I HAD suddenly been catapulted from my comparatively unknown law office into the very midst of high finance. I was president of a board of directors in which but a few weeks ago I should have rejoiced to have been the junior member. My associates were all leaders in their various pursuits, and gloried in the power and wealth that they had accumulated while struggling to reach these eminent positions.

At first I was but a silent observer amongst a lot of gladiators. Here was a set of dominators watching a newcomer who also had dared to try to reach the top, and had the good sense to court their coÖperation. To most of them real estate was a closed book. They had looked upon it as what might be called a frozen commodity, while they had dealt in liquid assets. They were anxious to see whether this novice could capitalize real estate equities. Stories of the successes that I had had in real estate had been told and exaggerated until, even to these big money-makers, they seemed attractive. Each one prided himself that his joining the other eminent leaders in this enterprise increased its chances of success. The fact that the stock was selling at double its issue price within three months showed that the public was ready to discount the possibilities. They bought me on my past performances. To them I was just a new machine which must demonstrate its capacity. I simply had to make good, or be displaced.

My position as president of this company involved me in a series of financial encounters with the biggest men in Wall Street, encounters that are worth describing because they illustrate the methods by which the great fortunes of the greatest period of expansion in American finance were made. I have not heard of any man who had intimate business relations with the financial giants of that period, who has described, from his own experience, the intrigues and passions, the personalities and methods, of those men who dominated the financial structure of America. My experiences with them were not connected with their biggest deals, but they were thoroughly representative of all their operations—and, as such, I feel they are of historical interest and especially so as they are exceptional revelations of a type of exceptional men whose business activities have influenced the great development of American Commerce. I might almost entitle this chapter: “How Big Financial Deals Are Made.” It is a very human story—full, I mean, of human nature, with its foibles of ambition, jealousy, hatred, pride, and cunning.

When, as president of my Board of Directors, I sat at the head of the table at our meetings, and looked down either side of the table, my eyes fell upon at least half a dozen of the greatest financial giants of the day—men who, as heads of enormous and often clashing interests, represented nearly every element in the epic struggle for the financial supremacy of America—that savage struggle which the public at large sensed but vaguely, and which it saw clearly only at the great moments of climax, as when the veil was lifted by the famous life insurance investigation, and later by the Pujo investigation. About this board were six representative financiers. These men were as diverse in their appearance and character and their methods as the interests they personified. The battle between the banks on the one hand and the trust companies on the other, was represented by James Stillman and Frederic P. Olcott. Stillman, as became the champion of the older type of institutions, the banks, was a perfect example of the well-built man of the world, sartorially correct, soft spoken, with a tendency toward cynical humour, and with a tongue capable of devastating sarcasms, while Olcott, as became the representative of the more recent competitors in the general banking business, the trust companies, was a type of the rough-and-ready, physically powerful, hard-spoken, tumultuous fighter. There was nothing conciliatory in his make-up. He rather enjoyed wrangling with his competitors, and prided himself on never having become money-mad, and looked commiseratingly on those who had. He was more interested in this financial struggle as a test of intellectual prowess, but wanted to remain an amateur gladiator rather than to become a professional wealth accumulator. Olcott’s burly figure, carelessly clad, surmounted by a huge, bucket-like head, adorned with unbelievably big and protruding ears, and illuminated with eyes that could glare terrifyingly, was in striking contrast with Stillman’s smooth-buttoned figure, his keen, distinguished face, and eyes that menaced by their subtlety and gleam of concentrated will, but whose whole manner betokened a measured, studied self-restraint.

The war between the sugar trust and the independent sugar refiners was represented by Henry O. Havemeyer and James N. Jarvie. They never sat on the same side of the table, but always facing each other—Havemeyer big, florid, and blustering—displaying in every move the consciousness of long-exercised power, and resenting that the combination of all the sugar interests should be compelled to defend its monopoly which was threatened by the intrusion of a mere coffee concern, Arbuckle Bros., in which Jarvie had infused such a vigorous, aggressive spirit—Jarvie who had no prior generations of successful men to point to, but had risen from the bottom and was then the leading spirit of his firm—a much courted man for director in leading corporations—a man who not only directed the investments and loaning out of the Arbuckle fortune, but was also a leader in all the companies with which he was connected. Possessed of all the strong and best points of a real Scotchman, caution, cumulativeness, and stick-to-it-iveness, he was like an eager bull terrier worrying at the haunches of a mastiff, and watching every instant for a chance to spring.

The rivalry between the insurance companies was represented by A. D. Juilliard and James Hazen Hyde. Juilliard, the distinguished merchant, philanthropist, and patron of music, personified the Mutual Life Insurance Company, of which he was one of the directing spirits; and young Hyde, the perfumed dandy and spoiled child of quickly gotten riches, personified the Equitable Life Insurance Company and its astonishing rise to financial greatness.

By a strange irony of fate, my association with these men was destined to make me one of the key figures in the life insurance investigation of 1905, which hurled young Hyde from a dazzling financial eminence and limitless possibilities and transferred him to Paris among the expatriates there, and which, by the legislation that followed the exposure of corrupt financial practices, altered the whole financial structure of America.

I shall tell that story at its proper place in this chapter, but, first, I propose to give the reader a picture of the way in which some financial deals were made in “Wall Street,” and the control of corporations bandied about by a nod of the head, frequently given as a reward for a personal favour, or withheld as punishment for a personal slight.

The following incidents in my own financial transactions will illustrate this system which I by no means indiscriminately condemn, as it is an essential requirement of the broader development of the commerce of the United States, but which, unfortunately, has again and again been shamefully abused, so that the reputation of the deserving had suffered almost as much as that of the evil doers.

In 1901 we bought some property from a client of D. B. Ogden, the vice-president of the Lawyers’ Title Company, who mildly remonstrated with me by saying:

“You are one of the original subscribers to the Lawyers’ Title Company, yet you do all your business with the Title Guarantee & Trust Company. Why not with us?”

I said:

“In all our large transactions, we have to borrow money on mortgages; we do not want to wait until you offer them around and try and place them. The other company with their enormous resources and backing gave us a prompt answer. If you want to enter this very profitable field of large loans, let me double your capital of $1,000,000 and also secure for you similar backing to that possessed by your competitor. Though your stock is selling below book value, I am willing to take the extra issue at book value, and place it with interests that will give you a credit of $5,000,000 and thus enable you promptly to handle the biggest transactions, which are now monopolized by the Title Guarantee & Trust Company.”

Within an hour Edward W. Coggeshall, the president of the Lawyers’ Title Company, called and asked me to repeat my proposition directly to him. I did so, and he said to me: “When can you make a definite binding offer?” I inquired whether he wanted my personal, or the Company’s offer, and when he agreed to deal with me personally, I asked him to wait until I dictated the proposition in his presence, and he did. Two days later he informed me that his Board of Directors desired to offer 3,000 shares of the new stock of their stockholders, and could therefore only sell me 7,000 shares, and hence they would be satisfied with a credit of four million dollars. I consented to this change and immediately called on the officials of the Equitable Life Insurance Company and arranged with Mr. Squires, the chairman of the Finance Committee, that they would buy 2,000 shares of the stock, and agree to loan the company two million dollars on mortgages. I suggested that Mr. Thomas N. Jordan, their comptroller, should act as one of the experts to fix the value of the stock.

I next called upon Mr. Olcott, who would not obligate the Central Trust Company to make any definite loan, but authorized me to agree on behalf of the Central Realty Bond & Trust Company to loan one million dollars on mortgages and to subscribe 2,000 shares of the stock.

I then called up Mr. James Stillman and was informed that he was at home nursing a cold. Within half an hour Mr. Stillman telephoned me to inquire if it was something old or new that I wished to see him about. When I answered “New,” he requested me to come to his house at three o’clock that afternoon. I was dilating upon the matter for fully twenty minutes when I suddenly became aware that Stillman had not asked a single question, and I so told him, and asked whether this was because he was not interested in the matter. He answered: “I have but one question: how large an interest am I to have?” I offered him 1,500 shares if he would agree to loan the company one million dollars. He said that he would take the stock, as he thoroughly believed in the Title Insurance business and that the City Bank would be glad to make the loan to the Title Company if the latter would keep a balance with them which would justify them in doing so. So I had secured the required credit and placed 5,500 shares of the stock. That same day Coggeshall and I closed the matter. The 1,500 remaining shares were distributed among some of our friends who we thought could help the Lawyers’ Title Company. A few days later Mr. Olcott sent for me, and told me that my handling of the increase of the Lawyers’ Title Company’s capital stock had raised quite a tempest amongst the Mutual Life crowd: that its president, Richard A. McCurdy, had asked Olcott at a directors’ meeting of the Bank of Commerce why the Mutual Life had not been invited to participate in this increase.

When Olcott explained to him that we had felt that the Mutual Life was so largely interested in the Title Guarantee & Trust Company that they would hardly be of much help to its greatest competitor, while the Equitable Life was unattached in that respect and would prove a good ally. Then McCurdy said: “Well, why was not I personally offered a few hundred shares, as I understand that you and Jarvie and Juilliard have received some?” This aggravated Olcott, and with a very emphatic designation of McCurdy’s character, he said to him: “So, that’s your size?” and that, of course, was pouring oil upon the flames.

Olcott told me that McCurdy intimated that he would expect Jarvie, Juilliard and Coleman to resign from our company unless the Mutual Life were taken care of in this matter. Olcott strongly advised me to defy and fight them, while on the other hand Juilliard and Jarvie told me that it was as much Mr. Olcott’s manner and forcible language as my neglect in taking care of the Mutual Life interests that had aggravated Mr. McCurdy. Juilliard told me that it would be a pity to break up our happy little family, and that if I would use my tact, I could satisfactorily adjust the matter. Although our company had progressed very nicely, in my opinion it was hardly strong enough to antagonize so important an interest as the Mutual Life. I, therefore, consented to let Juilliard arrange an interview between McCurdy and myself. I was ushered into the well-known throne-room and McCurdy told me at great length of his connections with the Title Guarantee & Trust Company and that as the Mutual Life was the largest lender on mortgages and some of its best directors were on my board, I should have given the company an opportunity to participate in this matter. He said that the company could have divided their allegiance and have done business with both the title companies. I informed him that I regretted that I had not known his desire and that now it was too late, but that I was arranging to increase the capital stock of the Lawyers’ Mortgage Company and would gladly put the Mutual Life on the same basis as the Equitable Life. That did not seem to satisfy him. He wanted to be interested in the Lawyers’ Title Company. He was insistent that he wanted some of the stock of the Title Company and rather spurned the Lawyers’ Mortgage stock.

Coggeshall and I finally concluded that we would try to have Mr. Stillman sell some or all of his stock to the Mutual Life. Stillman absolutely refused to do so when first requested, and he made me accept it as a personal favour when he finally consented to sell 1,000 shares for which he had paid $174,000 for $350,000 to the Mutual Life. Stillman thought that if the Mutual and Equitable were going to fight for the control of the Lawyers’ Title Company, as he put it, the stock would go to $500 a share. While I was arguing with him as to the splendid profit this was, he said to me: “Morgenthau, you don’t understand what profits we are in the habit of making,” and told me that when the Northern Pacific was levying a $15 assessment, William Rockefeller and he had agreed to pay the assessment on all the stock on which the stockholders would default, and by so doing, had secured about 270,000 shares, had agreed not to sell it until it showed them a profit of $100 a share, which it did, and he said that even then they regretted that they had sold it before the corner in Northern Pacific had occurred, because thereby they lost a very big additional profit that they might otherwise have made.

McCurdy urged me to try and consolidate the Title Guarantee & Trust Company and the Lawyers’ Title Company, as this would have given him a larger interest in the new company than the Equitable Life possessed. As the leading spirits in neither company were very keen about it, it failed of accomplishment; thereafter we consummated the increase of the stock of the Lawyers’ Mortgage Company from $300,000 to $1,000,000. I personally agreed to buy from the company 5,500 shares of an increase of 7,000 shares of the stock at $125. The Equitable Life interests received 1,500, and 1,000 shares went to the Mutual Life interests. It was the distribution of these shares and the method in which they were finally purchased by the respective companies that were material factors in the condemnation of Messrs. McCurdy and Hyde by the Armstrong Committee, but our company made excellent connections with both the Lawyers’ Title and the Lawyers’ Mortgage companies, and made very substantial profits in later on disposing of the stock.

After these two connections had been made, Grant and I felt that to complete our circle we would also require a construction company.

The Fuller Company had made a great success in the West and was invading the East. Mayor Grant was very much impressed with the scheme, but not so Olcott, Brady, and Crimmins, who had serious objections to a contracting company. Before abandoning the scheme, however, we submitted it to Mr. James Stillman. He listened attentively, and then told us that if we adhered to it, notwithstanding the opposition of Olcott, Brady, and Crimmins, he would join us, with the distinct condition, however, that he was not to dispose of any of the stock, or be asked to interest any one in the enterprise. But he agreed that, as his contribution to the matter, he would finance Grant and myself by loaning us the full amount that was required at a very reasonable rate of interest, and carry us for the life of the transaction.

A few days afterward Stillman sent for me and asked me how much of the preferred stock we had actually sold. When I told him the amount, he said: “Do not sell any more. As I was bicycling up Park Avenue yesterday, I was constantly thinking of Mr. Black’s statement, that New York had to be rebuilt, and the more I looked around me, the more convinced I became that he was right. We ought to secure a substantial share of the work at a profitable commission,” he said, “and therefore we ought not to sell any more of the preferred stock.”

We did not do so until about ten months later when Black made us a proposition on behalf of Charles M. Schwab, who was willing to exchange U. S. Steel Preferred for Fuller Preferred, on even terms. Black strongly recommended it, as he thought we might secure prompter deliveries of our steel, which at that time were very slow and unsatisfactory, if Mr. Schwab were interested in our company. Grant and I immediately disposed of the 2,500 shares that each of us had taken and it was rather amusing to have Stillman ask us in that knowing way of his whether he was justified in concluding from the observations he had made of the sales of U. S. Steel Preferred as recorded on the tape that we had disposed of all our stock. We told him we had. A few days later, at a meeting, he told us with great satisfaction that by letting us rush ours off first, he, through careful selling, secured on an average of three quarters of a point more than we had.

Mr. Schwab became a member of our board, and I had never before met any one who equalled him in that extraordinary capacity of intelligently reading and conclusively analyzing a financial statement at a single glance that seemed hasty and superficial.

The foregoing incidents are samples of the minor tactics on the field of battle in the vast struggle which was waging for the financial control of America. I shall now outline the major strategy of that struggle as it impressed me from my slight contact with it.

The decade from 1896 to 1906 was the period of the most gigantic expansion of business in all American history, and, indeed, in all the history of the world. In that decade the slowly fertilized economic resources of the United States suddenly yielded a bewildering crop of industries. Vast railroad systems were projected and built into being with magic speed. The steel industry sprang with mushroom-like rapidity into a business employing half a million men, and yielding the profits of a Golconda. The Standard Oil Company spread its production and sales to the ends of the earth. In every field of manufacture, expanding companies were brought together into great trusts to unify their finances and to stimulate their production.

All these swift growths demanded money: money for new plants—money for expansion—money for working capital. The cry everywhere was for money—more money—and yet more money. Wall Street was besieged with a continual supplication for capital—that priceless fluid to water the bursting fields of pulsing prosperities. It is an old law that he who has what all men seek may make his own terms, and in that decade Wall Street controlled the money of America. No wonder, then, that the financiers of Wall Street leaped to a power greater for a time than the power of presidents and kings. No wonder that heads were turned, that power was abused, that tyranny developed, and that finally the nation, sensing a life-and-death struggle between capitalism and organized government itself, arose in fear and anger, and put shackles on the money power that made it again the servant, and no longer the master, of the people.

Let me trace briefly how this magic power was concentrated. Under the old banking system, before the passage of the Federal Reserve Act, the need for a common banking centre through which to “clear” inter-community and inter-state debits and credits, following upon the exchange of goods and the sale of crops, led the “country” banks all over the United States to maintain in some New York bank a considerable deposit of their funds, so that interbank transactions could be settled expeditiously and without cost by the simple device of drawing a draft against the New York account. The sum total of these country bank deposits in the metropolitan banks placed in the control of the New York bankers a vast reservoir of liquid capital. What should have been done with this money was to use it as the basis for financing the movement of crops in the fall and the exchange of commodities during the rest of the year. What frequently was done with it was to lend it to New York financiers for speculation in the price of crops and commodities, preventing the farmers and country merchants and small industrials from securing money at the times they needed it. Another use to which this reservoir of capital was put, was to lend it to the great industrial groups battling for supremacy in the fields of sugar, steel, textiles, railroads, and the like.

But there were other reservoirs of capital, and these, too, centred in New York. The great insurance companies were like pools at the bottom of a great valley: down the hillsides from all directions trickled the tiny streams of policy holders’ premiums—each in itself but a few drops of the precious fluid but all together, when gathered in the pool, a vast golden shining mass tempting the eyes of the speculative builders of industry. The insurance company presidents, therefore, became, like the bank presidents of New York, arbiters of financial destiny, because by their nod of favour, or disapproval, they could grant or withhold the golden stream of credit for which all men were begging.

Thus arose a natural struggle between the banks and the insurance companies for the control of the finances of the country. If the bankers could control the insurance companies, they would be masters of the situation. If the insurance companies could control the banks, then the insurance company presidents would be the great men. It may seem odd to suggest that the insurance companies might have controlled the banks, but I can easily demonstrate that this was quite within the realms of possibility. One man with enough shrewdness and enough force, and possessed of not more than $100,000,000, could at that time actually have controlled the banking system of America. On August 5, 1899, when I entered “Finance” with the organization of our company, the capitalization of all the banks in the Clearing House was only $58,000,000, and their total undivided profits were 77 millions—making their entire resources 135 millions; the selling price of their stocks was about 200 millions. One man with a private fortune of $100,000,000, or McCurdy or Hyde controlling an insurance company with assets greatly in excess of that amount, or the Standard Oil group might have been shrewd enough to have bought a majority interest in all the important banks in New York, and this majority interest would have placed in his control, by virtue of the system I have described above, practically the entire banking power of America. We should then have had a financial octopus in the person of one man, with even weirder potentialities of sinister control of American life than the only less dangerous small group which actually did dominate the country financially in the early years of the present century.

What actually happened was that the banking power, instead of being all in the hands of one man, was held jointly by a group of a few men who, although they fought incessantly and bitterly among themselves, nevertheless often united for common profit. It may interest the reader to be reminded of these groups and their leaders.

Towering above them all in the public mind, although in fact but little more powerful than several of the others, was the massive figure and threatening eye of J. Pierpont Morgan. Morgan ruled less by virtue of his wealth than by the overpowering force of his character. Men feared him, but they trusted him. Nearly every enterprise he financed turned to gold, and his leadership became the most impressive fact in American financial life. A close second to Morgan was James Stillman. Elected president of the National City Bank in July of 1901, Stillman, then forty-two years of age, heir to a profitable cotton brokerage business that made him financially independent, had partially retired from active business life, and was enjoying his cultivated tastes in semi-leisure. When Percy R. Pyne, president of the National City Bank, retired from office, and found that his two sons had no ambition to succeed him, he offered Stillman the presidency, and Stillman accepted. The policies which Stillman inaugurated at the National City Bank soon gave evidence of that genius which was shortly to place him at the very top of the financial world. Stillman previsioned the vast expansion of American business, and took steps at once to share in the control of it. He bought all the stock of his bank that came on the market, and then he made it a leader in the financing of industry by attracting to his Board of Directors the heads of the greatest enterprises in the country. These men brought to his bank not only money for deposit, but they brought what the subtle Stillman prized even more, and that was their knowledge and their brains. At his board meetings Stillman learned, at first hand, the inside facts about every business in the country, and this priceless information gave him the key to all the mysteries of financing that lay at the bottom of his success, and at these meetings Stillman had for the asking the advice and counsel of the shrewdest business men in the land. He once confided to me that by this simple device of putting these men on his directorate he had secured their services at the absurd price of about $400 a year apiece. As he expressed it: “These men attend a board meeting once a week, and receive $10 for their attendance, and for that price I am free to pick their brains.”

Stillman was allied with the Rockefeller family by the marriage of his two daughters to the two sons of William Rockefeller, and through this alliance gained all the direct and indirect advantages of a favoured position with the Standard Oil Company and its measures.

Another group in the financial oligarchy was Kuhn, Loeb & Company, originally clothing manufacturers in Cincinnati, then note-brokers and finally bankers. Their great feat was taking over from the U. S. Government Receivers the Union Pacific Railroad and reorganizing it. They then made their famous alliance with E. H. Harriman and established themselves in the first rank of American financiers, through the success of this joint financing of the Union Pacific Railroad, one of the most profitable of all the feats of financial legerdemain ever accomplished.

The trust companies entered the ranks of the financial oligarchs by virtue of a peculiar provision of the banking laws which permitted them to accept deposits and grant the checking privilege against them which was enjoyed by the banks without being required to maintain the cash reserve against deposits which was exacted of the banks. By paying interest on daily balances they attracted the best—the non-borrowing accounts.

Under this anomaly of the law, the trust companies rose rapidly to financial eminence. Their progress was bitterly contested by the banks, but under the leadership of Frederic P. Olcott, the trust companies became so powerful that they were taken into the oligarchy before the laws were finally revised, placing them on a parity with the banks. Olcott, as president of the Central Trust Company, had a hand in nearly every one of the reorganizations of the railroads, a process through which almost every railroad in the country was carried during the period from 1878 to 1890. This experience had made Olcott an expert in every detail of railroad finance, and his rugged honesty, his utter fearlessness, his profane disregard of any man’s importance, no matter how much it might have awed others, had placed him at the front as a power to be reckoned with under all conditions.

So much for the bankers. The insurance companies were the other great powers in the financial oligarchy. Hyde of the Equitable, McCurdy of the Mutual, McCall of the New York Life—each of these men controlled the lending of hundreds of millions of dollars of money taken in as premiums. Before the eyes of each was laid the dazzling opportunity of using this power to further speculative financing of industry with the prospect of enormous profits. Some succumbed to these temptations, and used some of this money, which was entrusted to them for the most sacred of all financial purposes—the payments of death benefits to the families of policy holders—as if they had been their own funds to be risked in private speculation.

The case of Hyde is doubly appropriate for mention here, because he was a representative sinner in these corrupt practices, and because it was my fate to cross destinies at three critical moments in the life of his son and heir, and to be, at one of these crises, the Nemesis for his undoing.

Henry B. Hyde had organized the Equitable Life Insurance Company years before as a private stock company, capitalized at $100,000, of which he retained ownership of slightly more than $50,000 worth of the stock. The Equitable had prospered until it was one of the five great insurance companies. Its assets had risen to over $500,000,000, its surplus to an enormous sum. It was a moot question as to whether the stockholders or the policy holders owned the surplus. Though the stock was restricted to a 7 per cent. dividend, nevertheless its price had risen to $3,000 a share, which showed the value that experts placed upon opportunities for profit—whether legitimate or otherwise—that accrued to the possessor of the majority of the stock—and the control of the company. The insurance investigation conducted by Mr. Hughes showed the various methods by which the men in control of this and other insurance companies had abused this power and had personally enriched themselves.

When Henry B. Hyde died, he left to his son, James Hazen Hyde, his controlling interest in the Equitable. It would be hard to over-state the dazzling opportunity that now lay within reach of this boy of 24. If fate had given him the vision of Stillman, or the wisdom and over-mastering will of Morgan, or the rugged force of Olcott, young Hyde might easily have become dictator of financial America. The method of quick profits from the use of other people’s money had been demonstrated for him by his father, and young Hyde himself was clever enough to perceive the opening that lay in acquiring control of the majority stock in banks and trust companies. He had the vision which I have described above, of the possibility of controlling the banking system of America by the use of one single fortune.

Destiny, however, had another fate in store. Fortune had indeed given Hyde the means and the vision to attain preËminence. But her hand withheld one essential gift—the gift of character. Reared to the unrestrained enjoyment of pleasure, Hyde had never been disciplined, and so had never had occasion to learn those amenities which, even in the most powerful characters, temper the masterful assertion of authority. With the pettish temper of a child, Hyde could not brook opposition; his theory of action was the crude one of “rule or ruin.” Where tact would have propitiated an antagonist, he tried giving orders. In rapid succession, he antagonized the most powerful men in America—men who had earned their spurs on the field of financial battle before he was born, and who were not of a temper to brook the insolence of a youngster merely because he had inherited a fortune. Their deep resentment long boiled below the surface, and it was only when Hyde tried to wrest from the presidency and transfer to the vice-presidency, which he was then occupying, the main executive powers of the company that the opposition to him became organized. President Alexander retained Bainbridge Colby, who was then in partnership with his son, and also Frank Platt. The latter by using the agents of the United States Express Company, of which his father was president, secured the proxies of over 90,000 policy holders. They then tried to secure prominent and trusted men who would act as a committee for the policy holders to force an investigation of the management of the company. This task they found more difficult. Several times they thought they had their committee completed when Hyde and his associates exerted such pressure that these men withdrew their consent to serve. Finally, a group of them put this situation up to me. They pointed out that I owed a duty to the public to clear up this lamentable misuse of the public’s funds.

I debated long whether I had a right to do this service. For myself, personally, I had no fear of Hyde, but as president of a trust company, I had the interests of my stockholders and depositors to consider. To resolve my perplexities, I brought the matter up at a board meeting. I wanted to accept, but I felt it my duty to explain the situation to my directors, and I told them that if they felt I was jeopardizing their interests, I would resign from the Trust Company, and serve on the committee. Olcott resolved the question. With characteristic honesty and force, he said: “If you feel that way, stay and serve, and let whoever deserves, be hurt.”

I informed the attorneys of the committee of my inclination, but told them I would not serve until they had submitted to me the evidence they possessed. It was an interesting evening that Frank Platt and Bainbridge Colby spent in my library. They brought a satchel full of documents, and in a short time convinced me that their case against Hyde was complete. They were very anxious to have me pledge myself to stay to the end, which was to be the displacement of Hyde, and I exacted from them a similar promise, so that we came to an understanding that this was to be a fight to the finish.

With the Dreyfus trial fresh in my mind, I urged Colby that he should be the man who would Americanize the “J’accuse” and charge Hyde with these various malfeasances against the policy holders.

A few days later, Mr. Stillman called and told me that he wanted to warn me to be very cautious in my activities of this policy holders’ committee; that public opinion was so excited and might easily be fanned to fever heat if the conditions in the Equitable were published; and that the people might demand investigations of all financial institutions, and thereby create a panic. He also asked me to discuss the matter with Mr. E. H. Harriman. I had no objection to doing so, and a conference was arranged. Harriman asked me what the committee wanted, and I told him that although Hyde owned a majority of the stock, the assets belonged to the policy holders; and that they had enough accusations which would condemn him before any court; and that the committee demanded the removal of Hyde and control of the executive committee which controlled the company. I told him that it would be much better for them to make terms with us, who were reasonable men, than to try to persuade any of our committee to compromise, because the proxies we had would be taken from us and given to people who would see that justice would be done. He saw the force of my argument and suggested my meeting Mr. Elihu Root. We met the next day and went over the whole situation. Mr. Root laid great stress on the fact that it was unheard of to displace a man owning the majority of the stock of a company. On behalf of the policy holders, I told Mr. Root that we were going to arouse public opinion against the impropriety of having the funds of widows and orphans subjected to the whims and fancies of a quasi-irresponsible young man, and I also referred to the grave danger that the whole financial fabric was being exposed to by permitting the vast power that went with the control of the Equitable and its subsidiary companies, to pass by inheritance, and not by election.

It finally was arranged that no one was to be placed on the executive committee who was personally objectionable to Hyde. The new directors were not to represent any faction, but all the policy holders. Thus we got control of the board and the policy holders were allowed to elect a majority of the executive committee and Mr. Hyde’s control was wrested from him.

Thus, my action in standing fast with the committee of Equitable policy holders, demanding their rights, was an essential prelude to the famous life insurance investigation of 1905. The success of that investigation, once it got under way, is, of course, to the eternal credit of Charles Evans Hughes. His masterly grasp of the intricacies of the whole situation; his extraordinarily logical mind which enabled him to bring out the testimony in such a way as to build up an overwhelming and complete sense of the right and wrong of the matter, made his conduct of this investigation one of the most brilliant performances in the history of American law, and placed Mr. Hughes in the front rank of public servants. My own testimony at the investigation was useful in establishing confirmatory evidence of the corrupt manner in which life insurance moneys were used, as evidenced in the purchase, by Mr. McCurdy, of stock in other companies with policy holders’ money, but to the personal profit of the officers of the Mutual instead of to the Mutual itself. The outcome of the whole investigation is, of course, familiar to the public. It resulted in the enactment of laws which made these corrupt practices impossible, and thereby took the insurance company funds out of the speculative and promoting fields of American finance.

The other needed reform—to clip the power of the New York bankers to control the credit resources of the country—was delayed until, under the compulsion of Woodrow Wilson’s leadership, the Federal Reserve Act was passed, and the power of Wall Street over credit for ever crushed. That Act democratized credit, and made it impossible for any man, or group of men, to concentrate and control it.

Young Hyde was shorn of his glory. He was compelled to sell his majority of ownership in the Equitable for two and one half million dollars—whereas but a few years before I had been authorized by James Stillman to offer him ten million dollars for the control of the Equitable and its connections—and to remove himself from all authority in its affairs, and from all influence upon finance in general. He retired to that luxurious obscurity which was his natural level. Disgusted with America, which did not “appreciate” him, he returned to France where he had already spent several years, and there devoted himself to a life of pleasure and of mild intellectual avocations.

I did not see him again until 1917 when the United States had entered the World War, and I was visiting Paris. This third encounter with young Hyde had in it the dramatic elements of a Greek comedy. Later in this book, I describe how I made Hyde vice-president of the Metropolitan Opera Company, and facilitated his ambition to become a social leader in New York. Unappreciative of this service I had rendered him, and eager for yet greater social opportunities, Hyde had not been content to await the natural termination of my directorship, and had had the impudence to ask me to resign in favour of one of his friends. I had indignantly refused this preposterous request, and served out my term of office. In the insurance investigation there had been, therefore, a certain element of poetic justice in my being the instrument in the hand of destiny to give the little essential fillip to the events that caused his headlong fall from financial eminence. Our meeting in Paris in 1917 supplied the final touch of classic irony. There, Hyde, out of touch with his native land, somewhat chastened by contemplation of his abrupt fall from financial heights, found himself almost a man without a country in the midst of the World War, unable to gratify his ambition to be always in style—and now the style was to be in the military uniform of one’s country.

I visited France soon after the entrance of America into that conflict, and during a brief interval of rest at Aix-les-Bains, I chanced upon John G. A. Leishmann and his vivacious daughter, who was Hyde’s wife. She had heard of my political association with President Wilson, but evidently she had forgotten, or was unaware of, my part in the financial downfall of her husband. She confided to me young Hyde’s and her own unhappiness that he had no active part in the service of his country, and begged me to use my influence to obtain for him some position in the American service where he could do his bit. I promised to do what I could.

Upon my return to Paris, young Hyde himself called upon me with words of warm appreciation, both that I had been willing to overlook our late unpleasantness, and that I had not mentioned its existence to his wife. He was anxious to serve, and almost pathetically eager to convince me that he could serve. He had been refused a position on General Pershing’s staff, and wanted me to secure for him a commission from the American Red Cross. He declared that he could obtain for me or others an immediate audience from any person in the French Government, no matter how exalted, and pointed out that by virtue of this capacity he could be of indispensable service. He wished me to name any French official whom I cared to meet. I said I should like very much to meet M. PainlevÉ informally, and Hyde thereupon, hardly waiting to bid me good-bye, hastened away to make the appointment. He easily made good his boast, so that two days later I had dinner at Hyde’s house, and had a most interesting conversation with PainlevÉ. I was so impressed with Hyde’s earnestness and with the possibilities of usefulness that lay in his remarkable affiliations with the best French society, that I did intercede for him with Major Murphy and Major Perkins, the heads of the Red Cross, and prevailed upon them to make him a uniformed officer. He was attached to the Paris headquarters of our Red Cross work in France, and, I was afterward told, rendered very useful service.

As I stated at the beginning of this chapter, the object of the formation of the Central Realty Bond & Trust Company was to provide an accumulation of capital for the purpose of dealing in real estate on a large scale. I shall describe a few of the company’s transactions to illustrate how the corporate form of operation gave wider scope than was possible to an individual operator. One of our first transactions illustrates this very point.

While looking for temporary quarters to house the company, Mr. Frederick M. Hilton, the present head of William A. White & Sons, offered me the space in Boreel Building that had just been vacated by the German American Fire Insurance Company. Mr. Hilton told me that the Boreel heirs were receiving a return of less than 3 per cent. on the tax value of their property, and were facing a substantial diminution of even this small income now that these insurance offices had been thrown upon their hands. I said to him: “Why not inquire whether these heirs will sell the property for $2,000,000?” He was amazed when he found that out of an expected rental of $15,000 a year there might evolve a sale of the entire property. I immediately communicated this fact to Grant who authorized me to purchase the property without consulting the Executive Committee, and said that both Olcott and he would each take one third and I could take one third, if the Executive Committee failed to ratify it. We secured the property for $2,050,000. Mr. Prescott Hall Butler represented the heirs in this transaction and when I handed him the check for $50,000, which was paid on account of the contract, he told me that he intended to deposit it with a trust company until the deal was completed. I said why not with us, which he agreed to do, so that we thus owned the property without having parted with the possession of a single dollar. The fact that we were both a real estate operating company and a trust company enabled us to repeat this kind of operation frequently.

When Mr. Black of the Fuller Construction Company heard of our purchase, he immediately bought our contract, and gave us a profit of 10 per cent., so that we secured temporary quarters and made $205,000 without losing the use of any of our funds.

Other large transactions followed in rapid succession. Among the most interesting of these was the collecting of the plots that constitute the present site of the Broad Exchange Building, directly opposite the Stock Exchange; the purchase of the Knox Building at the corner of Fortieth Street and Fifth Avenue; and my joining in the purchase of the Plaza Hotel, by means of a brief telephone conversation, for $3,000,000.

In 1904, as the Subway neared completion, I was astonished to find that there had been no activity in real estate in anticipation of the benefits that would accrue from the increased transportation facilities in the upper part of New York and the Bronx. I therefore enlisted the assistance of my nephew, Robert E. Simon, and of J. Clarence Davies, and organized what was dubbed by some of the real estate operators the “Subway Boom.” On behalf of the company and some associates, we purchased all the big plots that abutted the various transit lines, and could be secured at reasonable prices. In a period of ninety days we purchased in the Bronx, in the Dyckman district, in Washington Heights, and Fort George, about 2,500 lots which were eventually sold for $9,000,000.

In 1905, when I realized that a cessation of prosperity and the necessary declining market that would follow was imminent, I called on Mr. Olcott and asked him whether our young company could rely upon the assistance of the Central Trust Company, with whom we kept our largest account; he told me that if a panic such as I feared should come everybody would have to look out for himself; that if my accounts and securities would justify his making a loan at 6 per cent. he would do so, but as far as his depositing with our company a few million dollars, as I had suggested, he would not consider it. I went right next door to Mr. Stillman, and asked him a similar question, first telling him the attitude Mr. Olcott had taken. Mr. Stillman said I was but one of the many customers of his bank; his holdings in my company were relatively small; that the new, unseasoned financial institutions would be the first to suffer in case the public commenced to doubt the stability of the financial institutions. “Although it is known that you have a splendid board of directors, and have the good will of some of the big interests like the Mutual Life and the Central Trust Company, and my institution also, still it is well known that none of us control your institution and are, therefore, not responsible for it. You do not belong to any one, but I am willing to see you through, no matter what happens.”

During the interview, I almost felt that the Stillman collar was slipping around my neck and shook myself to see if I was free, and I made up my mind that rather than wear any one’s collar, I would go out of business. I deliberated at some length for some days, and then had a long conference with Mr. Grant who, for the first time since our close connection, was really annoyed at the stand I took. He felt that our company was destined to become one of the important independent financial institutions downtown and that my fears of a catastrophe were exaggerated and that we should risk it, playing the game to the finish. When I explained to him that I had no desire to quit personally, but to dispose of the company as a whole, either by consolidation or liquidation, he coÖperated with me faithfully, as heretofore.

We merged the company into the Lawyers’ Title Insurance Company at a price which enabled us to pay our stockholders $550 in cash and one half share of Lawyers’ Title Stock for every share they owned in our company.

I personally purchased from the company all the real estate that it then owned.

Having thus returned to the real estate business, only on a much larger scale than I had ever operated before, I took my nephew, Robert E. Simon, into partnership, and formed the Henry Morgenthau Company. This company then developed all the properties I had left in the Bronx, and built and financed housings for thousands of people in that section, and also on Washington Heights, and in Fort George at One Hundred and Ninetieth Street and St. Nicholas Avenue.

My venture into the trust company field led me ultimately into an interest in a kind of business I had never before studied. One day my friend, Mr. Charles Strauss, who had influenced many of his clients and friends to open accounts with the Trust Company, came to my office and asked me whether we would make a loan to one of his clients who, he declared, was ready to put up as collateral some of the original Standard Oil Company stock. I told him unhesitatingly that we would do so.

He said: “Now, Henry, don’t speak so fast. Before you definitely commit yourself, I understand trust companies are not making loans on an exclusively industrial collateral.” I told him that I knew how my board felt about Standard Oil which was then selling at about $180 a share, and to convince him that I was authorized I told him that if his friend had any doubts, I would make him a time loan of six months. Mr. Strauss brought in Mr. John T. Underwood, the president of the Underwood Typewriter Company.

Strauss told me at the time that this transaction might lead to other business. A few years afterward, Strauss came to see me and told me that Underwood required additional money to proceed with his enterprise. He then told me how Underwood had come to this country from England to represent his father’s business—the John Underwood Company, manufacturers of inks; how he had started business at No. 30 Vesey Street; and how, shortly after typewriters had been introduced, had manufactured supplies for them, carbon paper, ribbons, etc., and built up a large and profitable business. His transactions were very largely with the then existing typewriter companies, the Remington and Smith Premier. Shortly after the Union Typewriter Company had been started, these people notified Underwood that they would themselves go into the typewriter supply business. This induced Underwood to go into the typewriter business and to manufacture the first visible typewriter.

In 1901, when they came to me, he had invested in the enterprise about $950,000, and as he wanted to buy a new factory in Hartford, and increase his facilities, he wanted to secure an additional capital of $500,000 and that was the proposition that Strauss had suggested to me. We discussed the matter, and I proposed that he rearrange his capitalization; sell $500,000 of 6 per cent. First Preferred stock; have issued to himself, Strauss, and others who had advanced the $950,000, Second Preferred of $1,000,000; and that he issue $2,000,000 Common stock, of which he could give the First Preferred stockholders $500,000. Messrs. Hugh J. Grant and James M. Jarvie of the Executive Committee of the Trust Company subsequently joined me in the deliberations, and in the course thereof Mr. Underwood told us that the Trust had offered him $2,000,000 for his proposition. Jarvie said to him: “You are a bachelor, you have no under-study. You have no one dependent upon you. Your enterprise is a one-man enterprise, and much as I would like to go into this matter with you, I strongly recommend that you sell to the Trust.”

Jarvie talked so convincingly that Underwood again opened negotiations with the Trust. They renewed their offer, but insisted upon making their payments in installments, which, when analyzed, practically meant that they would pay Underwood largely, if not entirely, out of his own profits. Underwood and Strauss rebelled at that and determined to continue their enterprise.

It was then February, 1903, and the panic of that year was imminent, and Grant and Jarvie declined to go into anything new. It rather discouraged me, but I took a small subscription of the First Preferred stock, more out of compliment to Strauss and Underwood than for the sake of investment. Strauss made a proposition to me, saying that they desired to have me on the Board of Directors, and if I would agree to serve for five years, they would give me $30,000 of Common stock for nothing. I consented to do so upon one condition, that all meetings would have to be held at the Trust Company office, as I did not wish to take the time it would require for me to go up to their office. They promptly accepted my condition, as they said they had no meeting room and, in fact, they considered this, instead of being a condition, an accommodation. I attended the directors’ meetings pretty regularly until 1909, when at one of the meetings I was very much gratified to see that during the current month, the Company had earned more than the $90,000, their fixed charges on the First and Second Preferred stock for the entire year. I invited Underwood and Strauss to lunch with me, and I then told them that I had been a director now for six years, and the time had arrived when I could be useful in creating a market for the stock, which was not being dealt in at all. I asked them whether they would be willing to sell me one half of their holdings, and I would undertake to popularize the stock. Mr. Underwood gave me an option in November, 1909, to purchase from him 40 per cent. of the Common stock. He gave this option without any payment down. I invited Mr. Jacob Wertheim to join me and when I gave him all the facts that I had learned while acting as director for years—he found them so convincing that he waived making an investigation and proposed that we confine the matter entirely to ourselves—he offered to finance the operation to any extent that I was unable to do. I accepted this on condition that he would give his son Maurice, who had married my daughter Alma, an interest in his half. He consented and I gave my son an interest in my share. After we had made this arrangement, we decided that it would be better for Underwood and the other stockholders of the enterprise that, instead of creating a market for the then existing shares, we should create a new issue of $5,000,000 of Preferred stock, dispose of it to the public, and with the proceeds redeem the First and Second Preferred, and also the outstanding Common stock, pay off the notes then outstanding, and have enough cash left to more than double the facilities of the Company at Hartford. When I made the suggestion to Underwood, he said he would not entertain it until I had consummated my option. We did this promptly, and then refinanced the Company. It was one of the first companies, if not the very first, that sold its Preferred stock to the bankers without giving them, or their purchasers, any of the Common stock as a bonus. My experience as president of the Central Realty Trust Company had taught me that this could be done, and I insisted upon trying it, so that when we finished with the entire operation, Wertheim and I and our sons were owners of very substantial amounts of the Common stock at a very moderate price. Underwood and Strauss and the other Preferred and Common stockholders of the Company were all, and still are, pleased with the refinancing, as everybody concerned was benefitted by the operation.

In the meantime, the Underwood Company has completely outstripped all the other companies, and Underwood has had the satisfaction of metamorphosing from the discharged purveyor of supplies to the Remington and other typewriter companies, into the unquestioned, outstanding leader of the typewriter business, and he is still the same modest, energetic, tireless executive that he was in 1903. It has been no small satisfaction for all of us to see the steady, healthy growth of this infant into the magnificent giant that it is to-day, and some of the credit is due to our most efficient superintendent, Mr. Charles A. Rice.

In 1919, when the Underwood commenced to manufacture the portable machines, I asked Mr. Underwood to give me No. 1, so that I could present it to President Wilson, as I was about to go to Europe, and expected to see him in Paris. I sent it to the President, and a few days thereafter I met Miss Benham, Mrs. Wilson’s secretary, and she told me that unintentionally I had almost caused a little quarrel between the Presidential couple, and when I inquired how, she told me that Mrs. Wilson had annexed the Underwood machine over the President’s protest.