by Jean Strouse
Morgan called in Gary and Frick. If U.S. Steel bought TC&I, he proposed, it could substitute its own highly rated gold bonds for the unmarketable TC&I stock as collateral at the banks. The bonds would act like money in the market, bank portfolios would not lose value, and Moore & Schley would not need a huge infusion of cash, just when it looked as though the trusts were going to need another $25 million. Morgan may not have known much about TC&I—he had not been to a Steel directors’ meeting between January and October—but he thought this trade would work.
Neither Frick nor Gary liked it. They knew that TC&I had high costs and inefficient operations: Gary had declined to include it in the 1901 U.S. Steel consolidation because of its unprofitable record and inept management. In 1907 he was also worried about the antitrust law. He had been careful all along to keep U.S. Steel’s constituent properties and market share at levels that would not invite prosecution.
The U.S. Steel Finance Committee met at Morgan’s library for several hours on Saturday, November 2, and late that afternoon Frick and Gary called on Schley with two offers: the corporation would either lend the brokers $5 million or buy the TC&I stock at $90 a share. Schley said no. He needed far more than $5 million, and his associates would not take less than $100 for the stock.
That night Morgan’s accountants began going over the TC&I books, and on Sunday Schley and the company’s officers tried to impress on the Steel men “the value of the property”—its ore and coal reserves. George Perkins noted dryly that TC&I had owned those reserves for twenty years, “but it didn’t prevent the stock selling at 30.” The overall picture presented to the U.S. Steel Finance Committee at Morgan’s library on November 3 was decidedly mixed.a
As in 1895, Morgan was not acting out of altruism. He and people he represented all over the world had billions of dollars invested in the United States, but it was not only rich capitalists and industrial corporations who would suffer if the markets collapsed as they had in 1893 and the country slid into a long depression. In recent economic downturns, corporate giants had generally trimmed their sails and pulled through, often buying up competitors at bargain prices. Those hit hardest by a prolonged contraction would be farmers, workers, immigrants, small businessmen, and the unemployed.
Once Morgan convinced the Steel executives that trading their bonds for TC&I stock would avert a further crisis in 1907, they took care not to make it a commercial sacrifice. TC&I, they apparently concluded, had enough potential to outweigh its liabilities: it could provide U.S. Steel with significant mineral resources, control of an unstable company, new productive capacity, and a stronghold in the South. Over the long run, Morganization and large infusions of cash might turn it into a profitable asset.
Early Sunday evening the Finance Committee offered to trade about $30 million worth of U.S. Steel bonds for about $30 million in TC&I stock valued at $100.b Schley accepted these terms, and his associates agreed to the exchange. Gary, however, would not proceed without Roosevelt’s approval: he did not want to risk prosecution under the Sherman Act. He telephoned the White House on Sunday at 10:00 P.M. to set up an appointment for the next morning, and took a midnight train to Washington with Frick.
On Saturday, November 2—the day the Steel Finance Committee met at the library to consider taking over TC&I—Morgan’s town house reopened, and Fanny and Anne moved back to the city. Fanny wrote in her diary that night: “Town. P. dined at home with us quietly at 219 Madison.”
Crisis had followed crisis for two long weeks. The senior trio had manufactured liquidity for desperate markets, coming up with funds by persuasion, fiat, threat, and loan. Night after night they had deliberated while their lieutenants supplied them with facts, and everyone from bankers to trust company presidents, stockbrokers, and account clerks was exhausted.
Davison and Strong remained on twenty-four-hour research duty as rumors continued to fly around town. On Saturday afternoon they reported that the Trust Company of America and the Lincoln Trust held mostly solid assets but needed more cash. On Sunday, November 3, bankers and steel men were in and out of the library all day and most of the night. To the press Morgan said only that they were discussing the general financial situation. The trust company officers held meetings of their own at the Waldorf-Astoria, on Fifth Avenue between 33rd and 34th Streets, sending occasional messages to Morgan’s headquarters. At 9:30 P.M. more than fifty men gathered at the library. One of them later recalled the “anxious throng of bankers, too uneasy to sit down or converse at ease, pacing through the long marble hall and up and down the high-ceilinged rooms” filled with Renaissance bronzes, Gutenberg Bibles, and tiers of books. A fire blazed in the study. Morgan told the trust company presidents that he was working on a solution to the Moore & Schley problem, but they had to raise another $25 million on their own.
Then he retired with Ledyard, Gary, and Frick to Belle Greene’s office (the “North Room”) off the rotunda. At 10:00 Gary phoned the White House and left for Washington with Frick. Ben Strong, waiting to make a report on the trusts, fell asleep. When he woke up, Stillman asked him when he had last been to bed. Not since Thursday night, admitted Strong. Stillman said the country would not collapse if Strong went home, but at that moment Morgan asked for the figures on the TCA. At 3:00 A.M., after Strong finished his report, he headed to the library’s front doors and found them locked. Morgan had the key in his pocket. No one would leave until this crisis was resolved.
The trust company presidents continued to talk in the West Room. At 4:15, Morgan walked in with a statement providing for each trust company to subscribe its share to a new $25 million loan. One of his lawyers read it out loud, then set it down on a table. “There you are gentlemen,” Morgan said.
No one moved.
Morgan went over to Edward King, head of the Union Trust, and drew him to the table. “There’s the place, King,” he said, “and here’s the pen.” King signed. The other presidents followed suit. A committee of five large trusts, led by King, was appointed to handle the loan and supervise the final-stage rescue of Lincoln and the TCA. The library’s brass doors swung open at 4:45 to let the bankers out.
Four hours later, Gary and Frick had breakfast at the White House with Roosevelt and Elihu Root. They quickly sketched in the outlines of the situation. As a pure business proposition they did not want TC&I, they said: it would be of dubious benefit to U.S. Steel. Moreover, the purchase was likely to arouse public antagonism and invite antitrust proceedings, which was why they wanted clearance from Washington. They had deliberately not acquired more than two-thirds of the country’s steel properties, and the TC&I takeover would not bring the total over that limit.
Roosevelt, by this time aware of the dangers just averted, desperate to prevent further trouble, and grateful for Morgan’s expertise, approved the proposition. Root undoubtedly concurred. The President drafted a note to his Attorney General. The steel men felt, he wrote,
that it is immensely to their interest, as to the interest of every responsible businessman, to try to prevent a panic and general industrial smashup at this time, and … are willing to go into this transaction, which they would not otherwise go into, because it seems the opinion of those best fitted to express judgment in New York that it will be an important factor in preventing a break that might be ruinous; and that this has been urged upon them by the combination of the most responsible bankers in New York who are now thus engaged in endeavoring to save the situation. But they asserted they did not wish to do this if I stated that it ought not to be done. I answered that while of course I could not advise them to take the action proposed, I felt it no public duty of mine to interpose any objection.
Minutes before the stock market opened at 10:00 A.M., Gary telephoned Perkins from the White House with news of Roosevelt’s assent. Perkins relayed word to the Exchange, and the panic finally did, after two harrowing weeks, stop. The stock market had its best day since the trouble began. News of the all-night Morgan Library conference, with its assuranc
e that Lincoln and the Trust Company of America would be “taken care of,” began to restore general confidence. Millions of additional dollars in gold were shipped from Europe. Fanny wrote in her diary that night: “P. dined with Nan and me and dozed in his big chair and slept all night till 8 a.m.”
On Tuesday, November 5, the city’s leading bankers and industrialists once again gathered at Morgan’s library. By 11:30 A.M. carriages and automobiles lined 36th Street from Madison to Park. Meetings went on all day and into the night as these men worked out details of the final trust company relief and the sale of TC&I. Shortly before midnight, a wagon from the Waldorf pulled up to the library’s front door, and waiters carried coffee urns and hampers of food inside. At 3:00 A.M., Edward King issued a signed statement: the TCA and the Lincoln Trust would pay their depositors in full, and would for the time being be controlled by his new committee of five trustees.
On Wednesday the stock market opened “buoyantly,” Perkins later recalled: “A tremendous change for the better had taken place … and all talk of failure and collapse ceased.” The first $7 million in gold arrived from Europe, which began to ease the money supply.c U.S. Steel’s directors approved the takeover of TC&I, and over the next few days the exchange of Steel bonds for nonnegotiable TC&I shares relieved the pressure on banks, brokers, markets, and on Grant Schley. He used the bonds to pay off $12 million in personal debts, and his firm began to redeem its loans from the banks. The Roosevelt administration, reported Perkins, was anxious to help in any way it could.
Charles Barney, the ex-president of the Knickerbocker Trust whose involvement in the copper speculation had touched off the panic, killed himself on November 14.
Bernard Berenson wrote to Mrs. Gardner that “Morgan should be represented as buttressing up the tottering fabric of finance the way Giotto painted St. Francis holding up the falling Church with his shoulder.”
After the gold crisis of 1895, populists had accused Morgan and Cleveland of conspiring to squeeze the stricken nation for private profit and to “crucify mankind upon a cross of gold.” The panic of 1907 generated even greater animosity—especially the “deal” between the President and U.S. Steel over TC&I. Morgan was charged with having created the panic in order to grab a threatening rival on the cheap, and Roosevelt with having succumbed to a Wall Street trick.
Few observers of these events at the time or since accepted U.S. Steel’s portrait of itself as reluctant saint. The executives’ stance of moral rectitude, taken in anticipation of the “attack” that inevitably followed, seemed rank hypocrisy to a public on the lookout for abuses of corporate power. “There has been so much trickery and dishonesty in high places,” Roosevelt wrote to his brother-in-law on November 16—“the exposures about Harriman, Rockefeller, Heinze, Barney, Morse, Ryan, the insurance men, and others have caused such a genuine shock to people that they have begun to be afraid that every bank really has something rotten in it. In other words, they have passed thru the period of unreasoning trust and optimism into unreasoning distrust and pessimism.”
Wisconsin’s Senator Robert M. La Follette charged the “group of financiers who withhold and dispense prosperity” with having “deliberately brought on the late panic, to serve their own ends.” Upton Sinclair’s 1908 novel, The Money-Changers, portrayed a Morgan-like figure orchestrating the crisis to devastate ordinary people for private gain. John Moody, who had left banking in 1900 to start his Manual of Industrial Securities, said that if the bankers “checked the panic” in acquiring TC&I, “they did it by taking a few dollars out of one pocket and putting millions into another.”
U.S. Steel had paid $30 million for a company that critics now claimed was worth anywhere from $90 million to $2 billion—estimates that far exceeded those of the company’s shareholders in 1907. Even if Morgan had paid Kessler’s asking price of $130 a share, the total would have come to just $39 million, less than half of the lowest retrospective valuation.
A 1909 Senate Judiciary Committee investigation of the TC&I takeover concluded that the “Morgan banks” in New York had squeezed Moore & Schley, and forced the brokers to “surrender” the TC&I stock. According to the committee’s report, TC&I was worth several hundred million dollars, and it brought U.S. Steel control of the country’s iron-ore supply and open-hearth rail production, as well as a monopoly of the iron and steel trade in the South and elimination of a “strong and growing competitor.” The Steel trust had absorbed TC&I in violation of the Sherman Act, declared the committee, and Roosevelt had no business authorizing nonenforcement of the law.d
Two years later, a House investigation of the steel industry led by Augustus Stanley of Kentucky made newspaper headlines for months. Schley, who had instigated the sale of TC&I and testified as to its urgent necessity in 1909, told the Stanley Committee that his firm might have survived without the sale, and that a $5 million loan could have saved it—an offer he rejected at the time. One of the committee’s most popular witnesses was the furious John W. Gates, who had wanted TC&I for his Republic Iron & Steel. Gates was abroad in the fall of 1907—he did not return until November 5, to find that Schley had sold TC&I out from under him. Having been on the Atlantic did not prevent him from testifying in colorful detail about events that took place during his absence, nor from doubling the estimates of TC&I mineral reserves and concluding that U.S. Steel had got “the best property in the country and at a bargain price.”
Theodore Roosevelt, no longer President, appeared before the committee in August 1911, and took full responsibility for having authorized Frick and Gary to proceed. What mattered in early November of 1907, he said, was to stop the panic, and his approval of the steel merger had done just that. He had known perfectly well that once the “imminent and too appalling” danger had passed, he would be subject to attack. “If I were on a sailboat,” he explained, “I should not ordinarily meddle with any of the gear; but if a sudden squall struck us and the main sheet jammed so that the boat threatened to capsize, I would unhesitatingly cut the main sheet even though I were sure that the owner, no matter how grateful to me at the moment for having saved his life, would a few weeks later, when he had forgotten his danger and his fear, decide to sue me for the value of the cut rope.”
Representative Martin Wiley Littleton wanted to show that Gary and Frick had hoodwinked Roosevelt, but the former President flatly denied it. “I was then thoroughly satisfied, and after events made me more thoroughly satisfied, that what was done was absolutely necessary to save the situation,” he testified. “A good many of your questions enter into the hidden domain of motives. I never supposed they were going to take action that would be damaging to themselves.… Using the same simile I used before, if I think it necessary to haul on a rope on a boat to prevent its going over, I welcome help from any husky individual who hauls. I don’t worry about his altruistic motives toward me. I want him to pull on the rope.”
Littleton, who lived near Roosevelt on Long Island and had recently crewed for Thomas Lipton in a race against the Kaiser, supplied a nautical trope of his own: “Doesn’t it make a difference,” he asked, “whether the rope is attached to the sail or is one of the guy ropes attached to the mast? The question is whether you are led to pull on the right rope.”
The question was whether the President had been duped. Roosevelt replied: “No man would do such a thing as you suggest during a storm. It is not human. The supposition is preposterous. We were pulling on the rope attached to the one sail that was in danger. No human being who knew the facts doubted it, and the result has made it clearer.”
When George Perkins took the witness stand, Congressman Charles L. Bartlett of Georgia suggested that Morgan had brought on the panic in order to destroy trust companies that competed with his bank. “What do you say to the statement that the panic was started to get rid of certain undesirable bankers, and that you gentlemen later were unable to manage it?” asked Bartlett.
Perkins stood up in high theatrical dudgeon and slammed his fist on
the table. “I say that there never was a more infamous lie started than that. There is not a scintilla of truth in it. You might just as well say that a certain group of gentlemen made a contract with Mrs. O’Leary’s cow to kick over the lamp that set Chicago on fire.”
Witness after witness denied that the bankers had squeezed Moore & Schley, that U.S. Steel had hammered TC&I to force down its price, that Morgan had cooked up the panic. Even Grant Schley could point to no evidence of diabolic design. The committee’s inquiry struck an unintentionally comic note when Chairman Stanley examined Percival Roberts, Jr., a director of the Pennsylvania Railroad and a former steel man. It was one thing to blame America’s complex ills on Big Business and the trusts; it was another to give evil a personal face. “Is there in the financial world today,” asked Stanley, “a man of infinite power and vast interests whose example is regarded in a way as the law by big business men?”
“No,” replied Roberts. “I think there are certain new ideals of co-operation which govern us all, ideals that may be personified in certain individuals.”
“Is there such an individual in America?” continued Stanley.
“Yes, I think so.”
“Where does he reside?”
Roberts: “I think his name is legion.”
Apparently, nobody laughed.
“At least,” continued Roberts, “that is the hope for the future of this country. If we destroy individualism we surely will get into trouble.”
“Who is the example in the steel industry?”
“I think no one man in particular.”
Stanley: “Is there not one man whose example business men of the Nation follow, on account of his immense grasp of modern conditions, his touch which potentiates the railroads of the nation, the steel manufacturing business, the establishment of banks, and extends to all the multifarious ramifications of business of the country, and who can not only frame business conditions, but change them by the mere press of a button?”
