All the Presidents' Bankers (8 page)

The
Titanic
and the Pujo Hearings

J. P. Morgan was in France when word spread that the
Titanic
had sunk on April 15, 1912, and with it the investment money Morgan had contributed on behalf of the shipping trust that built it. He had attended the ship’s launch at the Harland and Woolf shipyard in Belfast in 1911 and narrowly missed being a passenger in the suite that bore his name. If he had not been dealing with health issues in France, he might have gone down with the ship.
²⁹

As the world reeled from the loss of the “unsinkable ship,” the congressional hearings that probed the money trusts and Morgan’s labyrinth of influence kicked off in Washington on May 16.
³⁰
Congressman Charles A. Lindbergh Sr. (father of the future flyer) had introduced a resolution to look into the money trusts after passage of the Aldrich-Vreeland Act, which he considered a coup for the banks and “the first precedent established for the people’s guarantee of the rich man’s watered securities, by making them a basis on which to issue currency.”
³¹
Lindbergh’s resolution led to the 1912 House Banking and Currency Committee hearings, in a subcommittee led by Louisiana Democrat Arsène Pujo.

The timing of these hearings was advantageous to the Democratic Party. New Jersey governor Woodrow Wilson wisely leveraged public outrage against the bankers and the Republican embrace of them during his presidential campaign (though he said little about the Pujo hearings specifically—after all, certain major bankers, notably Jacob Schiff, were financing his campaign). If he entered the White House with the people’s mandate, he could create his own banking system, even if it turned out to be nearly the same one the Republicans were pushing.

Lead prosecutor Samuel Untermyer summoned Morgan and other Wall Street financiers, including George Baker, James Stillman, Paul Warburg, and Benjamin Strong. William Rockefeller’s partial testimony was gleaned by investigators who journeyed to find him on Jekyll Island, where his doctor pronounced him too ill to say very much. The hearings cast some of these bankers into the public eye for the first time. Untermyer’s investigation focused on bankers’ manipulation of markets and stocks, and the negative implications on the entire country of such a concentration of power and influence within the inner group of bankers.

Though the hearings succeeded in drawing media attention to the bankers and their clandestine alliances and activities, the investigation was politically dogged at every step. The pro-banker
New York Times
jeered at Pujo, “When panics rage, resort is not made to gentlemen of Pujo’s caliber, but to
the leaders of the Money Trust, who are laughing in his face as he tries to hold them up to popular punishment.”
³²

By June, bankers bristled at Untermyer’s attempt to obtain more information on the names of stockholders and the nature of their holdings. The bankers appealed to the comptroller of the currency for relief.
³³
Their efforts to keep their activities a secret had been supported by an executive order given by Roosevelt in his last term and reaffirmed by Taft. The order prevented agency heads from furnishing reports to congressional committees unless approved by the president. It was a loophole that the bankers could use to their advantage mostly because the president was on their side. Untermyer pleaded directly with Taft to compel the bankers to cooperate, but the president shrewdly decided not to respond until after the election, when he would refuse him the information avenue he desired.
³⁴

With political tensions rising and so much at stake for both parties, the hearings were suspended as the presidential race heated up. This was partially because the Democrats had lost some faith in the investigations despite public support for them, given the roadblocks befalling Untermyer. The official reason given by Taft, whose party was equally wary of what the election would bring, was that he wanted to avoid creating the impression that the purpose was to gain partisan advantage.
³⁵

Anxiety over which party would gain control of the White House was linked to how the money trusts were positioned. The issues of banking and currency reform were central to the 1912 election. Both parties had to tread carefully, balancing public opinion against the need to keep bankers and big business supporting their campaigns.

Wilson panned the Aldrich plan throughout his campaign. He told audiences that he believed control over the nation’s finances should be held by the government and not the money trusts.
³⁶
It was the exact kind of power-play articulation that Roosevelt had used against the other trusts. Wilson said he envisioned a semicentralized banking system where each district revolved around its own Federal Reserve Board. This wasn’t very different from the Aldrich plan. But Aldrich was a Republican, and that was reason enough to disparage an idea with his name on it. Wilson knew this, even though one of his largest campaign contributors happened to be Jacob Schiff, a “money trust” banker who ran Kuhn, Loeb & Company, and whose protégé, Paul Warburg, would eventually be appointed to a position on the Federal Reserve Board by Wilson—who, as this tale will tell again, was good to his friends.

Vanderlip and Wilson

As previously mentioned, Wilson’s alliances with the power brokers of Wall Street began before 1879, when he graduated from Princeton alongside Cleveland Dodge. According to Ferdinand Lundberg, author of the enthralling
America’s Sixty Families,
“For more than twenty years before his nomination Woodrow Wilson moved in the shadow of Wall Street.”
³⁷
After law school, Wilson rose quickly through the Princeton ranks, from young conservative professor of political science to the head of the university. He could not have raised funds as its president or run for governor of New Jersey or later for the presidency without the elite-banking contingent.

In the early part of his career, Wilson befriended Vanderlip, then a shy, rising star at National City Bank. Their “long acquaintance” began in 1903 through Dodge’s introduction. According to Vanderlip, the two had “many fine stimulating talks” about the nature of the US economy and other issues. It was Vanderlip who insisted that Wilson address the need to expand American business abroad as a way to secure the “industrial supremacy” of the United States in world trade. But they saw less of each other when Wilson left his post as Princeton’s president in 1910 to become governor of New Jersey. Vanderlip established the National City Company as a subsidiary, to circumvent laws forbidding national banks to open foreign institutions. As Wilson moved further to the political forefront, contact between the men ceased. Wilson chose to limit the appearance of having a connection to the bankers he was disparaging in public, except for one final instance that stuck in Vanderlip’s head.

During Wilson’s presidential campaign, William Gibbs McAdoo, president of the Hudson and Manhattan Railroad Company (and later Wilson’s Treasury secretary), approached Vanderlip several times on Wilson’s behalf to discuss issues of banking and currency systems. Given his sense of hurt over Wilson’s distant stance toward him, Vanderlip ignored many of these overtures. Finally, Wilson invited Vanderlip to meet him at McAdoo’s home at Hastings-on-Hudson, New York, near Vanderlip’s Scarborough estate. Perhaps this was an opportunity for Vanderlip to renew his friendship with Wilson, or so he thought.

“We had a long talk together alone and quite in the warm tone of our old friendship,” Vanderlip recalled of their meeting. That warmth proved illusory. Vanderlip pressed Wilson on the need for a central bank mechanism along the lines of the Aldrich plan. He wanted Wilson to consider the
broader necessity of their plan, and the success it could provide the United States on the international stage. For Wilson during that conversation, the issue wasn’t the plan but the power to implement it, or something similar, in Washington. “You don’t understand politics,” Wilson told Vanderlip. “It does not make any difference what I thought ought to be done, I first need to get elected in order to do these things.”
³⁸

Recalling that incident, Vanderlip came to believe that Wilson “was just moving my hair with one hand and keeping me at arm’s length with the other.” In other words, Wilson wanted input from Vanderlip, but he didn’t want to appear to be associating with such a high-ranking banker. Though Vanderlip did “not feel that it was a crime to be the president of the National City Bank,” he sensed Wilson felt “it would be a political crime if he were caught talking with me.”
³⁹
The nation’s opinion of bankers had soured further since the Panic, the ensuing recession, and the press coverage of the Pujo hearings, a condition that Roosevelt, who decided to run on the Progressive “Bull Moose” Party ticket, used to his advantage in the 1912 election. Wilson would use it more successfully.

Perhaps because of spurned feelings or divergent interests, Vanderlip withdrew his financial support for his old friend. A chill settled between the two men that, combined with Vanderlip’s sensitive and slightly eccentric personality, would have major repercussions for Wilson and the country in the years to come.

Wilson began campaigning in earnest in Buffalo, New York, on Labor Day, September 2.
⁴⁰
He targeted the nexus between big business, Wall Street, and the Republican leadership. He vowed to “break up the little coterie that has determined what the government of the United States should do.”
⁴¹
His rhetoric was designed to outflank Roosevelt, who had been a trustbuster of every trust except the money one during his presidency.

In particular, Wilson dubbed the Payne-Aldrich Tariff Act “the most conspicuous example ever afforded the country of the special favors and monopolistic advantages” given by the Republican Party to its campaign contributors.
⁴²
He disparaged the concentration of control of credit in Wall Street and said he wanted that power to reside with Washington instead—as had Roosevelt, though Wilson had articulated the sentiment with much more finesse.

Capitalizing on his growing popularity during his October 11 campaign address before the Central Armory in Cleveland, Wilson claimed, “The whole situation in the United States might be summed up by saying that the Republican Party has put the intelligence of this country into the hands
of receivers in Wall Street offices. Very able receivers they are, and they have received a great deal!”
⁴³

Wilson’s anti–Wall Street proclamations matched the country’s sentiments. On November 5, he won the election with 42 percent of the electoral vote. Roosevelt came in second with 27 percent of the electoral vote, while the incumbent President Taft got a mere 23 percent.
⁴⁴
Wilson’s read of the American public allowed him to out-Roosevelt Roosevelt. However, in practice, he would further empower the very banking class he disparaged. In doing so, he would propel America to the role of a financial superpower during and after World War I, though he would not get everything he wanted in that regard.

Wilson’s victory ushered in an atmosphere of jubilance in Washington for the Democrats. On November 6, 1912, Samuel Untermyer, who had stumped for Wilson during the election,
⁴⁵
promptly requested his input on the ongoing “Money Trust Inquiry,” though Wilson had not discussed the specifics or mentioned any bankers by name during the campaign. “There are important questions of policy . . . requiring immediate decision before the hearings, which are fixed for the end of this month, are resumed,” Untermyer wrote.
⁴⁶
Wilson responded that he would deal with the matter once he got back from his upcoming vacation.
⁴⁷

Carter Glass, the Democratic chair of the House committee in charge of reviewing what had become the Aldrich Bill and the banking and currency system, also wasted no time addressing the matter of a system overhaul. Two days after the election, he not only congratulated Wilson on his victory but plunged straight to the issue over which he would now have jurisdiction. Glass informed Wilson that he and economics professor H. Parker Willis had formulated a substitution for the Aldrich bill, though he did not provide the president-elect with further details, perhaps shrewdly awaiting more guidance.
⁴⁸
As he told Wilson, “I think the committee would not like to proceed without some suggestion from you . . . as to what you think should be done.”
⁴⁹

Plagued with a raging cold once he returned to Princeton after Christmas, Wilson invited Glass and Willis to his home to discuss the reform bill.
⁵⁰
The Glass-Willis draft bill called for a more decentralized reserve system than the one Aldrich had proposed. It would still be privately controlled, centered around a group of local reserve banks, with each having the full power of the reserve banking system.

Based on their conversation, Willis concluded that Wilson didn’t think the plan provided the comptroller of the currency, the system’s general supervisor,
enough control. But other than that, he didn’t feel as strongly as his campaigning had indicated about how the central bank would be constructed. Perhaps, now that he had won the election, Wilson was less inclined to upset the bankers who had quietly supported him—though he still wanted to ensure the presidency retained power over the new currency system.

Afterward, Glass pondered the political landscape. It made him uncomfortable, and he wanted to pass legislation as quickly as possible. He told Wilson that he was trying “to reduce the suggestions made to something tangible in order that the hearings . . . may be directed to a definite, even though tentative, plan of currency reform.” Glass’s main concern was a letter he had received from a New York banker who had attended his subcommittee hearings, which Glass interpreted as a veiled threat. It stated, “The American Bankers Association as a body . . . endorsed the Aldrich bill. It would seem, therefore, impossible for us as members of the Currency Commission of the American Bankers Association to take another position or do anything else before your committee than to endorse the bill, if we were to appear before you officially.”