Rumors of impending Wall Street and industrial corporation failures, as usual in times of disturbance, filled the air, but only one important industrial failure and one unimportant Wall Street suspension occurred in August, and the gradual return of confidence caused a gradual improvement on the Stock Exchange, although the semi-annual dividend on Southern Railway preferred stock was reduced from 2½ to 1½ per cent., and the dividends on Erie’s first and second preferred stocks were declared payable in four per cent. scrip warrants instead of cash. Toward the end of the month the Secretary of the Treasury announced that weekly deposits would be made in the national banks till October 15th, and this at once began to ease the money market and further strengthen confidence.
Early in September, however, there came a relapse in the stock market, and another Stock Exchange failure. This recurrence of disturbance and depression was partly due to stagnation, followed by demoralization in the copper trade, both here and in Europe, which caused a reduction in the price of copper by the selling agency of the Amalgamated Co. from 25 cents a pound to 18 cents, and not long afterwards to 15 cents.
Meanwhile the Calumet and Hecla, the Quincy, and other copper companies had reduced their dividends, owing to the small demand for copper, and Amalgamated copper stock declined rapidly to 57½, against 121 in January. In Boston, also, the copper stocks broke in the same demoralized way under heavy liquidation.
Railway shares sympathized with this extreme weakness of copper and the copper stocks, but not as much as American Smelting, the U. S. Steels, and other industrial stocks, and gradually the copper crisis ceased to dominate them. At the same time the general market for both railroad stocks and bonds was strengthened by the great success of the $40,000,000 issue of 4½ per cent. bonds by the City of New York, the loan being five times over-subscribed. This showed there was a large amount of money in the country awaiting investment in good securities. Yet, later, new low records were made for sundry railway and industrial stocks, including Southern Railway common and preferred, and the stock market, in its nervous and irregular fluctuations, told of the timidity of the bulls and the boldness of the bears, consequent on shrinkage in the iron trade, and uncertainty as to the business future.
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CHAPTER LXXI.
THE GREAT CRISIS OF 1907.
The worst forebodings of September were far more than realized in October, when the monetary disturbance, and distrust of credits, spread from the Stock Exchange and Wall Street to the banking interests, and involved the whole country in a panic that will always make the year 1907 memorable in our history.
Until the collapse in the “Curb” market of the stock of the United Copper Co., followed, on the 17th of October, by the failure of the two Stock Exchange firms that had been manipulating this Heinze specialty for Heinze interests, the panicky conditions of the year had been practically confined to the stock market and the interests directly affected by it. But that collapse, involving those Heinze failures, fell like a bombshell not only on the stock market, but on the banks of which F. A. Heinze, the president of the United Copper Co., had, not long before, purchased control. The fact that two of his brothers were members of one of the failed firms—Otto Heinze & Co.—caused heavy withdrawals of deposits from these banks, and particularly the Mercantile National Bank, of which he had become the president.
The New York Clearing House Committee took alarm the same day and examined the Mercantile. The result was that it demanded the resignation of all its officers and directors that night, as a condition preparatory to giving it any assistance. They complied, President Heinze among them, and the bank was assisted to pay its clearing-house balances for several days. But these were so large that further assistance was then refused. Thereupon one of its old directors succeeded in bringing in new capital and new directors on the day following, Sunday, so that the bank was enabled to continue business without a break.
But meanwhile the contagion of distrust was spreading, and there was a run on the deposits of not only the Heinze but the Thomas and the Morse banks, the Thomases and the Heinzes having been equally prominent with Morse in buying control of banks for speculative purposes. The Clearing House Committee took them all in hand, and demanded the resignations of their officers and directors. In this way they stamped these bank promoters out of the banks they had managed to get control of. Then the banks were assisted.
Suspicion soon fell upon certain trust companies with speculative affiliations, more or less connected with the same promoters. Suddenly a heavy and spectacular run upon the Knickerbocker Trust Company, the second largest in New York, with more than sixty millions of deposits, caused it to close its doors on the first day of the run. This was on Tuesday, the 22d of October. The immediate cause of the run was the resignation, on the previous day, of Charles T. Barney, its president, coupled with the notification to the banks of the National Bank of Commerce, on the same day, that it would not clear for the Knickerbocker Trust Co. after the following day. So, this being published in the newspapers, the depositors rushed to withdraw their deposits.
The Clearing House and Mr. J. P. Morgan, when appealed to, refused to assist the Knickerbocker on the ground that they found it was not solvent. The collapse of the Knickerbocker was immediately followed by extensive runs on small banks and trust companies in New York and Brooklyn, as well as on the savings banks, and about a dozen of the former, including seven in Brooklyn, closed their doors. But the savings banks took advantage of the sixty and ninety days’ time allowed them by law for the payment of deposits after notice.
Following these minor banking suspensions there were long-continued runs on the Trust Company of America and its Colonial Branch, and the Lincoln Trust Company, with all-night lines of waiting depositors. But, finally, after a hard struggle, these were examined by Morgan committee experts and found solvent, whereupon, in the banking conferences held for a number of days and nights at the residence of Mr. J. P. Morgan, it was agreed to provide them with all the money necessary to meet the run. To Mr. Morgan great credit is due for the arduous work he undertook to better the banking situation in this critical period of storm and stress.
New low records for stocks were made meanwhile under very heavy liquidation, Union Pacific touching 100, and Amalgamated Copper 41¾, on the 24th of October, and all others sinking to lower depths in about the same proportion, while the abnormal scarcity and high rates for money caused trading on margins to be generally suspended by brokers. Transactions were, of course, largely curtailed by being placed on a cash basis, but the buying of odd lots for investment was very heavy all through the crisis. The decline in Amalgamated was accelerated by copper selling down to 12 cents a pound. But much of the liquidation in the stock market was caused by the banks and trust companies calling in their loans on stock collaterals, and thus forcing the borrowers to sell.
The hoarding of money, and the withdrawal of deposits from the banks and trust companies, became so extensive that these institutions had little or none to lend, and for several days call loans were made on the New York Stock Exchange at rates ranging from 50 to 100 per cent per annum, and in exceptional instances as high as 125.
[Illustration:
_E. H. Harriman._ _1906_ ]
The United States Treasury came to the relief of the money market by making—under the personal direction of Secretary Cortelyou—unusually heavy deposits in the National banks of the City of New York, as well as in other cities which were drawing heavily on their New York balances. But still the banks and trust companies continued to lose their ordinary deposits rapidly, and the money thus withdrawn by the timid and distrustful was taken out of circulation by being placed in safe-deposit boxes, tin boxes, wallets, and other receptacles. This hoarding was foolish, as well as harmful and un-American.
New York had to deal with a banking crisis. So, on Saturday, the 26th of October, the members of the New York Clearing House met, and resolved to issue, on and after that date, Clearing House certificates—bearing six per cent interest—to be used by the banks of the Association in paying their daily balances at the Clearing House, instead of currency. These the Clearing House at once began to issue, when called for by any bank, to the amount of 75 per cent of the value of any acceptable assets it might deposit with the Clearing House. This gave immediate relief to the banks, and especially those whose reserves of currency were most largely depleted, for they immediately availed themselves of their issue.
At the same time they saw that, in addition to the government deposits, large importations of gold were necessary to replace, at least in part, the hoarded money, and aid in restoring confidence. The Clearing House certificates, by releasing much of their gold and legal tender notes, enabled them, through “cable transfers,” to purchase gold in England for shipment to New York, and by the end of the first week in November $50,000,000 had been purchased by banks and bankers for shipment to the United States, and nearly half that amount had already reached New York. But some of the importing banks were in other cities, including Chicago, Philadelphia, Boston, Pittsburg, and San Francisco.
These heavy importations, however, disturbed the London money market, and on Thursday, the 31st of October, the Bank of England raised its minimum rate of discount from 4½ to 5½ per cent, to check the outflow of gold. This not proving sufficient, it raised it to 6 per cent on the Monday following, and to 7 per cent on Thursday, the 7th of November, a higher rate than had been reached since 1873, the year of the great panic in this country and in Germany, when the Bank of England rate was advanced to 9 per cent. But once, in 1866, it went up to 10 per cent.
The Bank of France also, on the 7th of November, 1907, raised its rate from 3½ to 4 per cent, owing to the drain of gold to this country; and such an advance is very rare in France. For seven years, up to the spring of 1907, it had stood at 3 per cent. The Bank of Germany also advanced its rate to 7½, and the Bank of Belgium to 6 per cent. These rates showed how severely the loss of this gold was felt in Europe. By November 16 our gold purchases aggregated $70,000,000.
In the interval the clearing houses in all the large cities of the United States had, in self defence, followed the example of New York in issuing clearing house certificates. Currency, too, had been selling at a premium ranging from 2½ to 5 per cent for certified checks, owing to its great scarcity. At Pittsburg the Stock Exchange was closed immediately after the announcement of the failure of the three Westinghouse companies there. Other failures were very numerous.
In Pittsburg, Chicago, New Orleans, and many other cities, the local clearing houses printed clearing house checks of small denominations, from 25 cents or one dollar up, to be taken out and paid out by the banks instead of currency, when found necessary. Several of the Western Boards of Trade closed, owing to the demoralization in the grain market, caused by the heavy decline in prices under the rush to sell in order to raise money, while many banks all over the country issued their own cashiers’ checks for both small and large amounts, instead of currency or clearing house certificates, in payment of depositors’ checks. The banks were in a partial state of suspension from Maine to California.
The extent of the drain on bank reserves may be inferred from the fact that the statement of totals for all the New York associated banks for the week ending on Saturday, November 2, showed that they were collectively $38,838,825 below the dead-line of 25 per cent reserve on their deposits, without counting Government deposits, which had been very large. The detailed statement of each bank’s condition was not published on that date, and continued to be withheld till after the crisis had passed into history.
This large deficit of the New York banks caused much uneasiness and a further sharp decline in the stock market, but the frequent day and night conferences of leading bank officers with Secretary Cortelyou and Mr. J. P. Morgan, to devise ways and means of relieving the extreme stringency and distrust of the monetary situation, were productive of much good. This was especially the case in bringing the trust companies together to act as a unit through a committee, of which Edward King, President of the Union Trust Co., was made chairman. This committee was organized in the office of J. P. Morgan & Co., which, indeed, was the headquarters for all banking relief outside of the Clearing House.
Unfortunately for Europe, our purchases there of so many millions of dollars’ worth of gold, within three weeks, seriously unsettled the London, Paris, and Berlin stock exchanges, and a continuous decline in stock and bond prices attended its export to this country. But, notwithstanding the relief we obtained from this great source, the banks here still continued under a heavy strain. An indication of this was found in the statement of the New York Clearing House, giving the totals for the week ending on Saturday, the 9th of November, the third week of the acute stage of the crisis.
It showed that the deficit of the associated New York City banks, in their legal reserve, had increased $13,085,800 over that of the week before, making their total deficit $51,921,625. But as the Clearing House statements are made up on averages for each week, and not on the actual condition of the banks at the end of the week, the gold imported was only credited from the dates on which it was received by the banks. Moreover, this statement was made on rising averages, that of the week before on falling averages.
A conspicuously important feature of the arrangements made at the Morgan conferences for supplying the needs and taking care of the Trust Company of America was the sale, at par—$100 a share—of the majority of the stock of the Tennessee Coal, Iron and R.R. Co.—which had been largely hypothecated with it—to the United States Steel Corporation, payment for the stock to be made in its 5 per cent sinking fund bonds at 84. This exchange of Tennessee stock for the Steel bonds was promptly made through J. P. Morgan & Co., on and after November 7, thus adding another large property to the many other subsidiary properties of the U. S. Steel Corporation.
This transfer was one of the most notable events of the memorable panic year—1907—the wreckage of which it will take a long time to clear away. But meanwhile the country will have started on a new career of prosperity, and with eighty-four millions of people to develop its boundless resources, we need have no fear but that its recovery will be rapid, and its future as great and grand as we could desire. Moreover, it will be all the better and stronger, and all the higher in its business standards, for the severe yet purifying ordeal through which it has passed.
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CHAPTER LXXII.
THE CAUSES OF THE CRISIS OF 1907.[2]
Footnote 2:
An address by Henry Clews, LL.D., delivered at Cooper Institute, New York City, February, 1908.
The wiseacres in Wall Street and elsewhere had to take many sledgehammer blows in this panic year. They had become like Tom Toddy—too big-headed for their bodies. When a man knows it all, then his danger commences. My advice is, never follow such a leader, but wait patiently and the time will come when you can safely copper him.
In September, 1906, when stock and bond prices were advanced abnormally to a 3½ to 4 per cent basis, while six months’ money was loaning at 6 per cent, it was evident that one or the other was too high; and considering the growing demand for the use of money it was quite apparent it was not money that was too dear, but securities. At that time I persistently advised everyone to get out of stocks and out of debt, and keep out for a prolonged period, only making quick turns meanwhile.
Since then security values have gone down prodigiously—$3,500,000,000 will scarcely cover the depreciation of those dealt in on the New York Stock Exchange alone; so those who took my advice and got out at top prices can well afford now to buy back their stocks, if dividends are not reduced. No one can foresee changes in these. But everything that is good is fairly cheap and below intrinsic value, based upon present returns. Our financial situation is vastly different to any previous one after great panics, of which there have been many, since the one of 1857 brought on by the failure of the Ohio Life & Trust Co., at the time of my advent in Wall Street: so I have been in all these panics.
The conditions now differ from those of all the other great financial storms because the wealth of the nation has become so vast as to make it the richest in actual wealth and productiveness, per capita, of all nations. As a matter of fact, our wealth-making developments have been so excessive as to have forged ahead of our banking facilities. This has had much to do with our recent setback. Wise and sagacious capitalists saw the handwriting on the wall in Wall Street and elsewhere, and those who did unloaded their securities last year, dumping their stocks at top-notch prices, amounting to at least $800,000,000, upon weaker-backed people.
This unloading, together with the San Francisco earthquake disaster, wiped out, in prices, $350,000,000 of property, and struck the staggering blows which did more than anything else to pave the way to the recent panic conditions. The selling out by big holders was followed by all the large railroad systems in the country selling bonds, stocks and notes. These, being offered to stockholders of record at apparently tempting prices, were floated. This great mass of new securities coming on the market was an indigestible one and absorbed the capital of a very large number of the rich men of the country and put it in a fixed form: and most of these heretofore very rich men have ever since been in the position of a man who, having had a “Sherry dinner,” is urged to accept the hospitality of a friend to take a “Delmonico dinner.”
What produced the panic was a number of adverse factors happening one after another in rapid succession. The first was the unloading by sagacious holders of securities at high prices; the second was the immense creation and selling of new securities by the railroads for improvements; the third, the revelation of scandals started by Mr. Hughes, the investigator of the life insurance companies. We all know what happened in that connection. Then came the Interstate Commerce examination of Mr. Harriman as a witness and his revelations under oath; then the $29,400,000 fine by Judge Landis on the Standard Oil Co. of Indiana, and finally, the insistence by Governor Hughes, against overwhelming opposition, of the passage of the Utilities Bill, under which the investigation of the Metropolitan Surface Railroad was started and which unearthed what really caused the shares of that great company to fall from their high price of $127 per share to $20 a share—about the present price. This was the straw that broke the camel’s back and caused an entire breakdown of confidence; which is usually the major part of the foundation of credit. The undermining of this caused the closing of the doors of the Knickerbocker Trust Co. Then a state of chaos ensued and bedlam broke loose, and almost everybody in Wall Street stood aghast wondering what would happen next.
As I have faithfully presented my side of the case to you, in a crude way, I ask you, as though you were impaneled on a jury, the question: Why should all the blame of producing the recent panic be laid to President Roosevelt? The real causes of all the trouble can be summed up as follows: (1) The high finance manipulation in advancing stocks to a 3½ to 4 per cent basis, while money was loaning at 6 per cent and above, on six and twelve months’ time on the best of collaterals; (2) capital all over the nation having gone largely into real estate and other fixed forms, thereby losing its liquid quality; (3) the making of injudicious loans by the Knickerbocker Trust Co., hence suspension; (4) the unloading by certain big operators of $800,000,000 of securities, following which were the immense sales of new securities by the railroads; (5) the California earthquake, with losses amounting to $350,000,000; (6) the investigation of the life insurance companies; (7) the Metropolitan Street Railroad investigation; (8) the absurd fine by Judge Landis of $29,400,000 against a corporation with a capital of $1,000,000; (9) the Interstate Commerce Commission’s examination into the Chicago & Alton deal and the results thereof.
These were substantially the causes which led up to and really brought about our present disastrous condition. Did President Roosevelt do any of these things? Not one of them. But Governor Hughes was the brilliant investigator of the life insurance companies, and also unearthed the Metropolitan Railroad scandal through being the author of the Public Utilities law. Yet Mr. Roosevelt is condemned by many, while Mr. Hughes is praised by the people all over the country. I ask on this showing if there is any justice in putting the entire blame for the present disturbed state of financial affairs upon President Roosevelt’s shoulders, without including Governor Hughes, as both have been equally engaged in the same reform movement.
I am not willing to affirm that either is to blame, for both have simply done their duly in enforcing the laws, and exposing wrongdoing. How in my opinion the market will turn permanently when the big men of Wall Street commence to take back what they sold, which they can already do at a difference in prices of from 30 to 50 per cent. With the $70,000,000 of imported gold here and on the way from Europe, together with an increase in bank notes, there will soon be no lack of money in this country. What is now wanted is more confidence to increase credits. To import more gold will embarrass London and other foreign money centers. This should be avoided by stopping further gold imports. Cheap money alone will not of course put up stocks. The governing factors will be the state of trade, and net earnings, and the “big men” will be governed by these.
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CHAPTER LXXIII.
RECENT MEN OF MARK.
CHARLES M. SCHWAB.
Born in Pennsylvania, May 30, 1851; rose, from the bottom, to be President of the Carnegie Steel Company, then, on its incorporation, became President of the United States Steel Corporation, but resigned, and later became President of the Bethlehem Steel Company; has large mining interests, especially in Nevada; he travels much, but resides on Riverside Drive, New York, in one of the largest houses in the city, built as an exact copy of a historical French château near Paris.
DANIEL GRAY REID.
Born in Richmond, Ind., August 1, 1858; became Vice-President of Second National Bank there; then went into the tin plate industry, and in 1895 became one of the organizers of the American Tin Plate Company, afterwards merged in the United States Steel Corporation; removed to Chicago in 1897, and to New York in 1899, and was one of the Executive Committee of the United States Steel Corporation when organized in 1901; also became a director and leading spirit in the Rock Island Railway Company in association with the two Moore brothers, William H. and James Hobart, the Chicago reorganization lawyers. All three are now residents of New York.
THOMAS FORTUNE RYAN.
Born in Virginia, October 17, 1851; came to Wall Street in 1870 from Baltimore and the drygoods trade; became prominent in the consolidation and extension of metropolitan street railroads, and also gas and electric light systems here and in Chicago, and in the American Tobacco Company, and later bought control of the stock of the Equitable and the Washington Life Insurance companies; has been director of many other corporations, and is also Vice-President of the Morton Trust Company.
JOHN WARNE GATES.
Born at West Chicago, Ill., 1855; kept a hardware store there; then became salesman in Texas for barbed wire; later established the Southern Wire Company in St. Louis and Braddock Wire Company near Pittsburg; after absorbing two other companies, sold out to Federal Steel Company, which was then absorbed by United States Steel Corporation. He thus acquired great wealth, and became a large operator in Wall Street, and organized the firm of C. G. Gates & Co., now dissolved. After buying control in the open market of the Louisville & Nashville Railway, he sold it to J. P. Morgan & Co.
AUGUST BELMONT.
Born February 18, 1853; son of the late August Belmont, and head of August Belmont & Co., bankers, and New York representatives of the Rothschilds; is President of the Interborough Rapid Transit Company and other corporations; also of the Coney Island Jockey Club and other turf organizations, and keeps up a large racing stable, is also a director in a number of banks and railways and other companies, and politically, like his father, a leading Democrat; is a member of many clubs and associations; graduated at Harvard in 1875, and has a New York residence at 44 East 34th Street, but lives much of the year at his country home at Hempstead, Long Island. He is well known, too, as the financial director of the Belmont Tunnel, across the East River, between New York and Long Island City.
WILLIAM H. MOORE.
Born in Utica, N. Y., October 25, 1848; located in Chicago with his younger brother, James Hobart Moore, in 1873, and both were admitted to the Illinois bar, and practiced as W. H. & J. H. Moore, making a specialty of reorganizing corporations; reorganized the Carnegie Steel Company, and formed the four corporations in “the Moore group” that were absorbed by the United States Steel Corporation; later controlled the Rock Island and other railway and industrial corporations, partly in conjunction with Daniel Gray Reid.
ANTHONY NICHOLAS BRADY.
Born at Lille, France, August 22, 1843; came to the United States with his parents when a child; opened a tea store in Albany in 1864, and afterwards other tea stores there and in Troy; became a promoter and director of gas and electric light corporations in Albany, Troy, Chicago, New York, and other cities, and, later, of street railway companies in Brooklyn and elsewhere; acquired a controlling interest in the People’s Gas Company of Chicago and a very large one in the Brooklyn Rapid Transit Company, into which he merged his Brooklyn companies; is also a large stockholder in the American Tobacco Company and many other industrial companies; resides at 411 State Street, Albany, but his office is at 54 Wall Street.
STUYVESANT FISH.
Son of the late Hon. Hamilton Fish, Governor of the State of New York and Secretary of State in General Grant’s Cabinet. Born June 24, 1851, at New York, N. Y. Educated at Columbia College, New York, graduated 1871. Entered railway service October 1, 1871, after which he, up to June 20, 1872, became clerk in the Illinois Central Railroad, New York office; June 20 to October, 1872, secretary to president of same company; November 1, 1872 to December 31, 1874, clerk with Morton, Bliss & Co. at New York, and Morton, Rose & Co. at London; January 1, 1875 to March 15, 1877, managing clerk Morton, Bliss & Co., holding their power of attorney; December 14, 1876 to March 6, 1879, member New York Stock Exchange; March 16, 1876, elected Director Illinois Central Railroad, and appointed treasurer and agent for purchasing committee New Orleans, Jackson & Great Northern Railroad; November 8, 1877, elected secretary Chicago, St. Louis & New. Orleans Railroad; and March, 1882, vice-president Chicago, St. Louis & New Orleans Railroad; January 7, 1883 to April 2, 1884, second vice-president Illinois Central Railroad; April 2, 1884 to May 14, 1887, vice-president; May 18, 1887 to November 7, 1906, president same road; President American Railway Association April 27, 1904 to April 25, 1906; Chairman Seventh Session International Railway Congress, Washington, D. C., May, 1905. Elected Director of the National Park Bank, March, 1883, and so remains; elected a Trustee of the Mutual Life Insurance Company of New York in the year 1888 and continued as such until February 23, 1906, when he resigned. What Mr. Fish did for the Illinois Central Railroad Company while its President, is shown in the following extract from the London _Statist_, and also in the Annual Reports of the Directors of the Company, which make a marvellous exhibit of Mr. Fish’s able and sagacious management during his long régime:
The Illinois Central is the most important of the systems running north and south between Chicago and the Gulf of Mexico. At one time its prosperity chiefly depended upon the cotton crop; but although this crop still gives it a large traffic, its prosperity has been built up by the acquisition of a large share of the grain and maize traffic. In the old days corn, or maize, was sent through the Western States for shipment _via_ Boston, New York, and Baltimore, but the Illinois Central has now succeeded in diverting a vast portion of it to New Orleans. It now derives its revenue from carrying a large traffic at low rates in competition both with the Eastern lines and with the water transit of the Mississippi; In recent years the Company has built extensions which now enable it to participate in the coal and iron ore traffic required by or originating in the Birmingham iron district. The Illinois Central has always enjoyed good management. In its early days, when the accepted principle of railway working was to charge high rates and to carry very little traffic, its policy conformed to that of other well-managed undertakings. For the past twenty years its policy has changed; it has sought to render to the public the maximum of service for the lowest possible rate. The success of this policy has exceeded all expectations. In the twelve months to June 30th last the Company carried traffic at a lower rate than ever before, and yet obtained a record profit, both actually and relatively to its capital expenditure. This success has resulted from good management, economy of operation, and economy of capital expenditure.