Bernard Baruch: The Adventures of a Wall Street Legend

by James Grant

  In Vichy Baruch took the baths and in Scotland he helped to kill 1,724 grouse. From the castle he cabled instructions to Mary Boyle to send George C. Jewett, head of the American Wheat Growers Associated, a partisan message, reading: “Davis thoroughly honorable sincere can accept any promises made stop Coolidge adverse.” He managed to read the New York World. Returning to New York with his wife and son aboard the Majestic on September 23, he denied a story that Junior (for so he called his grown son) was engaged to marry the Hollywood film star Lois Wilson. “All I can say is, unfortunately, the rumor is not true,” said the father. His son, aged twenty-two, blushed.[43]

  The Baruchs had come home to a parlous political situation. The party was riven, and Davis was making so principled a campaign that some of his friends despaired of him. McAdoo sulked, and Baruch hung back, or so it appeared to Jesse Jones, the party’s chief fundraiser. A week after Baruch’s return, Jones wrote him an extraordinary five-page letter, which began with a review of how much the party had done for him and how little he had reciprocated:

  You have [wrote Jones apropos of what he called Baruch’s God-given talent] been permitted to prosper, amass a vast fortune, millions upon millions, and I wonder if you are as [sic] much better man for it as you should be. . . . You charge that [Clem L.] Shaver [the national party chairman from Lost Creek, West Virginia] is not a good manager, that you were not consulted in his selection. You question this, that, or the other activity, or lack of activity, upon the part of the Committee. You, who should give more, many times more, than any other man in the United States, both in money and effort, rent a castle in England [sic] and sail for a pleasant and indulgent summer, leaving scant if any suggestions to the nominee or the National Committee, and after returning still withhold all but your criticism and a miserably small check.

  No—You say you are going to spend $120,000 in the interest of our ticket. If your heart is in the election of John W. Davis and the success of our ticket and not in your own glorification, you will ask the Committee in what way can the $120,000 you say you are willing to spend might be used. Why not take counsel of the Committee, of the candidates, not tell them, but ask in what way your $120,000 in their opinion might be most helpful? Why not give it, or at least a considerable part of it, to the Committee and let the propaganda you propose be done by the Democratic Party rather than by B. M. Baruch? That would be the part of a great man.

  Jones closed with an insulting spiritual suggestion: “. . . you should thank your God every night . . . for your opportunities and privileges, and, further, you should ask Him to give you that humility that goes to make men great.”

  Baruch was outraged and astonished. He was, in his own estimation, an extraordinary man already, the proof of which was that his ideas had borne fruit in the marketplace. Where had the ideas of Jesse Jones gotten the party? Furthermore, he was certainly one of the top contributors, if not the leading contributor, in the party, and had sustained it through the hard times of the early 1920s. The unspeakably irritating part of Jones’s letter was that the party was prepared to ignore him while taking his money, as if it had the right to it (and as if there were as much as it thought). With Krock’s help, Baruch got off a hostile reply, stating, among other things, that the string he’d attached to the $120,000 was only that it be spent wisely, which, however, he doubted that Jones was capable of doing. “Your letter was so gratuitously irritating that it disturbed me,” said Baruch, “but it was not without value, for it will mark the end of our personal relations and thus relieve us both of personal embarrassment.”

  On Election Day, Davis suffered an even worse shellacking than he had modestly expected (or than Baruch had apparently foreseen; he lost $3,000 in an election bet that he’d placed through Chadbourne). A few days later Baruch mended fences with McAdoo’s blood enemy, Al Smith, with a $5,000 contribution, and within a few years he was corresponding civilly again with Jones. After the election Baruch suffered a temporary reaction against politics, but by the off-year elections of 1926 he was interested again. He contributed $46,500 to the Democratic Senatorial Campaign Fund (including $5,000 earmarked for Alben W. Barkley of Kentucky, future Vice President under Harry S. Truman), raised $20,000 more from Mrs. Thomas F. Ryan, and gave $5,000 after the election to help close the senatorial deficit. He gave at least $10,000 to Democratic candidates for the House and looked for an opportunity to bet on Senator James W. Wadsworth Jr. of New York, a Republican who was pitted against Robert R. Wagner; Wadsworth and Baruch, of course, lost. In the same year he himself was mentioned in the New York papers as possible Senate material. This intelligence was forwarded to him at Fetteresso by Senator Robinson, who observed that it was the kind of thing that ordinarily didn’t interest him; nor did it then. The ordeal of Madison Square Garden led Baruch to make, and, for the most part, to keep, another resolution: never to involve himself again in presidential primary elections; henceforth he would have no candidate but the Democratic Party’s. In political terms he had renounced speculation for long-term investment.

  As for McAdoo, he returned, without much success, to moneymaking. He tried to interest Baruch in a railroad venture late in 1924 and borrowed money from him to pour into Florida real estate in 1925. In 1928, during the fever of the bull market in stocks, Baruch happened to mention that Daniel Roper, another ex-Wilsonian, had lied to him, and that he regretted the fact that he had helped to make him so much money. McAdoo commiserated with this and then redirected the discussion:

  I think [he wrote Baruch] you have been extremely good to Roper in making for him “a great deal of money.” It certainly is a good friend who will help another in this way. I wish very much, if you see an opportunity, you would put me in the way of taking on something which would prove profitable. This thing of working one’s head off at law, with the small results that can be gotten in this more limited theater of professional and business action, grows very tiresome as I grow older. Think this over and pull an oar for your old friend if you can without too much grief or trouble! You have been most kind to carry me on those loans and I hope to be able to liquidate them within the next six months if all goes well.

  A tip was forthcoming immediately, which McAdoo acknowledged wistfully. “I got 500 Acme at 30—Many thanks,” he wrote. “Sometime I want to buy 5,000 of something. . . .” But when he died in 1941, at the age of seventy-seven, he left Eleanor Wilson McAdoo only $800 and she wrote to Baruch to say that she needed a job. Baruch was desolated. Of Josephus Daniels, his comrade from Wilson days, he asked, “Is it not just too dreadful?”

  37. Baruch and Sapiro made up two-thirds of the trio that The Outlook magazine saluted in 1923 in an article headed “Three City-Bred Jews that the Farmer Trusts.” The third was Eugene Meyer Jr. who found the piece so oppressively flattering to Baruch and so patronizing to him that he dashed off an angry note to Baruch.

  “I cannot believe that you yourself desire to misrepresent it,” wrote Meyer, “but these writers who get their information from you seem to consider it part of their duty in this and other articles to make it appear that everything I do and know is what I get from your inspiration and suggestion. In fact I am made out to be sort of a creature of yours.” The note, however, went unmailed.

  38. There was a reunion of Hobcaw guests in 1926 at which Pulitzer paid tribute to Baruch with a quatrain in doggerel:

  Prince of hosts this great agronomist Is a hunter bold and brave;

  This political economist With his dictum: Work and save

  39. He was not so ardent that he poured out his cellar. In 1926 it contained a case of brandy, 3 of Cognac, 22 of Clos du Cardinal white wine, 34 of vermouth, 51 of gin (Gordon’s), 11 of rye, 45 of Scotch, 35 of miscellaneous clarets, 12 of Champagne (including 5 of Pol Roger 1909 and 5 of Dry Monopoles 1907), assorted liqueurs, brandies, sherries, and a bottle of Jamaican rum. Evidence is mixed as to whether the 18th Amendment was observed under his roofs. Baruch himself was a light drinker; John Baragwanath remembered that
, while the food at Hobcaw was superb, no liquor was served in the 1920s. Guests, he said, brought their own potables and held loud cocktail parties in their rooms before dinner, which Baruch pretended not to notice. However, when the old Hobcaw house burned in 1929, Senator Key Pittman of Nevada, a guest at the time, bravely re-entered it to save a barrel of corn liquor.

  40. Just the same, during the Red Scare in 1920, when the New York World set up a Representative Government Fund to defend five duly elected Socialist members of New York State Assembly who had been summarily denied their seats, Baruch contributed $100.

  41. Privately partisan, Baruch in public was circumspect, as the Washington Star satirically noted early in January 1924:

  Mr. Bernard M. Baruch, noted financier and as genial a sphinx as ever, guarded his tongue, slipped into town yesterday, registered at the Shoreham, and, after calling on his old friend, former President Woodrow Wilson, went over to Annapolis to attend the Jackson day dinner in honor of Gov. Ritchie of Maryland. . . .

  While graciously consenting to be interviewed, just what Mr. Baruch’s opinions are on world conditions and the economic and political situations in America at present must be left to the reader to judge from the following conversation.

  “What do you think of the European situation, Mr. Baruch?”

  “* * *, but please, don’t quote me.”

  “How are things looking over here?”

  “* * *, but I must not be quoted.”

  “Who do you think the Democrats will nominate?”

  “* * *, but for heaven’s sake, don’t quote me.”

  “How do you figure the President’s chances?”

  “* * *, however, that’s not for quotation.”

  “You’re certainly looking the picture of health, Mr. Baruch!”

  “Well, you may say that I never felt better in my life. Isn’t it a wonderful day? I was just—” but right then there was quick shuffling of feet, Barney Baruch was in the elevator, and as the lift shot off all one could hear was, “This is not to be quoted.”

  42. Norman E. Mack, head of the New York delegation; Franklin D. Roosevelt; George Brennan, the Illinois boss; and James M. Cox, the 1920 standard-bearer. All had opposed McAdoo.

  43. Intentionally or not, Baruch had a way of patronizing his son. From the Paris Peace Conference he had written him at the Milton Academy: “Lots of people say you look a very nice boy, and want to know if you are clever. I always reply that I am sure of only one thing about my son, that is, he will not lie or do a dishonorable thing.”

  Twelve

  “I Would Stand Pat”

  October 1, 1928

  Pine Bluff, Ark.

  Dear Sir:

  Knowing that you have had some interest in the fur business, I take the liberty to present to you what seems to me a wonderful proposition, in which you no doubt will take a lively interest, and perhaps wire me the amount of stock you want to subscribe towards the foundation of this company.

  The object of this company is to operate a large cat ranch in or near the city of Oakland where land can be purchased cheap for this purpose.

  To start with, we will collect say about 100,000 cats. Each cat will average about twelve kittens a year. The skins will run about ten cents each for the white ones to seventy-five cents for the pure black ones. This will give us twelve million skins a year to sell at an average price of thirty cents, making our daily revenue about $10,000 gross.

  A man can skin fifty cats per day for $2.00. It will take one hundred men to operate the ranch, and therefore, the net profit will thus be $9,800 per day.

  We will feed the cats on rats and will start the rat ranch next door. The rats multiply four times as fast as the cats, and if we start with one million live rats, we will have, therefore, four rats per day for each, which will be plenty.

  Now then, we will feed the rats on the carcasses of the cats from which the skins have been taken, giving each rat one fourth of a cat.

  It will be seen that this business will be self-supporting and automatic all the way through. The cats will eat the rats, the rats will eat the cats, and we will get the skins.

  Awaiting your prompt reply and trusting that you will appreciate the opportunity that I give you, and which will get you rich quick, I remain,

  Yours very truly

  The Pussy Skin Corporation, Ltd.—with the compliments of Simon Guggenheim.

  The defeat of Davis by Calvin Coolidge brought the consolation of a Republican bull market which Baruch was quick to recognize and capitalize on. The day after the election, a Wednesday otherwise notable for a victory statement by Judge Gary in which Coolidge was compared favorably with Abraham Lincoln, Baruch bought 3,000 shares of Consolidated Gas. On Thursday he bought 8,100 shares of Baltimore & Ohio Railroad, 7,500 of American Smelting & Refining, 8,000 of US Steel, 5,000 of Southern Railway, and 5,000 of International Nickel, all told, in two days, almost $1.7 million worth of common stock. Before the month was out, he had paid some $2.1 million for another 31,800 shares, including 3,000 more of Consolidated Gas, 4,900 of Sloss Sheffield, 7,000 of Steel, 4,100 of Gulf States Steel, 12,000 of Northern Ore, and 800 of Atlantic Coast Line (not counting 16,000 shares of Reading Railroad, at more than $1 million, which he had begun to accumulate before the election). Such was the strength of the market and the clarity of Baruch’s foresight that these operations yielded him a net trading profit in 1925 of $1,424,309.57. His trading losses, while large, were held manageably in proportion to his gains. They were $416,768.50. Both figures dwarfed the sum total of his fee income, $150, which the Atlantic Monthly had paid him for an article on taking the profit out of war (which, however, Krock had apparently written).

  In his autobiography Baruch left the clear impression that he put the stock market behind him when he took up public service. In a sense that was true. It was true for a time as a matter of geography. After the war he moved his offices from the financial district to 598 Madison Avenue (before moving downtown again in the bull-market year of 1928). It was also true that his success in the market left him unsatisfied. Still seeking an outlet in the management of a railroad, he made overtures to the Baltimore & Ohio but received no encouragement from the president, Daniel Willard.

  “I am 55 years of age,” Baruch wrote John R. Morron, a friend and director of the B&O in the summer of 1925, “and I should like nothing better than to take a large interest in the New York Central, which I think is a gold mine and out of which I do not think the stockholders are getting as much as they are entitled to. . . . I really should like to take a very serious interest in the New York Central, and gradually work into a more personal interest in its direction.”

  Baruch himself, in fact, had recently lost $90,000 in trading the stock of the New York Central. He kept 1,500 shares for investment, but when they showed a small profit in October 1925, he sold them too, thereby relinquishing another railroad hope.

  If the stock market was no longer everything for Baruch it still was something. He watched it, traded actively in it (in the process helping to support his brothers in the brokerage business), and took both pleasure and money from it. In 1926, a choppy year, he managed to eke out a net trading profit of $457,597.04 and to take a long-term gain in Texas Gulf Sulphur of no less than $1,936,662.

  The seismic bull market that posterity associates with exuberance, credulity, and wealth was also a source of disbelief and losses among professional traders who had been given to understand that speculative trees didn’t grow to the sky. Between 1906 and 1924 the Dow Jones Industrial Average had shunted roughly between 50 and 100. In the aftermath of Coolidge’s election, it pushed through that upper bound; by the close of 1925 it touched 157. In 1926 came a setback to 135, some backing and filling, and, as one might have supposed, a return to normalcy. But in 1927 the rise continued; on the nineteenth of December the Dow reached 200. In 1928 the angle of ascent of prices became almost vertical until the average hit 300 on New Year’s Eve. By September 3, 1929, when i
t stopped rising, it had touched 381.17. Then for almost the next three years it fell as steeply as it had risen, not stopping until July 8, 1932. On that day it read 41.22.

  The unprecedented extremes of the movement taxed the belief and also, necessarily, the net worth, of even farsighted people. Fred Schwed Jr. told how this happened:

  There was always a scattering of bears, “aginners” by temperament, who spent their business days having their ears knocked off. Many of them, bowing to a force which finally seemed cosmic, switched to being bulls at a sadly late period in the era. The remainder who were still short at the time of the crash covered too soon (as who wouldn’t?). Then, after prices had gone inconceivably lower, they took their profits and bought stocks (as who wouldn’t?). In due course of time, if they bought on margin, they went to “the Cleaners,” that mythical establishment to which their brother speculators had repaired some time earlier. “The Cleaners” was not one of those exclusive clubs; by 1932 everybody who had ever tried speculation had been admitted to membership.

  In the 1920s GM was as vital and glamorous a business as IBM was to become in the 1960s. From near oblivion in the recession of 1920–1921, it grew to eclipse Ford as the nation’s largest automaker by 1928. Before the Crash, in 1929, the price of its stock had bounded by more than 1,000 percent from the 1925 low, a rise which, to the bears, was literally incredible. In the summer of 1926 Thomas Cochran, a partner of J. P. Morgan & Company, had made the extraordinary statement that “General Motors running at its present rate is cheap at the price, and it should and will sell at least one hundred points higher.” This was the kind of thing that personages usually kept to themselves or discussed with reporters only off the record. The sight of the words on the broad tape, attached to the name of a Morgan partner, caused eyes to bulge; naturally (artificially, the bears thought) the price of the stock went up.