The Game Got Them
Edwin Lefevre in Everybody’s
SOMEBODY asked for a dollar! That is what precipitated the worst panic of recent years.
The banks had stocks, bonds, mortgages, office buildings, participations in syndicates, notes, steamships, copper mines, words of honor, loans to directors, and other-first-class assets. But for months a boulder had been trembling perilously on the very brink of the precipice. At last, when somebody asked his own bank for his own money, down crashed the boulder on spotless reputations and trembling fears and shining hopes. And beneath the debris of credit there came to many people the only death that they feared—financial death.
“Somebody asked for a dollar. That’s what’s happened!” A New York banker said so at his club the other night. Among his hearers were other bankers. And they nodded acquiescence, forgetting to accuse Roosevelt of being responsible for the wreck of hopes and reputations and, wqrse still, of fortunes. The epigram told a long story to the bankers, in exactly five words.
Now, there were reasons why there should have been a panic, and why it should have been exactly the kind that it was, and also why it should have raged at the time when it did and not much earlier and not much later. It had been coming
for a long time. More than one observer had perceived its advance, notwithstanding the wonderful prosperity of the past two or three years. Every now and then something happened that hurried it along; some plan miscarried; something encroached upon the bank reserves; also from time to time some financier deliberately closed his eyes and swore that the situation was bright and healthy, or some statesman impetuously opened his mouth and said that the situation was not. But these things did not cause the panic ; they did not even cause the distrust that in November pervaded the community.
Who would have said that the touring car and the projected European trip of 1908 had regretfully to be abandoned because some years ago a few cold-eyed, eagle-beaked gentlemen in London coveted a few gold mines in the :Transvaal? And that the reason why Santa Claus will not bring the Russian sables this Christmas is that Russian grafters, dreaming of vast Manchurian plunder, also dreamed that the Japs were apes? Yet these remote events are clearly causes of such disappointments. For the Boer War, so far as concerned the world of business, which does not 'trouble itself with ethics, meant the loss of about a thousand millions of liquid capital. Not very long after that stupendous
financial loss came the war between Russia and Japan, and a still greater amount of capital disappeared forever—something like a billion and a quarter of dollars. Then came the San Francisco disaster. The loss there was, let us say, five hundred millions of dollars ; that much wiped out at one fell swoop. Thus you have in a few years the loss of over two and a half billions of dollars in this little world’s liquid capital. Remember, this was no stock-market slump loss, no mere disappearance of an elusive “paper profit” on a speculative line, no shrinkage of bank accounts incidental to the collapse of some absurd boom, no diversion from one channel of trade into another; but the actual and definite and irretrievable loss of that much of the world’s capital, which it could have used, which it needed to do business with.
And serious though so stupendous a loss at any time would be, it proved much more than usually serious because during the past three or four years the entire world has been unusually busy. Aside from spasms of speculation in stocks and staples and metals, there has been unprecedented activity and expansion in industries and manufactures, not only in the United States but also in Germany and England and France. In our country, because of the national optimism, the expansion has been extraordinary, the volume of business simply colossal ; our industries have grown at such a rate that we have been unable properly to finance that growth. This state of affairs has been clear to all for many months. We have had too much prosperity for the money ; more than we could promptly pay for. Didn’t the railroads pray for less business so that they might earn more per ton per mile? Well, we went along* as we should have done no matter who had been president of the United States or president of the Union Pacific or president of the Standard Oil or president of
the Federation of Labor. And one cloudy day somebody asked for a dollar, and not getting it promptly enough, very promptly squealed. That squeal was the signal for the chorus to join—the chorus of the entire world, which also wanted Money! Money! Money. It is sad to want money and not get it. But to ask for your own money and not get it is the civilized man’s hell.
The crash would have come earlier if the gold production had not been so great—the greatest it has ever been. But it was not great enough to offset the tremendous losses referred to and, moreover, Mexico went on a gold basis and absorbed a great deal of the precious metal ; and Argentina also needed a lot; and Egypt had to have gold. The land of the Pharaohs, by the way, also had its huge boom, in stocks and real estate and agriculture—and its collapse.
The panic of 1907 was, indeed, a world panic. To the British business man the fact that the Bank of England’s minimum rate of discount in 1907 reached a higher level than had been seen since King Edward was a young man, is as a long and vivid chronicle of disaster. And the extraordinarily high rate made by the Bank of Germany also tells of strenuous finance, and of hardship to German industry and commerce.
In addition to the loss of $2,500,000,000 of the world’s capital, we must reckon also in a general way with the American temperament. Our easy-going methods, our optimism, our habit of not looking beyond to-day helped to make the visible phenomena of the panic of 1907 more sensational in America than elsewhere. The story can begin with the Union Pacific dividend incident; that is, when the common stock was put on a ten per cent, dividend basis, in 1906.
A great romance, that ! The first chapter of the Story of the Great Panic is really the wonderful Tale
of the Dice Throw that Failed. When you say William Rockefeller, Henry H. Rogers, Henry Clay Frick, Edward H. Harriman, and their friends, you really say the star aggregation of cold-blooded sagacity in stock market operations, familiarity with legitimate, upbuilding business methods and loaded dice, and enormous individual wealth; it is the All-America Team of Finance, is it not?
These men held enormous blocks of divers stocks bought in 1904 and 1905. It had proven more difficult than they liked to dispose of these holdings. Like lesser men, they saw that the country at large was unprecedentedly prosperous, and, by the light of the past, that was precisely the time to sell stocks to the people whose prosperity enabled them to purchase securities. It is not possible to believe that these sagacious business men did not realize that there was scarcely enough money to go around.
It may be that the All-America financial team was too heavily committed to be able to do anything but go ahead. It was already resentful of the “muck-raking” attacks by press and President, but these did not give it pause. Indeed, it planned more aggressively ; the campaign for high stock prices—to permit of the unloading process—was to be pushed more vigorously than ever. The ruins of the city by the Golden Gate were not yet cold when the dividend on the common stock of the Union Pacific was raised beyond the most sanguine expectations of the greediest “outside” stockholder. There followed a general rise in stock prices, Union Pacific triumphantly leading the advance. It looked like golden history in the making, another glorious page of prosperity.
Do you know what these mighty captains really did? Knowing now that time urged, but not yet knowing the fear of man, they took their own money, borrowed more and said : “Five hundred millions on the red !”
And the red did not win !
About three months later : Enter Roosevelt.
The great constructive financiers, as they love to call themselves, had begun to see that their manipulation in the stock market, successful though such methods had been in the past, was not attracting the public. They thereupon began to lose patience, which is always far worse than to lose money. They blamed Roosevelt’s speeches for their failure to market their stocks, as though it were the President’s oratory that had unsettled confidence. Did they think that their abuse of corporate power and their misuse of money had earned the public’s distrust? Not for one fleeting moment. Such practices had in the past won for them scores of millions and the admiration of an unenlightened but success-worshiping public ; also much power. All the muck-raking in the country and all the Presidential speeches had taught them nothing.
The injudicious attempt to manufacture a bull market big enough to unload in was successful in aggravating the situation by tying up scores of millions of dollars that were needed for the conduct of legitimate business.
From that time on, danger signals rapidly multiplied. The mob possibly did not see them ; but the wise few, who must have seen, either deliberately disregarded or could not heed the warning. I, recently asked a world-famous multimillionaire why he did not take a relatively small loss by selling out months ago instead of waiting until October to complete his liquidation, and he replied: “I couldn’t get out earlier. None of us could. Of course we knew months ago that we were in for pretty severe losses. But general business kept up so remarkably well that we hoped for improvement. If we had tried to liquidate completely last winter, there would have been such a stock market panic that all of us would have been utterly ruined; and many
banks ^ would have gone with us. Oh, yes ; we saw the foot of the precipice very clearly ; and we knew we were on the way thither. But we took six months to reach it. Think if we had made the descent in two and a half seconds! No. We are at least alive.” It is to be regretted that this man’s name cannot be published. From being one of America’s “richest dozen,” he has become what is better—a philosopher, who now realizes the error ' of his ways and admits it cheerfully, and does not see red when one mentions muck-rakers in his hearing.
Many business men—and promoters and stock speculators—now regretfully remember how they paid no attention when, late in 1906, the Bank of England raised its rate of discount. The wise Old Lady of Threadneedle Street said as plainly as she could : “Get out of debt !” A very wise Old Lady, with ears that can hear a whisper half a world away and a voice that can carry q.ooo miles in the stormiest weather. “Get out of debt !” said the Old Ladv, and those that heard her and heeded her advice are not blaming Roosevelt to-dav for having caused the panic that in a few brief hours flung us back into financial barbarism.
In March, 1907, we had a severe slump in the stock market. It relieved the -situation somewhat, but it did so at the expense of unwise stock speculators, among whom were many personal friends of the Rockefeller - Rogers - HarrimanUnion-Pacific coterie. In Newport, Tuxedo, and Westchester County were heard voices ordering horses to be sold and stablemen to be dismissed ; automobile repair bills were angrily sent back for revision, and itemized accounts were insisted upon and extensions of time asked for. The list of the peoole who suffered the severest losses last March reads like the “Social Register.” All of them had “straight tips from the inside.”
The Union Pacific coterie itself did not then lose so very much. But it made a beginning of losses. The powerlessness of the Big Men to prevent losses was indeed what frightened Wall Street during those blustery March days; there was no support visible anywhere. There were moments during the slump when it was impossible to sell stocks ; there was nobody to buy them. The inveterate bargain hunters whose lair is at 26 Broadway were not buying bargains ; they were straining every resource to keep the public from getting bargains from them. John D. Rockefeller, it was said at the time, saved the day for his brother, William, and for his associate, Rogers, by lending ten millions in cash that he happened to have in bank in New York.
It was then, in March, that the Street and, indeed, people all the country over realized that the AllAmerica financial team, who had said : “Five hundred millions on the red !” had cast the die and had lost. The members of the aggregation had not, however, acknowledged, even to themselves, that they could not win out. That came not long thereafter. When the Standard Oil Company was fined $29,000,000, then, and not till then, did the Standard Oil peoole and other caoitalists realize the seriousness of their position. Roosevelt they had regarded as annoying, a sort of gigantic and overactive mosquito, dangerous’ only potentiallv. But, with the Government’s action, the possible menace had changed into an actual blow, a wound in a vital spot. It is safe to say that not one man in ten in the country reallv expected that the Government could or would collect that fine. But there is not one Standard Oil millionaire who is sure that the Government will not collect it. From that day to this, the All-America team has had all it could do to protect itself. It has ceased to be a “steadying factor” in slumps and recessions.
Next in the list of events that
helped along the panic was the break in the copper market. Mr. H. H. Rogers had been asserting for years—and other sagacious business men had agreed with him—that copper-mining as an industry possessed elements of stability that made a good copper mine one of the be*t and safest investments in the world. Copper had almost become one of the precious metals. Now, consumers of copper had been so busy, and deliveries of their own finished products were so urgently clamored for, that they had bought a great deal of copper in order to avoid delays. They did not overstock—as their business then was —nor were they speculating in the metal. There was an enormous legitimate demand for copper, and the high price was justified.
But with the March slump came a warning to all business. The country at large realized that there was not enough money to do the tremendous volume of business in sight, and merchants and manufacturers began to reduce their purchases of raw material. The consumers of the metal said: “We will use up what we have on hand before we buy fresh supplies.” The demand for cooper ceased so abruptly and completely that it seemed the vork of black magic. And the price fell, first gradually and then violently. Copper shares broke badly; millions upon millions were lost by speculators, and also by investors who shared Mr. Roger’s opinion of King Copper; and the stays were thereby greased for the panic to slide on.
And Henry H. Rogers, compelled to abandon cherished plans, forced out of one thing at enormous losses in order to be able to avert still more enormous losses in other schemes, saw the ruin of his hopes and then of his health. That was the tragedy of the Street, relentless as destiny, inevitable as death. Mr. Rogers had gone into Amalgamated Copper because of the stock market end of it. He had gone into Union Pacific and
Atchison and other railroads because of the stock market end. He had disliked Roosevelt because Roosevelt had interfered with stock market plans. He had played the game with superhuman adroitness, a courage beyond compare, and the ruthlessness of a machine, with a power that seemed almost resistless ;
. he was the possessor of marvelous vision, the incarnation of financial might—the Master of the Game, not its votary and not its slave. And yet . . . the Game got him !
Facing enormous losses in all his ventures, this man at last knew fear, financial fear, knew what it was to ask for money and not to be able to get it. H. H. Rogers not able to borrow money! Do you see the tragedy of that? Can you imagi\c this demigod of finance jostled oft his solid gold pedestal? Can you realize his feelings as he had to let go one thing after another in order to protect his Tidewater Railroad? He had started to build a railroad f he loved to speak of “my road,” to boast of its small capitalization, of its being without bonds. It was the most expensive toy in the world ; it was the most costly venture ever undertaken by an individual capitalist ; as a bit of financial arrogance it was superb. Rogers could say of that road : “I am its founder and its builder; its banker and its absolute czar. I am the railroad.” He owned it all. It was magnificent, but it was not business.
I dare say he dreamed splendid dreams ; perhaps, at times, when his soul’s gaze was fixed upon the future and he saw a finished railroad., he did not hear the ticker. But because he had listened overlong and overfondlv to the voice of the little tape machine, and had prospered overgenerously, he had lost his sense of proportion. When the storm came, it found merely a man: it did not ask his name, nor his rating. It flung him to the ground and passed on. The Game got him as it gets cvervbody who nlavs it as assiduously as Rogers played it. It took from him many millions and
his health. It always takes from people either their money or their soul, for none can escape retribution by an exit through the door over which is the black sign : Death.
With his health impaired, possibly permanently, facing losses of millions, Rogers to-day owns his unfinished tidewater railroad, which has cost him so far $40,000,000 or more—an incomplete piece of work which some day either he or his estate will be glad to dispose of to the Pennsylvania Railroad or some other system. What is life, Mr. Rogers? A dream—is it not?— which begins with toil, grows bright with the glitter of unthinkable gold, and ends in a shower of ashes of hopes !
If I have dwelt at some length on the case of Mr. Rogers, it is because in the popular imagination he was the sublimated specimen of the Wall Street magnate. Also because it is men like Mr. Rogers and his associates who have blamed Theodore Roosevelt for all the recent financial troubles, finding worthy echoes in the picayune officials of trust companies, hirelings of breach-of-trust presidents, and managers of tin-pot railroads. In speaking of Mr. Roosevelt’s participation in the matter, I may say here that there is no question that he aroused public distrust in the integrity of the managers or organizers of many of our great corporations, and that this year he has been particularly successful in arousing such a lack of confidence, not so much by his speeches, as by the confirmation of his assertions found in the sworn testimony of some of the recent Metropolitan Street Railway revelations. Those revelations certainly made Mr. Roosevelt help along the panic, because they made people say: “The President’s speeches are justified. They are borne out by the testimony of these men themselves. We must believe him and not Wall Street.”
Now, if. as we have seen, it is the loss of over two and one-half
billions of liquid capital, at a time of enormous industrial expansion, that principally is responsible for the panic of 1907, it is in all likelihood also true that it was Mr. Heinze who pushed the button and blew up a few reputations and made many unfortunate depositors spend sleepless nights. Of all that Mr. Lawson has written, the best by all odds is his sketch of the Butte man. When Mr. Heinze sold out to Mr. Rogers and came from the West with several millions, the financial East looked askance at the young Lochinvar. His speculations and his financial operations, his relations with certain banks and certain people were well known and not approved by the bankers. In October, 1907, he thought he saw a chance to punish the treason of associates, and with that end in view —and incidentally, of course, some plunder—he tried to corner United Copper. But his brokerage firm ran against the insurmountable obstacle of no money—and suspended payment. Then the “conservative bankers” thought they perceived a heaven-sent opportunity to eliminate Heinze and his associates from the banking situation of New York City. There followed certain threats the exact tenor of which has not been disclosed, but that they were effective is obvious. Mr. Heinze and his friends gladly “resigned” from their positions as presidents or vice-presidents of several banks. But the seed of fear had been implanted in the breast of the New York City mob.
In the history of every great catastrophe, you will find that some masterly bit of stupidity sets fire to the oil-soaked rags. The ousting of the adventurers from the banks of which they had obtained control had left the community so keenly apprehensive that almost anything would have stampeded it. The Bank of Commerce had been “clearing” for the Knickerbocker Trust Company in the New York Clearing House. In that capacitv. the Bank
of Commerce was responsible for the
Knickerbocker Trust Company’s checks, and, even if it gave notice that it would not “clear” for the trust company, it was responsible for twenty-four hours thereafter:. Now, the Bank of Commerce, finding some affiliation between the Knickerbocker Trust Company and some of the so-called “banking adventurers” grouped with Heinze, decided not to clear any longer, and so notified everybody through a megaphone. When, a little later, the resignation of Charles T. Barney, president of the Knickerbocker Trust Company was called for and received, the damage had been done. The run began the next day. The sins of the past were expiated in a few hours. The depositors, as usual, paid the damage. Mr. Barney paid for it with his life.
The most remarkable development of the banking business of New York City during the past ten years has been the growth of its trust companies. By paying interest on deposits, thereby attracting business ; by not observing—not being obliged to do so by law—certain safeguards required of the national banks, as, for instance, in the matter of reserves, they have cut heavily into the banks’ business. In New York City alone they have deposits of hundreds of millions. To be able to make money after paying the high interest on deposits that they paid, they were naturally obliged to take chances and run risks that no conservative banker would approve. They engaged in ventures, underwritings, development schemes, etc., that nothing but the amazing prosperity of the past decade prevented from failing disastrously. Now, the public knew all this in a vague way, but the public always insists on astutely waiting for the horse to be stolen before locking the stable door. But when Mr. Barney resigned as president of the Knickerbocker Trust Company, it believed that all it had ever heard about the business methods of certain trust companies was true of the Knickerbocker. The run be-
gan—somebody asked for a dollar! —and then there was panic—sheer blind, unreasoning fear.
Of course, the suspension of payment by the Knickerbocker Trust Company, an institution with $62,000,000 of deposits, was the signal for runs on other institutions ; and not only in New York City, but elsewhere, trust companies and banks closed their doors. After sleepless nights and much thought, the majority of the banks of the great metropolis of the United States decided to issue Clearing House certificates. Other cities followed the example of New York—anything in order not to have to pay out the money that they did not have !
The inevitable growth of unreasoning distrust blossomed logically into the hoarding habit—an inevitable phenomenon of all panics, with or without Roosevelt. And it was not only the small depositors who hid their pitiful hundreds. A bank president whom I asked to estimate how much hard cash had been lost to the working world by this mediaeval hoarding, answered : “I can’t tell you. But the amount is enormous. Even the wealthy are hiding their money. I know one man who has locked up $230,000, and several who have locked up from $75,000 to $150,000. And one of my friends has put very nearly $1,250,000 in his safe-deposit box.” Think of a man intelligent enough to have become rich enough to have $1,250,000 in cash acting like a poor man who hoards his money because the life of his family literally depends upon his not losing what little he has!
Great as is Mr. Morgan’s reputation as a financier, notable as are his achievements as an organizer, and dazzling his triumphs as a banker and a financial leader, yet of all his successes surely there is none so great as this: that, unanimously, all turned to him and chose him for their leader in their hour of need.
There was not needed a financial genius, an adroit banker, a great canitalist! What the occasion called for was a man—a human being
who could command the respect and the confidence of the public that had grown distrustful, so that it might heed wise counsel ; a man also whose bidding all bankers and financiers and captains of industry would do; in brief, that rarest of ceatures, a man who could rise above self-interest.
Mr. Morgan had not been in good health for months, but he did not shirk the responsibility. He feared no man, did not hate the truth, and he had a lifelong habit of command. Aided at ,every step by Mr. James Stillman and backed by the mighty strength of the Clearing House banks, Mr. Morgan was the supreme commander. It was he who prevented a great stock market panic on October 24th. Money was not to be had on the Stock Exchange at any price. Stock brokers who had been called upon by banks or other lenders to pay off loans, scurried about frantically trying to find money. Not to find it, and quickly, meant insolvency—financial death. One hundred per cent., two hundred per cent, was offered . . and
no money !
Down went stocks, dividend-paying shares, standard investment stocks as well as speculation issues, breaking one, two, three points between sales because there were no buyers. And as prices declined, there came from those who were lending money on call, requests to be paid off. The margins had been , impaired. But the brokers did not want collateral ; they desired their own money. It was not prudence ; it was plain cowardice, twin sister of their unintelligent selfishness.
The tickers began to print on the tape the first chapter of a mighty financial tragedy. Bank presidents in their offices saw clearly that somebody was about to be brutally butchered ; and there was no telling who might receive a glancing blow of the knife or at least be splashed with blood. For a moment a thousand hearts felt the clutch of pity or of despair. You could have offered 1,000 per cent, for a million
dollars, and not have found a lender. Stocks finally reached the toboggan slide. At the bottom was hell and at the top was Morgan.
One minute more without money would have bankrupted Wall Street. But Morgan was watching the ticker in his office, desirous of determining the precise time when it was not alone the stock gamblers who needed money—the breath of life—but also the people. At last he said :
“Lend $25,000,000 at ten per cent !”
The news was flashed through the world. And Wall Street heard it as through a blessed megaphone, and devoutly thanked the firm of J. P. Morgan for its life. Of course, it was not Mr. Morgans’ own money. Blit he had not waited for voluntary offers to help. He had told this man or the other, such and such a bank, that his or its particular share would be so much ; please to remit at once. And the help came, for Morgan to do with it as he judged best. And so he was able to check the panic.
The day before, the presidents of the principal trust companies had met at Mr. Morgan’s residence. They were informed that they must -help themselves by helping the situation. The Trust Company of America needed aid. If it met the run successfully, sentiment would improve. If it closed its doors heaven help the rest. At first there was no enthusiastic response. Think of it, even at that late day, each man was for himself, and the enemy was Fear, panic Fear, a match for all the banks in the world when thev allow him the slightest start. After much discussion, a committee was appointed to investigate the condition of certain companies. The chairman of this committee deemed it his duty to ask many questions, which were cheerfully answered, among others, by Mr. Oakleigh Thorne, president of the Trust Comnanv of America. Finallv. when tempers were beginning to wear out, Mr. Morgan, sunported bv Mr. Stillman, insisted upon the co-operation
of the trust companies. The trust companies then philanthropically chipped in $10,000,000.
There is no intention here to condemn the policy of any bank or trust company, nor of the presidents thereof. But the situation really called for a man like Mr. Morgan— a man who could say, as he did in his office, heedless of who might hear him: “Tell the Secretary of the Treasury that he must do it, now, at once, if he is going to do it at all. Tell him that we can’t wait for him to make up his mind. Tell him that if he can’t or won’t help immediately, I will.” The man who said that was the same man who half an hour before might have been seen pounding his desk, telling some evident truths to men like Thomas F. Ryan. And men like Mr. Thomas F. Ryan meekly accepted the self-same evident truths, scarcely daring to bat an eyelid before this choleric old fellow, because they knew that he did not fear them. They knew also that this old man with the gift of plain speaking was incapable of littleness or suite, and particularly incapable of taking advantage of their troubles to make money for himself. And
they knew that he was the only man who might help struggling millionaires to pull through. To see the faces of the Ryans and the Harrimans, whenever Mr. Morgan addressed a few well-chosen remarks to them, was almost worth the panic. It was not so much that Mr. Morgan was so very big, but that some of the others were so very little !
It was fortunate for Mr. Morgan that in this crisis he had for his right hand Mr. James Stillman. Whatever may be the popular impression of Mr. Stillman’s connections, the fact remains that, at the height of the storm, not even Mr. Morgan himself worked harder or more efficiently or more disinterestedly than the president of the National City Bank.
The Clearing House Committee also rendered valuable assistance. And if w are to take the testimony of every bank president in the City of New York, there is reason for congratulation in the fact that George B. Cortelyou was Secretary of the Treasury. He proved himself a man broad-minded, public-spirited, of real ability, remarkable quickness of perception, and great courage.