All the Presidents' Bankers (5 page)

Depositors remained on edge past midnight. In downtown Manhattan, lines stretched from the front door of the Colonial Branch of the Trust Company of America half a block toward Nassau Street. Some people huddled in doorways at Wall Street and Broadway. Throughout the night, depositors hovered in the rotunda of the main office of the Trust Company of America. More than a hundred crowded inside the building. Larger crowds teemed outside. “Coffee and frankfurters were the only edible things that could be
bought, and messenger boys and millionaires alike chased them from the vendors who’ve reaped the harvest,” the
New York Times
reported.
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Braving fatigue and chill winds into the early morning hours, a swirl of depositors clamored before the doors of the Dollar Savings Bank and even the closed Knickerbocker Trust Company. When the doors of the Dollar Savings Bank opened, about a thousand people were standing in a line that circled the block. Some depositors were admitted through a rear door at Willis Avenue; a small riot started, and police used nightsticks to restore order.
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Many bankers and businessmen visited Morgan the following day, as he allocated some $4 million to the disposal of the Trust Company of America. Cortelyou, stationed at the subtreasury in New York, was kept informed of the happenings but was not present for the dispensations. Those, Morgan controlled.
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By Friday, the atmosphere was significantly more subdued. The lines before the Trust Company of America and its Colonial Branch were much shorter than on Thursday and far less than on Wednesday.
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On Saturday morning, the
New York Times
blared, “The sagacious measures put into effect by the hearty cooperation of secretary Cortelyou and the foremost bankers of the city, headed by J.P. Morgan, brought sterling results again yesterday” and noted “the long stride to the return of public confidence in the city banking institutions.”
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But Morgan was not finished. On Monday, October 28, he received a visit from the New York City mayor George McClellan Jr.
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The city needed $30 million for its own survival, having delayed a bond issue that would have raised money while still struggling to find buyers. Swiftly, Morgan, Baker, and Stillman agreed to provide the money, underwriting the bond issue and guaranteeing its sale with the other big banks.

Then, on Tuesday night, a syndicate of bankers and trust presidents headed by Morgan agreed to assist the Trust Company of America, which was still ailing; the Lincoln Trust; and Moore & Schley, a brokerage house run by Baker’s brother-in-law that was $25 million in debt.
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Morgan held court in the library of his Madison Avenue home to formulate the best course of action. He assembled an informal steering committee of himself, Stillman, and Baker. Benjamin Strong, the young head of the Morgan-owned Bankers Trust, acted as secretary to the committee.
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Also present was Thomas Lamont, a friend of Strong’s who would become the youngest Morgan partner in 1911; he would later rise to run the firm and have a substantive impact on foreign-financial policy during World War I and for decades afterward.

According to Lamont, Morgan demanded that another $25 million loan be made “to save the Trust Company of America.”
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It would come from the healthier trusts, their presidents browbeaten by Morgan. He instructed his lawyers to create a “simple subscription blank” that he waved at the group, saying, “There you are, gentlemen.”
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They all signed. Such was his influence over the banking contingent.

Part of the bailout included the purchase of a majority stake held by Moore & Schley in the Tennessee Coal and Iron Company by its main rival and Morgan creation US Steel. But the strategy would have to be cleared by President Roosevelt.

And so on Sunday night, Morgan’s partners—US Steel magnates Henry Clay Frick and Judge Elbert Gary—boarded a train for Washington to meet with the chief trustbuster himself. Despite potential antitrust violations, Roosevelt acquiesced over breakfast, saying it was “no public duty of his to interpose any objections.”
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The market rallied at the news.

Roosevelt later wrote that during the panic the “Morgan interests were the only interests which retained a full hold on the confidence of the people of New York—not only the business people, but the immense mass of men and women who owned small investments or had small savings in the banks and trust companies.” It was on this basis that he approved the side deals on behalf of Morgan.

As he stated, “The action was emphatically for the general good. . . . The panic was stopped. . . . The action itself, at the time when it was taken, was vitally necessary to the welfare of the people of the United States.”
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The lion might have taken on Morgan from a broader economic and rhetorical perspective, but he was in no mood to risk doing so when the stakes were so high—or when he needed Morgan to save his legacy a year before the next election.

Panic Aftermath

Within a few weeks the panic appeared to be over. A 1907
New York Times
headline, echoing the widespread sentiment that Morgan and his crew had masterfully saved the economy, declared Morgan the “world’s central bank.” Morgan didn’t leave headlines like these to chance any more than he did the chess game of banks. He not only assisted other banks (for a price); in 1896, he had helped the Ochs family buy the
New York Times.

What the papers didn’t report at the time was that Morgan had not saved the day with his money or even with the sum of his compatriots’ money. He had parlayed the government’s money. As was later divulged in congressional
testimony during the Pujo Committee investigation of the money trusts in 1912, the Treasury Department had deposited $39 million in the National Bank of New York at the beginning of the panic week.
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That $39 million was deposited without the requirement that any interest be paid on it, and a large part of it was left in Morgan Banks, from where it was loaned to the less powerful banks at substantial rates of interest. Even though $10 million had been designated to directly aid the Trust Company of America, Morgan allocated just $4 million for that purpose. All the while, small businesses around the country were unable to get funds because the “governments’ resources were being used to relieve stock gamblers and to assist that Morgan Banks.”
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The scarcity of money and absence of credit had punishing effects on the country. Banks in small towns continued to limit the money that depositors could extract. Manufacturing centers such as Pittsburgh had difficulty paying employees, as their own banks were hoarding funds, which incensed workers. The West got hammered because of unmet demands for money to pay for crops. Across the country, manufacturing, wholesaling, and retailing were affected by the lack of money flow.
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The bank panic and tightening of money by the major New York banks had precipitated a national economic depression.

Yet on November 10, 1907, the
New York Times
ran a spread on Morgan titled “John Pierpont Morgan, a Bank in Human Form,” glowingly recapping all the tactics he had deployed to keep the financial system from crumbling.
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But as Fed historian William Greider observed, “Morgan and his allies not only failed to contain the panic of 1907, but were compelled to seek help from Washington.”
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Indeed, their actions didn’t stop the chaos. To stabilize the financial situation, Roosevelt had to order the Treasury to issue another $150 million in low-interest bonds for banks to use as collateral for creating new currency.
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In the end, the president had his position to think of, and though he chose not to run in the 1908 election, he did not want his party burdened with an economic calamity. In that way, he proved a new rule: the president would work with the bankers when it was politically expedient, as it would be many times in the unfolding century. The government would not, it turned out, risk trying to thwart the titans of finance in times deemed emergencies.

Post-Panic Political Ascension and Alliances

The panic and President Roosevelt’s response to it gave rise to a shift in politics. On November 8, 1907, Princeton University president Woodrow
Wilson delivered an address to a packed house at the Goodwyn Institute in Memphis. The auditorium overflowed into the main and gallery lobbies for Wilson’s marquee speech: “Ideals of Public Life.” Wilson had rejected a potential bid to become New Jersey senator a year earlier, but he was an influential force shaping national discourse. This speech was a pivotal point in his trajectory to becoming president of the United States and helped define the platform of the Democratic Party that he would lead to victory in 1912. It was his gift of speech that would capture and articulate the public’s outrage with the wealthy class.
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“We live in a very confused time,” Wilson said. “The economic developments which have embarrassed our life are of comparably recent origin, and our chief trouble is that we do not exactly know what we are about.”
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Wilson believed that America was at a crossroads, searching for its identity—politically, domestically, and, by extension, internationally. Like Roosevelt, he was convinced that Washington had to change its approach to power. “We no longer know any remedy except to put things in the hands of the government,” he said.

Though he conceded this meant turning away from “all the principles which have distinguished America and made her institutions the hope of all men who believe in liberty,” the Wall Street upheaval reminded him that the unchecked power of certain individual bankers could hurt the country’s overall strength. Something had to be done about it. The answer, Wilson felt, was for the government to take a more active role in shaping the nation’s economy.

By that time, Wilson had already come into contact with many major bankers. Morgan’s father, Junius Morgan, had served as a trustee at Princeton.
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One of Wilson’s fellow classmates at Princeton was Cleveland Dodge, president of the mining company Phelps Dodge, who had become a director at National City Bank in the 1900s. It was Dodge who introduced Wilson to that bank’s leaders, Stillman and Vanderlip. Dodge also paid to keep Wilson at Princeton as president of the university. Reciprocally, the future US president regularly approached Morgan and Vanderlip to help raise funds for the school. In 1909, Morgan donated $5,000 to Princeton and pledged to do so every year for the next five years. Wilson was grateful for the grand financier’s support.

Wilson and Vanderlip became friends. They would frequently exchange views on international and economic matters, as was then common in the realm of the elite sphere of intellectual men of opinion. In the fall of 1908, when Wilson was plagued with “as wretched, radical a cold” as he ever had,
he wrote his friend Mary Allen Hulbert Peck that if it were not for the company of the Vanderlips he would not have gotten up.
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Both men served as trustees of the Carnegie Foundation for the Advancement of Teaching.
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When it came time to fill two life membership vacancies on the Princeton Board of Trustees, in early November 1908, Wilson suggested the spots “be filled by some man who can be of very material assistance to the University, some man like Mr. George W. Perkins, for example, or Mr. Frank A. Vanderlip.”
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Ironically, despite his somewhat opportunistic behavior toward Vanderlip, as Wilson rose in the American political system he allied himself less and less with Vanderlip, though he would befriend other bankers when he had to.

Two years after the panic, on December 11, 1909, Vanderlip invited his friend Wilson to speak at the annual banquet of New York bankers, to be held at the Waldorf Astoria hotel.
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In an effort to impress Wilson and bind him to two very prominent politicians with respect to banking issues, he told Wilson, “Senator [Nelson] Aldrich will speak and [Treasury] Secretary [Franklin] MacVeagh will also make a brief address. . . . The audience, I hardly need to tell you, is the most representative gathering of financial men of the year.”
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To Vanderlip’s surprise, Wilson rejected his request.
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He explained, “No man in public life irritates me and repels me more than Senator Aldrich of Rhode Island, except Mr. Joseph G. Cannon, the Speaker of the House, and I am frankly afraid that I would not behave myself properly if I were to speak after I had heard Mr. Aldrich speak. Moreover, it would be distasteful to me to be on the same program with him.”

Wilson was developing an astute sense of public opinion, which had turned against Aldrich following the
Cosmopolitan
articles and the Panic of 1907. Aligning with Aldrich would not be a smart tactical move. Additionally, in 1908, Congress had enacted the Aldrich-Vreeland Act, which authorized a coalition of national banks to issue emergency currency in times of distress (much as a European central bank would, but absent the same kind of government control over the process). Wilson, who had been warm to the idea of a US central bank, did not support giving such extreme power to the bankers—nor, he believed, would the country. Aldrich represented everything that Wilson would later campaign against, though their proposals for a central bank would not be too different.

Vanderlip was insistent and persuasive. He replied, “In times past I have shared your feeling. I believe, however, that the Senator has been doing very intelligent work in the present instance, and if we are to have any adequate
financial legislation within the next few years, it has got to come largely through his efforts. . . . I want you to come.”
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