beet Sugar common. Middleton S. Burrill and Bernard M. Baruch, two of the largest operators in the Street, are extensively interested.
In fact that fall a maiden dividend was declared at the rate of 5 percent, not 4 percent, and the price of the stock, which in January was below 40, by November had vaulted to 55. Talk of a Baruch-Burrill pool, with the implication of insider trading (as a director Burrill heard corporate news first), persisted into 1912. The story was discounted by the Boston News Bureau, which stated on what sounds like the authority of Baruch or Burrill: “Both B. M. Baruch and M. S. Burrill have long held Beet Sugar, but have no pool in it. The earnings of this company are public property and together with dividends prospects account for the advance in its shares.” With or without manipulation, the stock continued to climb, reaching 77 in September 1912. It weakened on news of Wilson’s election and the prospect of lower sugar duties. By year’s end it broke 50. Unexpectedly, on January 3, 1913, it fell below 42 on the announcement that the directors, citing burdensome inventories, had voted to suspend the dividend. The collapse led to a lone demand in Congress for an investigation of the company and to a run of suspicious comment in the financial press, of which a sample from The Wall Street Journal:
Conservative Wall Street interests would like to see an investigation of the operations in Beet Sugar. A year ago the stock was placed on a 5 percent basis. A pool carried the price up to 77 in September, and the Street was filled with rumors of an increase in the dividend to 6 percent, or even more. Then came the selling movement, and now the climax in the passing of the dividend. The whole thing may be all right; and if so, Wall Street would like to see that fact established. In the other event, it is felt that something should be done to restore public confidence in Wall Street.
The “other event” alluded to was the possibility of the wrong kind of manipulation. A Wall Street maxim has it that the reason for sudden market movement is duly furnished after the fact. In the case of Beet Sugar the 1913 annual report disclosed, too late, a 54 percent drop in profits. The violence of the break on January 3 was proof that the public had been caught unawares. The preceding decline in the stock suggested that the insiders had not been. Baruch was closely identified with the rise. What part, if any, he played in the fall was unmentioned. (Burrill left the board between April 1, 1912, and March 31, 1913, in circumstances unknown. In the same twelve months two other directors stepped down; the board numbered eleven.) Evidence that Baruch retained the respect of the Stock Exchange elders was the fact of his appointment to the prestigious Law Committee later that January. Equally convincing evidence that somebody held a grudge against him surfaced the next summer. The grudge was brought to light in the course of the impeachment of the governor of New York.
William “Plain Bull” Sulzer, eighty-first chief executive of the Empire State, was elected in 1912 and set to work at once on a scheme to uplift Wall Street. A regular machine Democrat, he had done Tammany’s bidding in the State Assembly but went to Congress in 1895 as a boomer of good causes. In Washington, he caught the satirical eye of Finley Peter Dunne, whose Mr. Dooley remarked: “It’s always been a great relief to me whin bowed undher th’ yoke of opressyon to know that ol’ Bill was weepin’ and runnin’ f’r office or makin’ someother sacrifice f’r me.” With the watchword “No honest broker has anything to fear,” the new governor introduced measures to outlaw fraud and manipulation, to set a 15 percent ceiling on call-loan rates, and to incorporate the New York Stock Exchange under state law.
The brokers, who had had their fill of reform, closed ranks. The Law Committee, reinforced by Baruch, began the drafting of counterproposals, and a ten-man delegation was named to treat with Sulzer. Among the ten were Baruch, Eugene Meyer Jr., James Mabon, and Melville B. Fuller, of whom more was to be heard. In Albany the brokers told Sulzer that they had nothing against reasonable laws, but that the level of interest rates was beyond their control and that incorporation would do more harm than good. Baruch happened to see the incorporation question more or less Sulzer’s way, but kept his opinion to himself.
The delegation and the governor amicably parted company. The milder reforms were passed into law, and the usury and incorporation bills died. Sulzer, meantime, had broken with the Tammany regulars who had helped to elect him, damning them for grafters, and endorsing a bill to inaugurate direct primary elections. Charles F. Murphy, Tammany chief and the incarnation of all that progressive democracy reviled, answered by causing an investigation to be started into Sulzer’s finances. A working hypothesis was that the governor had failed to report all funds received, but the truth proved unexpectedly richer. It developed that the candidate had diverted some contributions for the purpose of taking a flyer on Wall Street. Among his brokers, it turned out, was M. B. Fuller, one of the Stock Exchange governors with whom Sulzer had discussed the ethics of the marketplace. Fuller was later to testify that the governor kept a chronically impaired margin account, that the account was identified by number only, and that, late in 1912, the governor-elect had paid $10,000 of the deficit in currency.
In the course of the investigation charges were inevitably bandied and reputations besmirched. One day, early in August, Baruch’s name turned up in the columns of the New York World. The suspicion was reported that Sulzer, while a congressman, had dealt in American Beet Sugar stock when the sugar tariff was under consideration. He was alleged to have dealt through two brokerage houses, A. A. Housman & Company and Baruch Brothers. The World’s story wound up:
Bernard M. Baruch, who now has offices at No. 111 Broadway, was formerly a member of the firm of A. A. Housman & Co., and has been prominent in the affairs of the American Beet Sugar Company, whose stocks have moved in most irregular ways from time to time.
Harty Baruch and Clarence Housman each protested that he had never had truck with Sulzer and knew of no trading of his in Beet Sugar. Furthermore, the record showed that Sulzer, as a congressman, had opposed the tariff, whereas the company’s interest lay in protection. Transparently false, the charge was forgotten, but others bore up, and Sulzer was impeached, found guilty, and removed from office. The diehard progressive view was that the governor had been framed, and Baruch, believing it, contributed to his unsuccessful legal defense. The significance of the affair to Baruch was trifling except to remind him of the vigilance of his enemies and also of the love of his older brother. It happened that, when his name was leaked by the investigating committee, Baruch was aboard ship for a vacation in Europe, which prompted malicious gossip. Harty commented: “It is not true that Bernard M. Baruch, who by the way is not a member of this firm, went to Europe on Saturday to avoid this committee. He is not the kind to run away from anyone or anything.” Harty, in his brother’s eyes, had always been a hero. Coming from him, the words might have given Baruch goose bumps.
18. Sometimes Baruch visited the barony’s black church for an evening service. On one such occasion, the presiding minister, a “broadax” preacher not formally ordained, spoke along the following lines:
And Moses divided the Red Sea, and they had air rifles and shotguns, and the guns was all apoppin’ all over the place, and the water was divided, and all the people went over and no harm, and then Moses commanded that the waters go back together, and now I’ve got to close the sermon ’cause the Boss has got to go hunt early in the morn and we got to go to bed.
19. Most of this may be doubted. Baruch seems to have made markets discreetly, in individual stocks, not wholesale, for the “big men,” whoever they were.
20. Almost, as it turned out. Baruch left on August 7, 1913. The upturn that had begun on June 11 ended on September 13.
21. In keeping with Stock Exchange custom, for instance, Baruch rallied to the side of Mrs. William Laimbeer, whose husband was killed in an automobile accid
ent in 1913. It came out that Laimbeer, a friend of Baruch’s and member of the Exchange, had never recovered from the Panic of 1907, and that, unless his debts to fellow members were expunged, the proceeds of the sale of his seat would be lost to his widow. Baruch liked widows, as indeed he liked most women, and along with some other members he helped to assure her the income from $75,000.
22. His expedition was promptly invested with stock-market significance. “. . . Bernard Baruch ought to have 300,000 shares that he hasn’t got,” a broker was quoted as saying. “In fact I know that Bernie when he was at the Baltimore convention did not have a share of stock, either in his box or in the ‘Street.’ Therefore, I figure that he has got to buy 200,000 or 300,000 shares on the present good times, for he cannot keep out of the market.”
23. The company’s fiscal year, which ended March 31.
