E.B. MORRIS :
Girard Trust Company, president and manager;
The Philadelphia Savings Fund Society, manager ;
The Philadelphia National Bank, director ;
Franklin National Bank, director ;
Fourth Street National Bank, director;
Pennsylvania Fire Insurance Company, director;
The Mutual Assurance Company, trustee;
Commercial Trust Company, director;
The Pennsylvania Railroad Company, director;
Pennsylvania Company (Western lines of Pennsylvania Railroad), director ;
Pittsburg, Cincinnati, Chicago and St. Louis Railroad Company, director;
The Pennsylvania Steel Company, director;
Maryland Steel Company, director;
Spanish-American Iron Company, director;
Cambria Steel Company, chairman and director;
Cambria Iron Company, director;
Mahoning Ore and Steel Company;
Latrobe Steel and Coupler Company, director;
The Keystone Watch Case Company, director;
Penn Traffic Company, director;
Estate of Anthony J. Drexel, trustee;
Estate of Asa Packer, trustee;
Estate of William Bingham, trustee; and
Estate of John Gilber, trustee.
JOHN S. KENNEDY:
Albany and Susquehanna Railroad, director;
Central Trust Company, trustee;
Chicago, Burlington and Quincy: Railway Company, director;
Cleveland and Pittsburg Railroad Company, director;
Hudson Trust Company of New Jersey, director;
Manhattan Company, director;
New York, Chicago and St. Louis Railroad Company, director;
Northern Pacific Railway Company, director;
Northern Securities Company, vice-president and director ;
Provident Loan Society of New York, The, trustee ;
Title Guarantee and Trust Company, The, trustee ; and
United States Trust Company, trustee.
WILLIAM G. ROCKEFELLER:
Brooklyn Union Gas Company, director;
Columbia Bank, director;
Lincoln National Bank of the City of New Fork, director;
National Fuel Gas Company, director ;
New York Transit Ccmpany, director ; and
Union Pacific Railroad Company, director.
American Exchange National Bank, president and director;
Adams Express Company, member board of managers;
Algoma Central and Hudson Bay Railway, director;
American Beet Sugar Company, director ;
American Felt Company, director ;
Audit Company of New York, The, director;
Caledonia Insurance Company, Edinburgh, trustee;
Commercial Cable Company, The, director ;
Commercial Cable Company of Cuba, director;
Delaware and Hudson Company, The, member of board of managers;
Federal Sugar Refining Company, treasurer and director;
Fidelity and Causalty Company, The, director;
Home Insurance Company, director;
Lake Superior Corporation, The, director;
Lawyers Title Insurance and Trust Company, The, director ;
Little Falls and Dolgeville Railroad, director;
Long Island Consolidated Electrical Companies, The, director;
Long Island Railroad Company, director ;
Mackay Companies, The, trustee;
Mutual Life Insurance Company of New York, The, trustee;
Nem York, Brooklyn and Manhattan Beach Railway Company, director;
New York Clearing-House Building Company, director;
Norfolk and Southern Railway Company, director ;
Orange National Bank, director;
Press Publishing Company, trustee;
Swift & Co., director;
United States Mortgage and Trust Company, director;
United States Safe Deposit Company, director ;
Vacuum Cleaner Company, director; and
Washington Life Insurance Company, The, director.
American Stone Company, president and director ;
Black Butte Coal Mining Company, president and director;
Butte Electric Railway Company, president and director;
Clark Coal Company, president and director;
Clark-Montana Realty Company, president and director ;
Colusa-Parrot Mining and Smelting Company, president and director ;
Empire Cattle Company, president and director;
Henry Bonnard Bronze Company, vice-president and director;
Herald Publishing Company (Salt Lake City), president and director;
John Caplice Company, director;
Las Vegas and Tonopah Railroad Company, director ;
Los Alamitos Sugar Company, president and director;
Los Cerritos Company, president and director ;
Mayflower Consolidated Mining Company, director ;
Mayflower Mining Company, president and director;
Miner Publishing Company (Butte, Mont.), director;
Missoula Light and Water Company, director ;
Missouri River Power Company, director;
Montana Hardware Company, director;
Montana Land Company, president and director;
Moulton Mining Company, president and director;
Natural Mineral Water Company, president and director;
Nevada First National Bank of Tonopah, director ;
Ophir Hill Consolidated Mining Company, president and director;
Original Consolidated Mining Company, president and director;
Original Mining Company, president and director;
Pyrenees Gold and Silver Company, president and director;
San Pedro, Los Angeles and Salt Lake Railroad, president and director;
Sunset Mining Company, president and director;
T.F. Miller Company (Jerome, Ariz.), director;
United Verde and Pacific Railway Company, president and director;
United Verde Copper Company, president and director;
Utah Realty Company, director;
W.A. Clark & Bro., president and director;
W.A. Clark Realty Company, president and director;
W.A. Clark Wire Company, president and director;
West Mayflower Mining Company, director;
Western Lumber Company, president and director; and
Western Montana Flouring Company, president and director.
Mr. La Follette. The twenty-three directors of the National City Bank, the head of the Standard Oil group, and the directors of the National Bank of Commerce, thirty-nine in number, hold 1,007 directorships on the great transportation, industrial, and commercial institutions of this country.
Let me go a step further with respect to the Standard Oil bank in order to show how this mighty power that dominates the life of the American people to-day—and I will ultimately show its relation to the bill which has been reported here—notwithstanding the dexterous withdrawal of the proposition to incorporate railroad bonds into our currency system.
Mr. ALDRICH. Mr. President——
The VICE-PRESIDENT. Does the Senator from Wisconsin yield to the Senator from Rhode Island ?
Mr. La Follette. I certainly do.
Mr. ALDRICH. I, of course, do not like to take up the time of the Senator from Wisconsin, but he may not be aware of the fact, and therefore I think perhaps I had better make the suggestion at this time. Among the first suggestions of opposition to this bill and the most earnest objection was that made by the National City Bank, of the city of New York, and Mr. Vanderlip, its vice-president, did at that time and has continuously since opposed the measure. This measure is opposed not only by the National City Bank of New York, but by all the banks in the city of New York.
I have before me, received this morning, a statement made by the chairman of the New York Clearing-House Association, saying it is better to have no legislation at all than to pass this bill, and stating the reasons why we should have a currency based upon the assets of the banks, and the reasons why he is in favor of a bill that is pending elsewhere. I know of no bank or bank man who is in favor of this bill. The fact is that the banks throughout the country are against it; and the Senator from Wisconsin has studied this situation to little effect if he has not found that out.
POWERS BEHIND THE LEGISLATION.
Mr. La Follette. I will inquire of the chairman of the Finance Committee what is the position of Mr. Morgan upon this proposition ?
Mr. ALDRICH. I do not know what Mr. Morgan’s position is, but I do know that Mr. Morgan is a man of wide experience, a man of patriotism and of wise judgment, and I should feel highly gratified if I thought Mr. Morgan approved this bill in all its features.
Mr. La Follette. Mr. President, perhaps in some indirect way the chairman of the Committee on Finance will be able to find out where Mr. Morgan stands. But his beaming countenance from the galleries of this Chamber while the Senator from Rhode Island was making his speech would rather indicate that Mr. Morgan, the head of one of these great groups, was not entirely adverse to the propositions embraced in this bill.
Mr. ALDRICH. Mr. President——
The VICE-PRESIDENT. Does the Senator from Wisconsin yield further to the Senator from Rhode Island ?
Mr. La Follette. I do.
Mr. ALDRICH. I suppose the Senator from Wisconsin and every other Senator will agree with me that this proposition should be discussed upon its merits and be judged by what it is and what it proposes to do and not by the opinion of Mr. Morgan or anybody else as to the bill.
Mr. La Follette. Let me say to the Senator from Rhode Island that you can not always tell the merits of a proposition solely from the printed lines. I shall show before I have finished that the withdrawal of the railroad-bond feature of this bill throws a flood of light over the intent and purpose of this legislation.
Let me say to the Senator from Rhode Island, further, that it is not impossible to conceive that this great organization which is controlling the industrial and commercial life of the American people, which is engineered and directed by the best intellects in America, might put out here and there newspaper interviews to make it appear if possible that there is no organized power behind this legislation.
I do not know Mr. Vanderlip, to whom attention has been called by the Senator from Rhode Island. He may be a most eminently fair man. I do know that he has given public expression to the fact that he is not in accord with this legislation. I do know that he is vice-president of the National City Bank. I do know that he is in favor of a central bank, and I do know that some other men connected with these great institutions are. Mr. President, there might be a choice. I can conceive that there may be more than one way in which the organized money power of this country can be strengthened. A central-bank system might be quite as useful, perhaps more useful, than the legislation proposed by this bill.
But I think the Senator from Rhode Island will have to do more than cite a few names to disprove the evidence which I shall present before I conclude showing that these few men whom I have named dominate and control the business and industrial life of this country against the interest of the great mass of the people, and that the effect of this legislation, if enacted, will be to build up and strengthen and fortify this mighty power at the expense of the people.
CONNECTIONS OF NATIONAL CITY DIRECTORS.
But let me revert to the directorate of the National City Bank, remembering that there are twenty-three directors.
Fourteen of the directors of the National City Bank are at the head of fourteen great combinations representing 38 per cent of the capitalization of all the industrial trusts of the country.
The railroad lines represented on the board of this one bank cover the country like a network. Chief among them are the Lackawanna, the Chicago, Burlington and Quincy, the Union Pacific, the Alton, the Missouri Pacific, the Chicago, Milwaukee and St. Paul, the Chicago and Northwestern, the Rock Island, the Denver and Rio Grande, the Mexican National, the Baltimore and Ohio, the Northern Pacific, the New York Central, the Texas and Pacific, the Erie, the New York, New Haven and Hartford, the Delaware and Hudson, the Illinois Central, the Manhattan Elevated of New York City, and the rapid-transit lines of Brooklyn. These same twenty-three directors, through their various connections, represent more than 350 other banks, trust companies, railroads, and industrial corporations, with an aggregate capitalization of more than twelve thousand million dollars.
That is a part only of what is behind the directorate of the National City Bank of New York, the head of only one of these groups.
RESERVES ARE MASSED IN NEW YORK.
It was inevitable that this massing of banking power should attract to itself the resources of other banks throughout the country. Capital attracts capital. It inspires confidence. It appeals to the imagination. Added to this the forces back of these controlling groups could offer tempting interest rates and, finally, the Federal legislation would almost seem to have been enacted to augment this power.
The law providing that 15 per cent of the deposits of a country bank should be held for the protection of its depositors conveniently permits three-fifths of the amount to be deposited in reserve city banks, and of the 25 per cent of reserve for the protection of depositors in reserve city banks one-half may be deposited with central reserve city banks. As there are but three central reserve cities, one of which, of course, is New York City, the alluring interest rates which these all-powerful groups could offer inevitably tended to draw the great proportion of lawful reserves subject to transfer from the country and reserve banks.
Consider the number of country banks for which these larger banks are the approved reserve agents, and the way the system has been worked to gather up the money of the country by these big group banks can be understood. One Standard Oil bank is approved agent to receive deposits of lawful money reserves from 1,071 national banks scattered over the country. Another bank of the same group receives reserve deposits from 1,802 country banks, and another from 478. A leading Morgan group bank receives deposits from 909 outside banks, and another from 615, and still another from 1,333.
The system has been operated to gather constantly increasing millions, belonging to the depositors of other banks throughout the country, into the great national banks of New York.
In 1896 the Treasury Department began publishing the abstract of the condition of national banks in circular form five times a year. This statement shows the amounts due from the national banks of New York City to the other financial institutions of the country. From the date of the first circular, December 17, 1896, to the last report, February 14, 1908, the net balance due from New York City national banks to other national banks of the country had increased from $115,756,274 to $232,960,362, an increase of $117,204,088, or more than 100 per cent.
The power which the New York banks derive through these vast accumulations of the resources of other national banks strengthen their position so that they could draw in the surplus money of all the other financial institutions of the country, State, private, and savings banks and trust companies. The growth in the net balance due these institutions from the New York national banks in recent years is even more astounding than the increase of their deposits from the other national banks. Beginning with $58,461,256 in 1896, it grew to $227,088,130 in 1908, almost a fourfold increase. The net balance which the national banks of New York owed all the other financial institutions of the country increased in the same period of time from $174,217,530 to $460,048,493.
On August 22, 1907, the last call before the panic, the New York banks owed the other banks of the country a net balance of over $410,000,000. The report for December 3 shows a reduction of the balance to about three hundred and eighty-eight and a half million. With all the pressure that they could bring to bear on New York national banks, the other banks of the country were unable to withdraw in time of great need more than about twenty and a half millions, or about 5 per cent of their deposits in New York. They would have been unable to withdraw even this amount had not the Treasury increased United States deposits in the national banks of New York during this period over $47,000,000.
EVIDENCE OF SPECULATION BY BANKS.
The ability of these group banks of New York through their connected interests to engage in underwriting, to finance promotion schemes, where the profits resulting from overcapitalization represent hundreds of millions of dollars, places them beyond let or hindrance from competitors elsewhere in the country. Their ability to take advantage of conditions in Wall street, even if they did not create these conditions, forcing interest rates on call loans as high as 150 per cent, would enable them to command, almost at will, the capital of the country for these speculative purposes.
But one result could follow. Floating the stocks and bonds in overcapitalized transportation, traction, mining, and industrial organizations does not create wealth, but it does absorb capital. Through the agency of these great groups hundreds of millions of dollars of the wealth of the country have been tied up. Other hundreds of millions have been drawn upon to supply these great speculating groups in their steadily increasing Wall street business.
Direct evidence of the speculative character of banking in Wall street, not only by those houses which are familiarly recognized as speculative houses, but of the speculative banking which is done by national banks, is contained in the testimony of George S. Baker, president of the First National Bank of New York City, which was given before the Armstrong committee September 14, 1905. I shall refer to the banking connections of Mr. Baker later. The Armstrong committee secured the testimony of Mr. Baker for the reason that he was at that time a member of the directorate of the Mutual Life Insurance Company and of the finance committee of that organization. He was at the same time president and a member of the board of directors of the First National Bank of New York City.
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I have traced this afternoon in what I have had to say the centralization of the industrial, transportation, and commercial business of the country. I have shown its relation to bank concentration. Now, Mr. President, I shall show from official records the relation of the control of these great banks to speculation in Wall street.
I quote from Mr. Baker’s testimony, beginning on page 624 of the Armstrong report :
Q. Now, Mr. Baker, we all appreciate your position in the community and the value of your opinion on such matters as these, and we would be very glad to hear what you have to say as to the advisability of an insurance company going into syndicate operations. —A. Well, it generally enables the insurance company to get bonds at a cheaper price than it otherwise could.
Q. That would be the only justification ? —A. I think that is the only thing that occurs to my mind now.
Q. Is it necessary for an insurance company, with the funds at its command to such an extent as the Mutual Life Insurance Company, to take bonds through syndicates ? Couldn’t it get them directly at groundfloor prices ? —A. I don’t believe they could, sir.
Q. Suppose it were known that the Mutual Life and the Equitable Life and the New York Life would take bonds directly from the railroad companies that wanted to borrow money, don’t you suppose they could get as advantageous a price as they could through any banking house ? —A. If it was a small issue, I think they could; but the recent issues you were speaking of—the Pennsylvania three-hundred-million loan—those three companies wouldn’t want to take so large a block as the bankers could take.
Q. And, of course, if the bankers undertook the flotation they would want to control the entire issue ? —A. Yes, sir.
Q. And it would be to the interests of the railroad company to make an arrangement satisfactory to the bankers ? —A. They always seem to think so.
Q. The effect would be that the bankers would get the control of the issue, and then to get in, the insurance companies would have to deal with the bankers ? —A. Practically.
It is to be borne in mind that in this transaction the bank controls the bond syndicate. It is to be borne in mind that the bank president of the national bank is also one of the finance committee of the insurance company to be dealt with.
Q. That is about the way it usually is, isn’t it ? —A. Yes, sir. And the bankers generally let the insurance companies in on what might be called the hardpan business.
Q. They let them in if there is an original syndicate, afterwards a purchasing syndicate on the original syndicate basis ? —A. That is a thing governed by the banks.
They might let them in and they might not. They are trading with themselves. The bankers are running this syndicate to get the profit out of it. They are on the official boards of the insurance companies with which they are dealing.
Q. The bankers consider it will help the flotation if institutions having a reputation for conservatism would help the thing by taking a large block ? —A. I don’t think they would let them in it if they didn’t.
The whole transaction is shown to be, by the admissions of this witness, one of which self-interest is the controlling thing; and remember, Mr. President, that this witness is one of the custodians of the funds of a great national bank. He was asked by the examiner whether the relation of the Mutual Life Insurance Company to the matter did not enter into his thoughts at all. His answer was, “Not in the slightest degree.”
To quote further from the testimony :
Q. In other words, it is an aid to the flotation to have a subscription from an insurance company, isn’t it ? —A. Yes, sir.
Q. It is a large help to the dealings between the bankers and other investors; it helps them on the public offerings ? —A. Yes, sir.
Q. And then, when they are put on the public offerings and the insurance companies buy at the issue price, that is a great help to the market, isn’t it ? —A. Yes, sir.
Q. Now, the question has been mooted of late, although it apparently a little while back didn’t receive any attention, as to the participation of those who deal with the mutual life insurance companies and refunds of other companies in syndicate operations that sell for their own benefit. You have heard practically the question that I have put to the other gentlemen upon the stand. Have you been a participator yourself in the syndicate ? —A. Yes, sir.
Q. In syndicates in which the Mutual Life was also a participator ? —A. Yes , sir.
Q. Did that in any way affect your judgment on any matter coming before you as a trustee of the Mutual Life ? —A. Well, that came to me entirely through my business with the First National Bank, and never had any connections, either directly or indirectly, in any way, shape, or manner, with the Mutual Life.
Q. I see. You, as an officer of the First National Bank, were in a position to know of the syndicates and to get opportunities in syndicates ? —A. Yes, sir.
Q. And the relation of the Mutual Life Insurance Company to the matter didn’t enter into your thought at all ? —A. Not to the slightest degree.
Q. At the same time the fact remained that you and the Mutual Life Insurance Company were participators in several syndicates together ? —A. I presume that is the fact.
Mr. Baker later furnished a list of the syndicates in which he personally participated, and in which also the Mutual Life Insurance Company was a participant. The value of this testimony lies in the fact that it gives clear and unmistakable proof that the First National Bank was in the speculative market. It is followed immediately in the Armstrong report by the testimony of Frederick Cromwell, the treasurer of the Mutual Life Insurance Company. He says :
You were asking me, Mr. Hughes—I heard you asking them, and I think you did me—whether it was necessary to buy bonds of these syndicates or whether we could not buy them from the railroad company. I think it is wise for me to say this—perhaps it is saying too much—that a few years ago I was convinced that we could buy of the railroad company. We had a peculiar relation with some of them, and were large stockholders, but I found it impossible. I might as well mention one instance. I went to my personal friend, Mr. Stuyvesant Fish. We had at that time four of their directors on our board. I said to Mr. Fish, “See here; this thing can not go along any further; it is time for us to buy our bonds of you directly——
Q. You are talking now of the Illinois Central ? —A. Yes; the Illinois Central, and he said he could not afford to sell the Mutual Life bonds, and I could see the justice of his remark when he explained it, that it was a necessity for his railroad to do their business through banks en bloc, it could not afford to take them to single buyers, and he must keep up his associations with the bank.
Q. So the railroads must keep in with the banks in order to float their bonds ? —A. They have to; yes, sir.
Q. And the insurance companies must keep in with the banks in order to get the investments they want at low prices ? —A. Yes, sir.
Q. So the banks control the situation ? —A. There is no question about it. I went once to the St. Paul Railroad and remonstrated very much because they had made an issue and did not let me know first, and I got a reply which was not at all satisfactory. You can understand their reasons. I can, at any rate. And I say that to defend my statement that we had to buy through the syndicate.
Q. What do you think their reason is ? —A. To keep a market for the bonds. An attempt was made two or three years ago by the Pennsylvania Railroad to make a large flotation through its stockholders, and there never was, for its size, such a lamentable failure, and they went around with their hats in their hands to Kuhn, Loeb & Co. and Speyer & Co., and they put the enterprise through.
Mr. Baker’s and Mr. Cromwell’s apparent innocence of anything wrong in these transactions is perhaps more significant than the transactions themselves. The absence of any sense of business responsibility or of business integrity is more appalling than conscious and willful violation of the business standards of honorable men.
Mr. BEVERIDGE. Will it interrupt the Senator to ask him a question ?
The VICE-PRESIDENT. Does the Senator from Wisconsin yield to the Senator from Indiana ?
Mr. LA FOLLETTE. Oh, certainly.
Mr. BEVERIDGE. Purely for information, as the Senator knows. Is it the Senator’s position that the national banks ought not to be permitted to invest in any securities at all ?
Mr. La Follette. I am attempting, let me say to the Senator from Indiana, to present to the Senate the conditions actually as they exist—what the remedies may be is a matter for further discussion. I believe that the evidence is overwhelming of the connection of certain great bank groups, in which the greatest national banks of this country are a dominant power, with industrial and transportation combinations, the securities of which under this bill were to be made a basis of issuing circulating notes. I believe that the development of these connections and this relationship is a very important matter in the consideration of this legislation. Surely a national bank ought not to be allowed to underwrite or invest in securities of corporations in which the officers and directors of the bank are primarily interested and when the transactions are primarily for the benefit of such officers and directors, or others who may control them, and not for the benefit of stockholders or depositors of the bank.
Mr. BEVERIDGE. I shall not interrupt the Senator further. He is making a very lucid and powerful statement upon precisely the point he makes. The question did occur to my mind right in that connection, because it is a subject of considerable dispute as to whether banks ought to be permitted to invest in these securities at all, on the one hand, or whether, upon the other hand, they should be confined to receiving deposits and loaning them. I merely wanted to ask the Senator as to whether he had arrived at any conclusion at all on that point, and then I would follow it up by one or two other questions. But I will not interrupt the Senator. I will let the Senator go on with his statement.
Mr. La Follette. I will say that the question suggested by the Senator will receive some further attention later on in my remarks.
Mr. President, the relationship between the legislation pending and the discussion which I am attempting to make focuses itself just at this point, that the control of these great banks is in the hands of these men who are interested in a speculative way in corporate securities and who, at the same time, are the custodians of the deposits, not only of individual depositors, but the deposits of reserve money of the banks all over the country.
BANKERS IN THE ALTON DEAL.
The Chicago and Alton deal is an instance of the participation by the men in charge of New York’s great financial and trust institutions in Wall street flotation and stock-jobbing schemes. In that instance Mr. Harriman, as stated in his testimony a year ago before the Interstate Commerce Commission, got together three New York bank officers and directors, Mr. Mortimer Schiff, Mr. George J. Gould, and Mr. James Stillman, and organized a syndicate to acquire the stock of the Chicago and Alton Railroad.
Mr. Mortimer Schiff, of the firm of Kuhn, Loeb & Co., was a director of the Mercantile Trust Company, of the Provident Loan Association, and the United States Loan and Trust Company, one of the principal Standard Oil financial institutions. George J. Gould, the director of the National Bank of Commerce, the great Morgan institution, and James Stillman, the financier of the Standard Oil institutions, the president of the National City and the director of the Bank of the Metropolis, Bowery Savings Bank, Columbia Park, Farmers’ Loan and Trust Company, the Fidelity Bank, the Fifth Avenue Safe Deposit Company, the Hanover National Bank, the Lincoln National Bank, the National Butchers and Drovers’ Bank, the New York Trust Company, the Riggs National Bank of Washington, the Second National Bank of New York, and a member of the clearing house committee of the New York Clearing House Association. These, with Mr. Harriman, were members of a syndicate.
The syndicate was successful, and these gentlemen became, in the words of Mr. Harriman, “The Chicago and Alton Railroad.” When they got control of the property the capital stock was $22,000,000 and bonded debt about eight and a half millions. They mortgaged the property and issued about $40,000,000 of bonds. As officers of the Chicago and Alton Railroad they sold these bonds to themselves at 65 cents on the dollar. Then as individuals they turned about and sold the bonds at a profit of about $300 apiece, principally to insurance companies and trust institutions which they controlled. Of the amount realized to the Chicago and Alton Railroad Company on the sale of the bonds Messrs. Harriman, Stillman et al. paid about seven millions to themselves, under the name of a 30 per cent dividend to stockholders.
Mr. Harriman sought to justify these operations before the Commission by pointing out that the previous management had made extensive improvements out of income. I quote from the testimony :
Mr. KELLOGG. Is it not a fact that from year to year, during the management of the prior Chicago and Alton, whatever had been charged against its income and spent upon the road had been closed each year by the board of directors ?
Mr. HARRIMAN. I presume so, but under the former management the Chicago and Alton was drying up very fast, and so was the railroad itself.
Mr. KELLOGG. It certainly has not dried up since.
Mr. HARRIMAN. No, sir; it has not.
Mr. KELLOGG. There was water enough to satisfy anybody.
Mr. HARRIMAN. Yes; and business enough to satisfy.
Mr. KELLOGG. Would you think distributing $6,669,000 as a 30 per cent dividend to the stockholders, who had already had 8 per cent, would prevent it from drying up ?
Mr. HARRIMAN. Combined with the other methods of financing which were adopted by the Chicago and Alton ; yes.
The bonds issued out of these nefarious manipulations were made eligible for deposit to secure Government deposits. Although the railroad-bond proposition has disappeared for the time being, I pause just a moment to repeat that the bonds growing out of these nefarious manipulations are not only eligible but large amounts of them have been accepted and placed in the Treasury to secure deposits of Government money. They are first-mortgage bonds, legal for savings bank investment in New York and Massachusetts. They would be eligible to secure circulation under this bill, as the bill stood and was contended for by its friends up to almost the present moment, as soon as the dividends could be fixed up. They are first-mortgage bonds at the rate of about $85,000 per mile, or about three times the average value of railroad property in the country.
FINANCIAL BANKING SUPPLANTING COMMERCIAL BANKING.
The plain truth is that legitimate commercial banking is being eaten up by financial banking. The greatest banks of the financial center of the country have ceased to be agents of commerce and have become primarily agencies of promotion and speculation. By merging the largest banks, trust companies, and insurance companies masses of capital have been brought under one management, to be employed not as the servant of commerce, but as its master; not to supply legitimate business and to facilitate exchange, but to subordinate the commercial demands of the country upon the banks to call loans in Wall street and to finance industrial organizations, always speculative, and often unlawful in character. Trained men, who a dozen years ago stood first among the bankers of the world as heads of the greatest banks of New York City, are, in the main, either displaced or do the bidding of men who are not bankers, but masters of organization.
The banks which were then managed by bankers as independent commercial institutions are now owned in groups by a few men, whose principal interests are in railroads, traction, telegraph, cable, shipping, iron and steel, copper, coal, oil, gas, insurance, etc.
This subversion of banking by alliance with promotion and stock speculation is easily traced.
There was every inducement for those who controlled transportation and a few great basic industries to achieve control of money in the financial center of the country.
The centralization of the banking power in New York City would not only open the way for financing the reorganization and consolidation of industrial enterprises and of public utilities throughout the country, but would place those in authority where they could control the markets on stocks and bonds almost at will.
With this enormous concentration of business it is possible to create, artificially, periods of prosperity and periods of panic. Prices can be lowered or advanced at the will of the “System.” When the farmer must move his crops a scarcity of money may be created and prices lowered. When the crop passes into the control of the speculator the artificial stringency may be relieved and prices advanced, and the illegitimate profit raked off the agricultural industry may be pocketed in Wall street.
If an effort is made to compel any one of these great “Interests” to obey the law, it is easy for them to enter into a conspiracy to destroy whoever may be responsible for the undertaking.
STORY OF THE PANIC.
I have placed before you the record evidence that less than one hundred men own and control railroads, traction, shipping, cable, telegraph, telephone, express, mining, coal, oil, gas, electric light, copper, cotton, sugar, tobacco, agricultural implements, and the food products, as well as banking and insurance. Does anyone question the overcapitalization of these consolidated corporations which cover the business of the country ? Does anyone doubt the community of interest that binds these men together ? Does anyone question their vital interest in maintaining their overcapitalization and protecting their stocks and bonds ? Does anyone doubt their hostility to the declared policies of President Roosevelt, and the progressive movement throughout the country, and their readiness, nay, their determination, to make an end of it at any cost ? Was this not made abundantly manifest during the summer of 1907 ? The White House was not far wrong when it gave out the information that a great fund had been pledged to block any third-term possibility.
To get the true perspective of more recent events, let us go back a little. If we would find the underlying cause for the convulsions that have taken place on the stock exchange, culminating in this demand for emergency currency and the acceptance of railway bonds as a basis for currency issue, follow the operations of these men and the great groups they have formed as traced in Wall street for the last three years. It is a blending of the control of business and legislation and politics.
In 1904 these financial groups joined in a big bull movement upon the stock markets. They had forced expansion in business everywhere. Their reorganization schemes had been repeated until the trading public was intoxicated with speculation. None of the sensational disclosures through investigations by committees and departments through the Interstate Commerce Commission, and the courts had yet taken place. Expansion was in the air. It was “good hunting.” The times were right for a “great killing.” The bull movement was carried through 1904 and into 1905 with great success. The call loans on Wall street collateral, nearly all of which were handled by group banks, reached high-water mark. But some of the lesser individuals fell into squabbles over the control and spoils of the Equitable Life Insurance Company. The fight waxed hot and reckless, and the country was startled with the revelations. The scandal spread. It involved the Equitable Life, the Mutual Life, the New York Life, the banks of the Morgan group, and banks of the Standard Oil group. Morgan and his associates made furious effort to suppress investigation, but the public demand forced it upon Governor Higgins, and the Armstrong committee began its work. It disclosed the relations existing between insurance companies and banks and railroads and industrial organizations, and the use of hundreds of millions of money held in trust upon which the big men of the big groups, bankers and all, were drawing, in violation of every principle of honesty in the administration of trust funds.
The effect of these disclosures upon the stock market could not be averted, though the good offices of the Treasury Department were sought and, to some extent, secured. There was scurrying to and fro.
Nineteen hundred and six had been ushered in. President Roosevelt was pressing upon Congress for railway rate legislation, urging that the wrongful aggressions of capital be curbed, urging his Department of Justice to prosecute violators of the law, announcing the novel doctrine that criminal statutes were for the rich as well as the poor, and throughout the country an awakened public conscience demanded an honest administration of the corporations controlling business and a release of the capital and surplus of the nation by the great controlling groups. The master organizations put forth all their efforts to stay the downward trend in Wall street and to stimulate a lagging market.
This is history, Mr. President. They forced dividend payments. They made them extravagant. The Baltimore and Ohio, the Pennsylvania, the Santa Fe, the New York Central, the Union Pacific, the other companies declared dividends lavishly. It was not so difficult. The traffic of the country paid for it all. The stock market responded and stocks took new high records. Determined to outface appearances, the groups ordered a new issue of stocks. In the last half of 1906 not less than $500,000,000 of railway stocks alone were thrown upon the market, dividend issues keeping step with stock issues. It was designed to betoken a carnival of prosperity. It was expected that the country investors would respond in the old way and their money be drawn into this financial center to prop it up. But the public did not come in. Railroad securities had fallen into disrepute. Watered when the roads were built, watered when they were merged into systems, watered again when the systems were grouped, railroad stocks and bonds were regarded by the public with a suspicion bordering on contempt. Morgan and Rockefeller and Harriman and Hill were almost daily making some new move in the great game, but the public had one answer : “It is water; more water.”
Finally, in the early part of 1907, the foreign markets showing distrust in our securities, the resources of trust companies and banks likewise showing the strain, the deposit bill of March 4, 1907, was crowded through this body in the closing days of the last session, furnishing the money of the Government free of interest to the national banks. It was not a drop in the bucket. Stocks had to go down. The market collapse of March, 1907, came with a smash. Union Pacific dropped $40,000,000 in a single day. Reading, Amalgamated Copper, and Steel followed. Says one financial writer, in two days “stocks traded in on Wall street shrunk more than $1,800,000,000. What this means may be understood from the fact that it is equal to the value of the entire export trade of the United States in 1906.”
But the country was prosperous. Its tremendous power of production, distribution, and consumption was again demonstrated. Credit readjusted itself. Commercial transactions took their accustomed way. The banks, engaged in what may well be termed “legitimate banking,” resumed normal relations to commerce and trade.
In the meantime Wall street had been thinking. The loss of public support was a revelation to its financial bankers, underwriters, promoters, industrial chiefs, and brokers. But they had learned their lesson. It was burned into them as with a hot iron that the kind of business which they were conducting had forfeited the confidence of the country; that there must be new sources of money supply for critical periods in their operations, or their operations must cease. Not that the stock exchange has not its legitimate function in the business of the country. That is one thing. Conscienceless promotion schemes in which are employed the trust funds of banks and insurance companies to consolidate and control the industrial, transportation, and banking business of the country is another. And it is one of the perils of the high finance which has taken possession of business that once expansion and overcapitalization had been wildly indulged those in control dared not call a halt. They have climbed too high to hazard a stop or a look back, much less to undertake to reach a solid business basis.
But inflation and speculation must have its money supply. The country had refused further support. There was one thing left. The Public Treasury—the last desperate recourse. The want of elasticity in the currency system of the country was seized upon as a scapegoat and as a means to an end.
Mr. President, our currency system has its faults. Want of elasticity is one of them. But no currency system which any enlightened nation ever provided was invested with an elasticity which would, at the same time, be safe for current commercial demands and meet the inflation of values and the chicanery of financial banking to which the country had been treated for nearly ten years. Why, sir, in half that time securities were authorized approaching seven thousand millions, nearly one-third of which was authorized in 1907.
But it was necessary to prepare the country for such a scheme as fitted the requirements of the special interests represented in the great central groups of New York banks, trust companies, transportation companies, and independent organizations. The country must be given a shock. Country banks must be made to feel the pinch. The interests were angry. They had suffered from agitation, from investigation, and were otherwise humiliated. They had been fined, and other cases were pending. The President had spoken at Indianapolis, and it was evident that something respecting railway valuation was in his mind. The situation warranted, nay, demanded, extreme treatment.
Sir, can any sane man doubt the power of a little group of men in whose hands are lodged the control of the railroads and the industries, outside of agriculture, as well as the great banks, insurance, and trust companies of the principal money center of the country, to give commercial banking and general business a shock at will ? Having the power, did they not have reasons (purely selfish reasons, it is true), but reasons sufficient to cause them to exercise that power in their own interest ? They could even turn it to their advantage financially. From 1904 to 1906 the interests had disposed of enough stocks at artificially created prices to make it profitable to drop these same stocks and bonds still lower, taking them in finally at a profit to themselves. Owning the controlling interest of their own securities, prices are largely a matter of manipulation. They can be lowered and raised at will, damaging only the outsider who is caught “long” or “short” for the time being.
Taking the general conditions of the country, it is difficult to find any sufficient reason outside of manipulation for the extraordinary panic of October, 1907. It is true that earthquake and war had destroyed some of the wealth of the world. But look for a moment at the general business condition of this country.
The agricultural production of 1907 was a little less than 1906, but the prices were better. The farm value of the total crop of 1907 exceeded that of the previous year by $482,739,929.
The year’s business for the United States Steel Corporation was larger in 1907 than any other year in its history.
The operating railroads of the country reporting to the Interstate Commerce Commission showed an increase in net earnings for 1907 over 1906, amounting to $260,147,835, an increase in net earnings per mile of $239.
The balance of trade was with us. The excess of exports over 1907 was over $500,000,000.
Five hundred and sixteen national banks were organized for the year ending October 31, 1907, as against 455 for 1906.
The deposits in all banks aggregated $13,099,635,348, an increase over 1906 of $883,867,682. The gain in deposits of 1907 over 1906 was greater than for 1906 over 1905.
August 22, 1907, the aggregate of national-bank capital was $896,451,314; the highest point ever reached in the history of national banks.
The total amount of cash held by all banks reporting in June, 1906, was in round numbers one thousand million; in 1907 it was eleven hundred million, a gain for 1907 in round numbers of $100,000,000.
The total number of State, private, national bank, and trust company failures in 1904 was 122; in 1905, 79; in 1906, 45; in 1907, 41.
There were no commercial reasons for a panic. There were speculative, legislative, and political reasons why a panic might serve special interests. There were business scores to settle. There was legislation to be blocked and a currency measure suited to the system to be secured. There was a third term to be disposed of and policies to be discredited.
A panic came. I believe that it needs only to be followed step by step to show that it was planned and executed, in so far as such a proceeding is subject to control, after once in motion. Such a statement without support in facts warranting it would deserve condemnation. To withhold such a statement, to shrink from plain speech setting forth the facts in so far as they can be uncovered in the discussion of this legislation would be to shirk a plain public duty.
Mr. President, I will join in no denunciation of any honest business, whether conducted in Wall street or elsewhere. Neither will I forbear to present and discuss facts relative to speculation in Wall street, because it may be criticised as abuse for political reasons. The operations of Wall street, the greatest banking and money center in the Western Hemisphere which influences national credit, puts the national banking business of the country on the verge of financial demoralization, threatens to stampede Congress and force lopsided emergency legislation, ought to be closely scanned and fairly and fearlessly discussed.
On the one hand, no authority has been able to assign more than vague reasons for a financial panic in October, 1907. On the other hand, in the midst of general prosperity, increasing bank deposits, increasing bank capitalization, diminishing bank failures, increasing railroad business, increasing production of pig iron, that unfailing barometer of business vitality, Mr. Hill announces that it will soon be necessary for the Government to lend its credit to railway companies; President Ripley, of the Atchison, predicts approaching business disaster and deprecates investment in States traveled by his lines; the vice-president of the New York Central declares that “no man of ordinary prudence would for a moment think of investing money in a business (railways) against which every man’s hand from the President’s down seems to be raised.” This is but a sample of the prophecies of evil which may be gleaned from the pages of midsummer magazines and periodicals. Newspaper interviews with prominent railway officials designed to intimidate appeared here and there over the country from day to day. Subordinate railway officials and station agents looked solemn. Business was good. Trains were crowded, but something was “wrong.” From the big manufacturer it reaches the smaller manufacturer. It began to be felt among the merchants, and commercial travelers were heard denouncing the President and all assaults upon property. The bank deposits were increasing, but the stock markets were bad.
The panic came. It had been scheduled to arrive. The way had been prepared. Those who were directing it were not the men to miss anything in their way as it advanced. It is worth while in following the progress of the panic at this point to recall the admonitions of Professor Bullock, Mr. Woodlock, Mr. Pratt, and other economic and financial authorities of the consequences which might result from concentration of banking power coupled with speculation and possible collusion.
For a few years there had been developing a minor financial group, now known as the “Heinze-Morse-Thomas group.” It consisted of twelve banks and two trust companies, a consolidated steamship company, the Heinze United Copper Company, with his banking connections in New York and Butte, Mont. Compared with the Standard Oil and Morgan groups it was a small factor. But its steamship company was encroaching on Morgan’s New York, New Haven and Hartford road in the coastwise traffic, and Heinze in a running fight had forced Standard Oil to buy him off at a cost reported at $10,000,000. Morgan was ready to show an affectionate interest in Morse, and Standard Oil was quietly lying in wait for Heinze. It all fitted together like a piece of mosaic. They could discipline the country, arrest further railway legislation, State and national, discredit Roosevelt, dispose of a third term, prepare Congress for emergency legislation, put Consolidated Shipping out of business, and pick up Heinze and United Copper on the way. Morse and Heinze were caught between the big groups.
Suddenly, in the first days of October, somebody (to use a Wall street phrase) began to “smash United Copper on the curb.” The stock broke badly. Standard Oil was getting under way. Doubtless, never suspecting the source, Heinze, through his brother, a member of the stock exchange, and through brokers, bought and bought until United Copper went out of sight, carrying down Heinze’s brother, one firm of his brokers, and involving the Morse-Heinze banks in the crash. Up to this point the panic had been well in hand, but with the revelations following hard upon clearing-house investigations, it slipped its bridle, and the situation assumed a serious aspect. But not for one moment did Morgan or Standard Oil miss the opportunity offered. Morse and Heinze were forced out. They were compelled to reorganize their directorships and substitute semi-dependent Standard Oil men as their successors. They were forced to sell their stocks for what they could get. Morgan attacked Morse’s Consolidated Steamship Company stocks and bonds, and Morse was ultimately forced to surrender his steamship company combine, which he did. They went after the Knickerbocker Trust Company, Charles T. Barney, president, and close ally of Morse’s. It was charged in New York that the interests deliberately started a run on the Knickerbocker. Morgan was appealed to for aid. Morgan, whose plaudits have been sounded here in this Chamber, was in a position to follow carefully every step and phase of this proceeding. In the first place, Mr. Morgan gave out, as reported in Wall street, that the Knickerbocker would be supported if it met the demands of the depositors who had started a run upon it. There was nothing in subsequent events to indicate that there was any sincerity in that promise, but an analysis of every step is convincing to the contrary. Support was not given; it was withheld. After the company, relying upon that pledge, had paid out millions, it was forced to close its doors, and Barney went to a suicide’s grave. Barney was likewise a director in the Trust Company of America, a comparatively new institution, with a few System directors, giving the great groups a semi-interest in the institution, though they have not yet taken it over. The raid on Heinze, Morse, Barnes, et al., and the latter’s directorate connections with the Trust Company of America, caused public suspicion to fall upon it. A strong run was started. This was not on the programme, but as the Vanderbilts, allies of the Standard Oil, were represented on the directorate of the Trust Company of America, Standard Oil was bound to offer some assistance. Though gold and bank notes were ostentatiously piled on the counters to impress depositors, and young Vanderbilt offered as an exhibit of resources and placed at the teller’s window, the excited depositors persisted in demanding their money. Its distant relationship to the group was sufficient to save it in the end.
Conferences over the inside condition of this trust company, however, gave Morgan, owing to his group connections, information that the control of Tennessee Coal and Iron—stock control and pool stock—had been placed with the Trust Company of America by John W. Gates and his associates. In a Wall street panic there is always big game to be bagged. That is one of the uses of a panic. Morgan seized the opportunity for United States Steel. Standard Oil interests were identical with Morgan’s interests in this, and he made it a condition of saving the Trust Company of America, that Gates and the Tennessee Coal and Iron pool sell to him at his price or the Trust Company of America should go on the rocks. The surrender was complete. United States Steel took over Tennessee Coal and Iron, thereby tightening its grip upon the most precious of all the national resources of the country. It was bad for the country, but the trust company was saved and Morgan was glorified.
The Westinghouse Company’s experience affords another striking illustration of the useful purposes of a well-managed panic. Westinghouse was in the way of Standard Oil’s General Electric. Members of the boards of directors of the Standard Oil banks were in a position to exert some influence at the critical moment most harmful to Westinghouse, and he went to the wall.
The panic was working well. The stock market had gone to smash. Harriman was buying back Union Pacific shorts, but still smashing the market. Morgan was buying in short steel stocks and bonds, but still smashing the market. The Morse group had been disposed of. Standard Oil had settled with Heinze. The Consolidated Steamship Company had surrendered to Morgan, and at the same time the interests were disciplining the people. The country banks were begging for their balances. Business was being held up. It was reported that the President had concluded to revise his message to Congress. Railway valuation would be “dropped or so modified as to be harmless.” On the street and in the brokers’ offices the strain of apprehension was intense. In the midst of a Wall street fight, when fear supersedes reason, it is difficult for those who are in it, but not directing it, to determine how much is real, how much is sham. Some of the guns are loaded only with blank cartridges to alarm; some are loaded with powder and ball to kill. The press set it all forth as it appeared on the surface. It portrayed the great financiers hurrying to and fro, setting a prop here, a prop there, holding midnight meetings in Morgan’s library, seeking some way to avert the calamity that threatened prosperity and a nation’s honor. It was a thrilling picture, but it was false. The reporters were not invited to the conferences of the inner circles where sat the men who controlled not only the great banking organizations of New York, but the transportation and business of the country, the men who were behind the panic and would stay its progress when it had served its purpose.
But the panic must be given a fitting finale, a dramatic finish. Standard Oil had suffered a series of mortifying experiences and exposures that were beginning to tell upon the iron nerves of the men who for half a lifetime had seemed utterly hardened and indifferent to public condemnation.
Morgan and others had come out of the United States Steel bond- and-stock-conversion-performance, and the insurance scandals, badly scarred. Both Standard Oil and Morgan were much in need of redemption with the general public. It would be a great stroke of business to wind this panic up with these gentlemen as the saviors of public credit. A carefully elaborated climax, with Morgan and the Standard Oilers as the central figures would invest them with a halo of self-sacrifice and public spirit almost sublime.
The floor of the stock exchange was chosen as the scene for the closing act, October 24 the time.
The men who had created the money stringency, who had absorbed the surplus capital of the country with promotions and reorganization schemes, who had deliberately forced a panic and frightened many innocent depositors to aid them by hoarding, who had held up the country banks by lawlessly refusing to return their deposits, never lost sight of one of the chief objects to be attained. The cause of currency revision was not neglected for one moment. It was printed day by day in their press; it passed from mouth to mouth. The phenomenal interest rates were impressing the public in a way never to be forgotten. High interest rates should be made to plead for emergency money through the telegraph dispatches of October 24 in every countinghouse, factory, and shop in America. The banks refused credit to old customers—all business to new customers. Call loans for money were at last denied at any price. This put operators caught short or long on the rack. It spelled ruin.
For the first time since the panic began 11.30 a.m. arrived with everybody on the floor of the stock exchange wildly seeking money at any price. Interest rates which had for several days ranged from 20 to 50 per cent began to climb higher. Settlement must be made before 3 o’clock. Money must be forthcoming, or the close of the business day would see Wall street a mass of ruins and banks and trust companies on the brink of collapse.
How perfect the stage setting ! How real it all seemed ! But back of the scenes Morgan and Stillman were in conference. They had made their representations at Washington. They knew when the next installment of aid would reach New York. They knew just how much it would be. They awaited its arrival and deposit. Thereupon they pooled an equal amount. But they held it. They waited. Interest rates soared. Wall street was driven to a frenzy. Two o’clock came, and interest rates ran to 150 per cent. The smashing of the market became terrific. Still they waited. Union Pacific declined 104 points in ten sales. Northern Pacific and other stocks went down in like proportion. Five minutes passed—ten minutes past 2 o’clock. Men looked into each other’s ghastly faces. Then, at precisely 2.15, the curtain went up with Morgan and Standard Oil in the center of the stage with money—real money, twenty-five millions of money—giving it away at 10 per cent.
“ Oh, uncrowned King! ”
“None but himself can be his parallel.”
“ Even to the dullest person standing by,
Who fastened still on him a wondering eye,
He seemed the master spirit of the land.”
And so ended the panic.
How beautifully it all worked out. They had the whole country terrorized. They had the money of the deposits of the banks of every State in the Union to the amount of five hundred million, nearly all of which was in the vaults of the big group banks. This served two purposes—it made the country banks join in the cry for currency revision and it supplied the big operators with money to squeeze out investors and speculators at the very bottom of the decline, taking in the stock at an enormous profit. In this connection, the operations of Morgan and the Standard Oil furnish additional evidence of the character of this panic. We have record proof of their utter contempt for commercial interests, not only for the country generally, but for legitimate trade in New York City as well. Had there been bankers with high ideals, bankers with devotion to commercial interests and patriotism for their country, in control of the centralized banks of New York City, the financial mistress of a continent, with a serious panic on, real in character, which had spread throughout the great business houses of the metropolis and to the centers of trade in the nation, bankers having to deal with that crisis, and pressed on the commercial side for money with which to protect the interests and the commercial honor of the country on the one hand, while the bulls and bears of Wall street clamored for loans to enable them to speculate off of the fears and misfortunes of their fellows on the curb and in the stock exchange—confronted, I say, with that dual appeal from the commerce of the country upon the one hand, and the speculators upon the other, bankers who were commercial bankers and not underwriting bankers, promoting bankers, and operating bankers would have cared first of all for the merchant, the manufacturer, and the commerce of the country. How was it with Morgan and the Standard Oil banks ? Did they give aid and support to the distressed merchant and manufacturer ? Did they say to the bulls and bears, “You shall be denied the funds of our banks to still further stimulate existing excitement ?” Alas, no. They pursued the course of the speculating banker. They ministered to the needs of Wall street, quite deaf to the appeals of commerce. Their course was that of men who were playing with the credit of the country for a purpose. They curtailed their commercial loans in every possible way. They steadily increased their call loans on the street, bestowing favor in a way to promote their own interests, supplying their own private brokers, denying applications and forcing all other brokers to a cash basis wherever it would turn the balance their way. The increase of call loans on collateral aggregated over fifty millions. They let great commercial houses, great manufacturing concerns, like the Westinghouse Company, down to ruin and dishonor, while they protected their speculative patrons. No better evidence could be asked to establish the character of this panic or the character of the men who were in command. By their fruits ye shall know them !
Mr. President, I find myself unable to conclude to-night what I have to say on the bill, and I ask permission to stop here and resume in the morning.
Mr. CULLOM. The Senator from Wisconsin has occupied the floor long enough for a man who has only recently been ill. As he desires to retire for the present, I will ask the Senate to resume consideration of the legislative appropriation bill.
The VICE-PRESIDENT. Without objection, the unfinished business will be temporarily laid aside.