All the Presidents' Bankers (81 page)

Interstate Banking:
The expansion of a bank or bank holding company across state lines, due to legislation enabling bank holding companies to acquire out-of-state banks.

Investment Bank:
A financial institution focused on raising capital and creating and trading securities. Investment banks underwrite, distribute, and trade new debt and equity and derivatives securities.

Issuer:
An entity that develops, registers, and sells financial securities to raise money. Issuers may be domestic or foreign governments, corporations, or investment trusts.

Lease Financing:
A financial service that entails financing the purchase of an item, which will be leased or rented out rather than retained by a borrower.

Leverage:
Generally, any technique in which the capital involved in the investment exceeds the value of the investment, achieved by borrowing money or deploying various derivatives in transactions, with the result of a multiplier effect on gains and losses.

Loan:
The act of giving money, property, or other material goods to another party in exchange for future repayment of the principal amount or value, plus interest.

Loan Syndicate (Syndicated Loan):
A large loan provided by a group of lenders that is generally structured, arranged, and administered by several “arranger” banks.

Merchant Bank:
A bank that deals mostly in (but is not limited to) international finance and long-term loans for companies and underwriting. Merchant banks do not generally provide regular banking services to the general public.

Money Supply:
The entire stock of currency and other liquid instruments in a country’s economy at a given time. It can include cash, coins, and other bank balances.

Money Trust:
A term used by various people at the turn of the twentieth century (from Teddy Roosevelt to Louis Brandeis to Samuel Untermyer, who led the 1912 Pujo hearings) to refer to a select group of powerful financiers who exercised control over the concentration of money and capital through stockholding, interlocking directorates, and other forms of relationships across financial and industrial firms.

Monopoly Trust:
A company or select group of companies or individuals that has obtained exclusive or predominant control of a service or product and has become powerful enough to drive competitors out of business and control prices.

Mortgage-Backed Security (MBS):
A type of security whose payments to investors come from the payments of a group of mortgages that are contained in the security, or “pooled together,” and act as collateral.

Option:
A financial contract sold by one party (option writer or seller) to another party (option holder or buyer) that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial
asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date).

Prime Rate:
The interest rate that commercial banks charge their most creditworthy customers, such as large corporations, used as a base rate from which to set other forms of retail lending rates like mortgages and small business and personal loans.

Private Placement:
The sale of securities to a small number of select investors, in a form that doesn’t need to be registered with the SEC. Investors include large banks, mutual funds, insurance companies, and pension funds.

Public Issue:
The sale of securities that are registered and available for sale to anyone (the opposite of private placement).

Quantitative Easing (QE):
A means by which a central bank maintains a low level of interest rates through the purchase of government debt or other securities, thereby increasing money supply by flooding banks with capital. A byproduct of QE is keeping those securities’ prices artificially high, and theoretically increasing lending and liquidity.

Rediscounting:
Lowering the interest rate on short-term debt instruments or loans in order to move them in a tight market and add market liquidity.

Savings and Loan (S&L) Bank:
See “Thrift.”

Security:
A tradable asset (or financial instrument) of any kind, broadly categorized into equity, debt, or derivative classifications.

Setoff:
The ability of a debtor to reduce the amount of debt by an amount the

creditor owes to the debtor from another avenue of funds.

Short Sale:
A sale in which an investor sells borrowed securities in anticipation of a price decline.

Stock:
A security signifying an ownership percentage in a company, also referred to as “shares” or “equity.”

Subprime Loan:
A loan offered at an interest rate above prime to individuals whose credit scores are low, or who otherwise present a greater risk than those receiving prime rate loans.

Thrift:
A financial institution mostly focused on taking deposits and originating mortgages, originally designed to take the business of making mortgage loans away from insurance companies. Trusts tend to be smaller and more community-focused than commercial or investment banks. In the years leading up to the S&L crisis, many thrifts were allowed to expand their services to include more speculative investments, with disastrous results.

Trust:
A legal construct in which a business entity consolidates power over a particular commodity or product, such as steel, copper, or oil.

Underwriter:
A company or other entity that administers the public issuance and distribution of securities, collaborates with the issuer to determine the offering price of the securities, and buys the securities from the issuer and sells them to investors, receiving underwriting fees from issuers and profits from selling the issue to investors.

Wash Sale:
A sale in which an investor sells a security that has lost value to claim a capital loss for tax purposes, and repurchases it for a bargain. Also done to fabricate the appearance of demand, to entice other investors to buy or sell the security.

ACKNOWLEDGMENTS

T
HIS BOOK WOULD NOT HAVE BEEN POSSIBLE WITHOUT THE ASSISTANCE AND
support of many people, from my friends and family to researchers to archivists to fellow authors, journalists, and historians who generously shared their energy and knowledge. To thank everyone who participated in
All the Presidents’ Bankers
would be to invite the internal sounds of award-ceremony music signaling a conclusion to the list. However, there are people without whom this book simply wouldn’t have come into being, and certainly not within the time frame it did.

I’m grateful to my chief editor and “coach,” Carl Bromley, Dan LoPreto for his editorial eye, Mark Sorkin for his meticulous copyediting, Melissa Raymond for moving things along, Jaime Leifer and her marketing staff, and the rest of the wonderful Nation Books team for their energy and support—they “got” the concept immediately and more clearly than even I did. Thank you to Katrina vanden Heuvel for her support for my work through various
Nation
channels over the years.

I’m deeply thankful to my agent, Andrew Stuart, who pressed me to do this book even when its scope was so daunting to me. My heartfelt appreciation to my publicist, Celeste Balducci, whose support over the years has been a delight and necessity.

I’d like to especially thank my interns and researchers, who passionately devoted so many hours, weekends, and holidays to exploring the motivations and actions of former presidents and bankers. I’m grateful for the heroic efforts of Alex Amend, Craig Wilson, Krisztina Ugrin, Johnnie Kallas, Laura Huley, Clark Merrefield, and Elaine Yu.

The preservation of historical archives requires general praise. It is astonishing to consider the volume of material that has been preserved. Perusing century-old hand-written letters and emails of recent times, as well as spending
time in the various presidential libraries across America—from Hyde Park, New York; to Atlanta, Georgia; to Yorba Linda and Simi Valley, California; to Abilene, Kansas; to Independence, Missouri; to Little Rock, Arkansas; and to College Station and Austin, Texas—was a tremendous experience.

I’d like to thank all the archivists who helped me with this project, including at the libraries and collections of Franklin Delano Roosevelt, Winthrop Aldrich, John McCloy, Harry S. Truman, Dwight D. Eisenhower, John F. Kennedy, Lyndon Baines Johnson, Richard Nixon, Jimmy Carter, Ronald Reagan, George H. W. Bush, and William J. Clinton, as well as the Jekyll Island Museum. Special thanks to Allen Fisher at the LBJ library for teaching me the “archive ropes,” to Marta Brunner at the UCLA library, who helped me access ample Woodrow Wilson records and shared all sorts of tricks to find information, and to the entire staff at the Carter Library, whose warmth was truly special. I’m grateful for the West Hollywood library, where I spent hundreds of hours while working on this book. Thanks also to Miles Rapoport, Rich Benjamin, and everyone at Demos. My gratitude to Morris Berman for his guidance though the creation of this book.

Lastly, I thank my partner, Lukas, and furry partner, Homer, for just being there with patience and love.

This book has not just been an exploration of relationships and people, but of the very character of the American political-financial system. A vast amount of material wound up on the “cutting-room floor” in the process. Any mistakes in this book are solely my own.

NOTES

Epigraph

1.
Herbert Hoover,
The Cabinet and the Presidency 1920–1933
(New York, NY: Macmillan, 1952), 327–328.

Introduction: When the President Needed the Bankers

1.
Thomas Kessner,
Capital City: New York City and the Men Behind America’s Rise to Economic Dominance, 1860–1900
(New York, NY: Simon & Schuster, 2003), 208.

2
. Matthew Josephson,
The Robber Barons
(New York, NY: Harcourt, 1962), 394.

3
. James Stillman was president of National City Bank until 1906, whereupon he shifted to the post of chairman and Frank Vanderlip took his slot as president.

4
. Josephson,
Robber Barons,
397.

5
. John Moody,
The Masters of Capital
(New Haven, CT: Yale University Press, 1919), 63–65. According to Moody, Stillman’s first “plaything” was a toy bank.

6
. Josephson,
Robber Barons,
399.

7
. James Stillman Rockefeller became chair of National City Bank in 1959.

8
. Brandeis was appointed to the Supreme Court by President Woodrow Wilson in 1916 and served until 1939.

9
. Louis D. Brandeis,
Other People’s Money and How the Bankers Use It
(Chevy Chase, MD: National Home Library Foundation, 1933), 15.

10
. Josephson,
Robber Barons,
409.

11
. Ibid., 402.

12
. Ibid., 409.

13
. Frank A. Vanderlip and Boyden Sparkes, “From Farm Boy to Financier: Stories of Railroad Moguls,”
Saturday Evening Post,
February 9, 1935.

14
. “Men of Means” plaque outside the Sans Souci dwelling on Jekyll Island, Georgia.

15
. Charles R. Morris,
The Tycoons
(New York, NY: Henry Holt, 2006), 235.

16
. Josephon,
Robber Barons,
297.

17
. Ibid., 414.

18
. George E. Mowry,
Theodore Roosevelt and the Progressive Movement
(Madison, WI: University of Wisconsin Press, 1946).

19
. David Graham Phillips,
The Treason of the Senate
(New York, NY: Monthly Review Press, 1953), 10.

20
. Theodore Roosevelt, “Man with the Muck Rake” speech, April 15, 1906, at
www.pbs.org/wgbh/americanexperience/features/primary-resources/tr-muckrake/
.

21
. Phillips,
Treason of the Senate
, 24.

22
. Louis Glackens, “He loves me!,” April 17, 1907. Library of Congress Prints and Photographs division, at Theodore Roosevelt Digital Library, Dickinson State University, at
www.theodorerooseveltcenter.org/Research/Digital-Library/Record.aspx?libID=o285736
.

23
. Theodore Roosevelt,
An Autobiography by Theodore Roosevelt,
prepared by The Project Gutenberg, based on an edition first published by Charles Scribner’s Sons in 1920. The original was published in 1913.

24
. “Panic of 1907,” Federal Reserve Bank of Boston, 4.

25
. Ibid., 5–6.

26
. Ibid., 7–10.

27
. Ellis W. Tallman and Jon R. Moen, “Lessons from the Panic of 1907,” Federal Reserve Bank of Atlanta,
Economic Review
, May/June 1990, 5–6.

28
. “Developments in Bank Situation,”
New York Evening Telegram
, October 22, 1907.

29
. Ibid.

30
. Ibid.

31
. Roosevelt,
An Autobiography
.

32
. “Frank Vanderlip, Banker, Dies at 72,”
New York Times
, June 30, 1937.