The Great Pierpont Morgan (29 page)

Not only that, but Mellen testified, apparently correctly, that the New York, Westchester & Boston project—which up to 1914 had cost over 36 million dollars and had resulted in a suburban line only 18.03 miles long which was losing money at the rate of over a million dollars a year—had been pushed through the board of directors by Morgan; that he, Mellen, had been skeptical about it; that he was never given
an adequate account of the way in which millions of dollars were spent for it out of a bank account at J. P. Morgan & Co. called “Special Account No. 2”; and that when, after a directors' meeting, he had complained to Morgan about the vagueness of a report upon it, Morgan had rebuffed him by saying, “Didn't Stetson draw that report? … Well, doesn't Stetson know more about how it should be drawn than you do?” Mellen complained on the witness stand that if anything went wrong with the New York, Westchester & Boston scheme he could see then that he himself would be “the goat.” “I was a president,” he testified, “and I knew, if trouble came, that lots of people would go to Carlsbad or some other place where they would be inaccessible, and I would have to stay and fight it out.”

Despite these insinuations, we may dismiss any notion that Morgan had any direct part in any of the financial irregularities of the New Haven. That he even had any direct knowledge of them is highly unlikely. He was a man of many and diverse affairs, absent from his desk for months at a time and preoccupied with large decisions. His way was to pick a man, trust him, and leave everything to him. If Stetson drew a report, it was all right. If Mellen said there was nothing to Brandeis' charges that the New Haven was overextended, that was enough. Morgan's judgment of men was not always reliable; he once confessed to Rainsford, “I am not a good judge of men. My first shot is sometimes right. My second never is.” He had left too much to Mellen and Mellen's henchmen.

In his later years, when he had dealt successfully with so many vast projects that almost anything bold and big appealed to him, his judgment of enterprises such as the New York, Westchester & Boston was likewise not always reliable. The idea of rounding out the New Haven system came as naturally as the idea of rounding out the Garland art collection; and if it cost a few extra millions, what did that matter? He may have gathered that some of the money would have to go in the payment of graft for the rewriting of franchises; if so, he may have dismissed this as the sort of thing you could not escape when you had to deal with such reptiles as politicians. But it was not his way to look into
details—except on the books of his own firm. It was totals he dealt with. The details were up to the men he trusted.

But for the totals he was indeed responsible, in large part; and the downfall of the New Haven road emphasized the economic lesson that some big projects will not pay out. The purchase of steamship lines and trolley lines and all the rest did not increase the New Haven's earnings adequately. A railroad operating in New England, a part of the country that had reached high noon in its development, could not, at high noon for the railroads in general, win enough new business to justify such headlong expansion. In this case the irresistible force of Morgan's desire to do things in a big way, regardless of cost, had come face to face with immovable economic facts. An aging man could not repeat indefinitely the triumphs of his prime.

XII

ROCK OF DEFENSE

1

Pierpont Morgan was seventy years and six months old when, in the autumn of 1907, his influence was put to its most inexorable test.

He had been taking business much less strenuously that year, as befitted his age. During the winter and early spring of 1907 he had often been absent from 23 Wall Street, preferring to remain uptown in the big red-walled West Room of his recently completed Library, where he could interview business callers or art dealers at leisure, feast his eyes upon newly acquired books and paintings, or sit quietly for long intervals at his solitaire. In March he was off to Europe, to be gone no less than five months—shuttling back and forth between London and Paris, visiting Rome, Florence, and Aix, cruising briefly in the Adriatic on the
Corsair
, assembling a yachtload of fashionable friends for the Cowes Regatta, and, as always, collecting indefatigably. Not until August 19 was he back in New York.

He arrived to find the business situation threatening. There had been minor panics abroad; the New York stock market had been subject to sinking spells since early in the year; new issues of securities had languished in an obviously glutted market; commodity prices were sagging; and there was an ominous feeling in many minds that an economic storm was brewing. But still Morgan was intent upon leaving as much work and responsibility as possible to his younger partners, while he himself remained half withdrawn from active affairs; and since the triennial Episcopal Convention was scheduled to be held at Richmond, Virginia, during the first three weeks of October, and it had become his invariable custom to attend these assemblages of the bishops and leading clerics and laymen of the Church, he set out as usual. Two special cars
took him and his guests—who included three American bishops and the gaitered Bishop of London—to Richmond, where they took up residence in the Rutherford house on Grace Street, which Morgan had engaged for the occasion, with Louis Sherry once more serving as major-domo. And for three weeks he threw himself energetically into the business of the convention, which debated such questions as whether to accept the wording of a proposed preamble to the constitution of the Church, whether to reduce the number of delegates which the various dioceses would send to future conventions, whether there should be separate bishops for the Negro race, and whether the Revised Versions of the Bible should be permitted to be used in the reading of the lessons.

During the last few days of the convention it was noticed that Morgan began to receive messages from New York with increasing frequency. One morning he was closeted with an emissary from 23 Wall Street. Telegrams kept coming to him, and they appeared to be long and urgent. As Bishop Lawrence of Massachusetts later wrote, “If one came during a meal, he tore it open, read it; then putting the palms of both hands on the table, a habit of his, he looked ahead with fixed eyes and deep thought for a few minutes. One day a member of the party said, ‘Mr. Morgan, you seem to have some bad news.' He shot his eyes across the table at the speaker and said nothing. No question of that sort was asked again. The fact was that we were so busy in our convention work, we were not aware of the clouds gathering in New York and the country which were to break in the great financial panic of October 1907.”

2

In New York those clouds were piling up swiftly. A group of speculators headed by a swashbuckler named F. Augustus Heinze made a disastrous attempt to corner the stock of the United Copper Company, and went to the wall. Heinze was also head of a bank, the Mercantile National, and naturally rumors began at once to fly about that the bank might have been involved in his speculations. A run on the bank began. Short of money with which to pay depositors, the bank appealed to the Clearing House for aid. (There was at that
time no Federal Reserve System, and therefore the Clearing House—an association of banks set up for the clearing of checks—was the logical agency to turn to if one's bank was in trouble.) Among Heinze's associates in his stock-market adventures had been two other speculators, Charles W. Morse and Edward R. Thomas, who likewise headed banks; and presently these banks, too, were beset by whispers of suspicion. Whereupon the conservative bankers who headed the New York Clearing House, deciding that the situation called for prompt and drastic surgery, demanded the resignation of Heinze, Morse, and Thomas from all their banking connections. The Clearing House announced simultaneously that these men's banks had been examined and found to be in sound condition, but by now the rumors of trouble to come were redoubled.

Especially people began to question the reliability of a certain type of bank. For several years before 1907 there had been an epidemic of setting up trust companies, which were permitted by law to engage in banking operations almost as if they were national banks, but without being subject to the strict regulations with which national banks were surrounded. A good many plungers and stock-market operators had got into the managements of some of these trust companies, whose funds could be invested in enterprises more adventurous—and more risky—than ordinary banks were permitted to engage in. Might some of these newfangled banking institutions be headed for the rocks?

Investors, speculators, and bank depositors began to run for cover—selling stock, calling loans, drawing their funds out of suspect banks. The whispers multiplied. “You say your company's funds are deposited in the Knickerbocker Trust Company? Better watch out; didn't you know that Charles Barney, the president of Knickerbocker, was mixed up in deals with Morse?”—“What, you're holding three hundred shares of Union Pacific on margin? Sell. Get out of the market. In a few days more, the way things are going, some of the biggest brokerage houses will go under—and then wait and see what happens to prices! I tell you, there's nothing like a safe-deposit box full of cash these days.”—“You say your bank account's in the Lincoln Trust Company? Well, I guess it's all right, but a lot of that Waldorf crowd have been tied up with that bank.”
—“Did you realize that these trust companies don't belong to the Clearing House, and have to rely on a national bank to clear their checks for them? Well, suppose the national bank gets cold feet and decides it won't do this any more? That will be nice for the trust company's depositors, won't it?”—Thus the talk ran. It was the beginning of panic.

Some of Morgan's friends wanted him to come back from Richmond. He was the central figure in American banking, was he not? And the banking world was imperiled. Surely he should be in Wall Street, to rally the forces of confidence. But Morgan and his partners thought he had better remain in Richmond, lest his return be taken as a sign of alarm. So remain he did, until the convention broke up on Saturday, October 19. Let Bishop Lawrence's diary take up the story:

“As I was going out of the door [of the Rutherford house] to the House of Bishops on Saturday morning, Mr. Morgan called me into his room and said, ‘Bishop, I am going back to New York on the noon train.' I said, ‘Why do you do that?' He answered, ‘They are in trouble in New York: they do not know what to do, and I don't know what to do, but I am going back.' I replied, ‘Why do you go back at noon? You will arrive in New York in the middle of the night. Why not get Mr. Sherry to have your two cars hitched onto the early evening train tonight? We will all pack up and go with you.' He said, ‘I had not thought of that: I do not believe it can be done, but I will try.' It was done, and off we went by the evening train. Still, there was no suggestion of care or anxiety on his part, indeed rather the contrary: he was in the best of spirits. Held at Washington for an hour at midnight, he sat on the rear platform smoking until the train should start.

“Sunday morning, as we ran into Jersey City, we went again into Mr. Morgan's car for some bread and coffee before arrival, and found him sitting at the table with a tumbler turned upside down in each hand, singing lustily some tune which no one could recognize.”

Arriving at the ferry house in New York, Morgan escorted his guests to cabs. When some of them asked if they would see him at St. George's Church, he said, “Perhaps so.” But after driving his daughter Louisa Satterlee to the West Shore ferry so that she could proceed to Highland Falls, he then went on by cab, not to St. George's, but posthaste to his Library. No.
219 was not open, for Mrs. Morgan was at Cragston, so he expected to have to live at a hotel for the next few days. But Herbert Satterlee, hearing from Louisa of her father's fears, set out at once from Highland Falls for New York to open up the Satterlee house, the big stone house just east of the Library. It was there that Morgan would sleep during the next few nights—when there was time for sleep.

But he was not thinking of that now, as, like a general arriving at the headquarters of a beleaguered army, he climbed the steps of the Library and entered its massive doors.

3

He spent the rest of that Sunday, until after midnight, studying the problem which confronted him—talking with partners and friends, with bank presidents, with trust-company heads; hearing about the demoralized condition of the Stock Exchange, the widespread calling of loans, the runs on bank after bank; looking at financial statements; listening to the appeals of men who wanted him to lend cash to this institution or that. His own banking house was secure—or rather, would be secure unless everything went. What concerned him now was the general situation, the general mood of panic. Everybody seemed to look to him for leadership in averting disaster. But how could that leadership best be applied? Morgan listened, considered, played solitaire, was uncommunicative. He did not yet know what the situation demanded. Reporters took up their watch in Thirty-sixth Street outside the Library gate, and noted who arrived and who left, but there was no news. The commander of the forces of defense had not decided where or how to draw up his battle lines.

The next morning—Monday October 21—Morgan made a first move. He asked Satterlee to get in touch with some able young bankers—such as Thomas W. Joyce of the House of Morgan, Richard Trimble of the Steel Corporation, Henry P. Davison of the First National Bank (subsequently a Morgan partner), and Benjamin Strong of the Bankers Trust Company (subsequently head of the Federal Reserve Bank of New York)—who could go about and assemble figures and facts for him, and if necessary could make rapid examinations of the condition of a bank which applied for aid. Then he went downtown. Among the banks which appeared to be headed
for trouble was a very big trust company, the Knickerbocker, whose fine main office was conspicuously situated at what was then the chief crossroads of the city, the corner of Fifth Avenue and Thirty-fourth Street, opposite the grand brick-and-sandstone pile of the Waldorf-Astoria. Some of the Knickerbocker's funds were said to have been dubiously invested and depositors were beginning to draw out their cash. After banking hours a committee of the Knickerbocker's directors came to see Morgan. They reported that because the name of the popular and amiable president of the Knickerbocker, Charles T. Barney, had been too closely linked in the public mind with those of Heinze and Morse, they had called for Barney's resignation. That very afternoon the National Bank of Commerce, which customarily cleared checks for the Knickerbocker, had sent word that it would do so no longer. The committee appealed to Morgan for help for the bank.