Most counterfeiters are bumblers, especially minters of false coin. In 1957 a design engineer examined a nickel and concluded that Mint work wasn’t so hot. He felt sure he could do better. He struck some dies and posing as an owner of vending machines he deposited $5000 in phony five-cent pieces in a number of banks. Newspaper stories soon disclosed that the jig was up. He tossed his equipment in a river, but the Navy retrieved it, and off he went to jail. Such men baffle the Treasury. Clearly no one can get rich making bad pennies (though some have tried). Among the Treasury’s most treasured souvenirs is a trove of counterfeit half dollars containing more silver than the real thing. Every time the manufacturer passed one, he went deeper into the red.
Counterfeit paper—alias “the queer,” alias “the curly”—is a graver matter. Lately, indeed, it has become cause for some alarm. There is no chance that the Department will face anything like the crisis of 1863, when six thousand kinds of curly were being pushed and a third of all American money was bogus, but during the 1960s more than $60,000 in green poison was being extracted from the financial blood stream each month. The Secret Service thinks technological advances are a major reason for this. In the old days you had to be a master engraver to make a money plate, and the Service kept a file of all engravers who were bad hats. Improved photographic techniques have changed all that. The new counterfeiter is the minor printshop employee or the hobbyist with a do-it-yourself press. One putterer was a publisher of school yearbooks whose hellbox yielded developed negatives and plates for American bills, Canadian currency and American Telephone and Telegraph Company stock certificates. His name was actually George Humphrey.
George Humphrey was a clumsy crook. His curly was crude. But then, most curly is. It’s a rare counterfeit note that slips past bank tellers and reaches the Fed. Nearly all homemade currency could be spotted by laymen if laymen would take an interest in it. People know very little about their currency, and much of what they think they know is false; for example, the widespread belief that any note with red and blue fibers in it must be good. Of all the safeguards against counterfeiting, this one is the most easily evaded. Anyone with cigarette paper, two spools of thread and an egg beater can whip up a reasonable facsimile—crumple the rolled results in coffee and few can tell the difference—and a really cautious counterfeiter can always turn out a peroxide job, bleaching a dollar bill and reprinting it as a ten or a twenty. In inspecting a doubtful bill the best places to look are the points of the Treasury seal and the background of the portrait. It takes a real pro to get those points sharp, to keep that background from running together. But the public rarely gives greenbacks a second glance. Often it doesn’t give them a first glance; a South Carolina filling-station attendant once accepted a five-dollar play-money note which his little daughter later spotted in the cash register. This is why the Treasury prohibits reproduction of currency patterns in any form. Recently the Secret Service printed a flyer picturing a bogus note. An Alabama newspaper published the picture without permission, and the next day someone clipped it from the paper and tried to pass the clipping for a genuine note.
Picked field agents form the Secret Service’s White House Detail, which means that it would be hard to shove any counterfeit money at Gerald Ford. In fact, it is difficult to shove anything at any member of the first family unless the Treasury approves. Even flowers thrown during parades are caught by smiling agents, who are well aware that a bouquet might blow them up. The agent in charge is in absolute charge. Theoretically he may order the President around, though as Mike Reilly, head of the Detail in Franklin Roosevelt’s time, said, “Every White House Secret Service boss knows that if he orders the President of the United States to do anything the agent will very shortly be giving the bank teller at No People, South Dakota, a lecture on how to tell a counterfeit two-dollar bill from a true one.”
The Kennedy assassination demonstrated that the President’s bodyguards are fallible, but they take their assignments very seriously. All agents are crack shots, skilled boxers, experts in jujitsu. Before the President takes a stroll they scout the route; when he walks they are in front of him, behind him, on the other side of the street and in cars cruising by. They lurk near his office during the day, and should the White House catch fire at night, Detail men would lead the family out. Every package addressed to 1600 Pennsylvania Avenue is X-rayed; each year the Service studies over 18,000 ill-tempered letters addressed to the President.
Perhaps detailing Treasury men to guard duty isn’t so odd as it seems. The Department, after all, is a protective organization. Everyone in it is protecting something. The Comptroller of the Currency shields depositors by examining national banks. Messrs. Whiskers watch over the Federal pocketbook. Customs men safeguard tariff revenues and turn back unwelcome cargoes. Narcotics agents protect us from heroin and cocaine. The Office of Tax Analysis and the Tax Legislative Counsel defend the tax base by submitting reports to the Congressional tax committees on some 300 tax proposals during each Congress. The Office of International Tax Affairs ferrets out tax havens in Panama, Liberia, Liechtenstein and the Bahamas.
Each Secretary does it in his own way. The difference isn’t always political: Former Secretary Henry H. Fowler thinks that “the Treasury is changed less by administrations than by events,” and he cites the gold outflow, an event calling for specific measures, regardless of party. Yet Secretaries do assign priorities, and private creeds have a lot to do with the assignments. President Washington’s financial minister, no matter who was chosen, would have had to face the problem of public credit, but because he believed in a strong governing class, Alexander Hamilton’s solution feathered the nests of various Cabots, Higginsons and Lowells. Andrew W. Mellon reduced income taxes for the rich and spent an extraordinary amount of time fussing over his own tax forms. Albert Gallatin considered it his first duty to pay off the national debt. John W. Snyder wanted low debt costs, even though that meant rising prices. Henry Morgenthau, Jr.’s number one priority went to a plan for reducing Nazi Germany to a farm state, while George Humphrey (no relation to the counterfeiter) was convinced that business would prosper if the Secretary oozed confidence, that prosperity would balance the budget and that a balanced budget would bring stability.
As money has become more complex, it has also become more international—international in a sense never anticipated by Nathan Rothschild. Financially the West is one world. Europe is safe only if greenbacks are sound—“Trust in the dollar,” says a Treasury official, “is the cement that binds the grand alliance together.” The present Secretary, William E. Simon, understands this, and his career suggests that of all his Federal duties—principal money maker, Coast Guard boss, foremost administrator of America’s Rube Goldberg tax laws, head bodyguard of the Fords—the one which he, his Government, and his Department take most seriously is that of defender of the capitalist faith.
The Great Bank Holiday
It is over two-score years now since panic closed America’s banks—since that improbable month when Norman Vincent Peale denounced capitalists, John D. Rockefeller ran out of dimes, Macy’s announced that demanding cash from its customers would be unpatriotic, and what were then known as step-ins were solemnly accepted as legal tender in Madison Square Garden.
Even then it had an air of fantasy, and was quickly forgotten, just as it had been unforeseen during the lame-duck winter of 1932–33 which led to it. And yet there had been omens of the panic. There was, for example, the jigsaw-puzzle craze, which reached its crest at the very moment America was plunging into the terminal trough of the Depression. During that winter some 6,000,000 puzzles were sold, and in retrospect the significance of the vogue seems painfully clear. It was a time of searching for elusive answers in politics and economics. The jigsaw turned out puzzles a man at least could solve.
In Detroit the weekend of February 11–12 newsstands enjoyed a heavy sale of 500-piece (Lincoln) puzzles. They were tough to do. Thousands of automotive workers were still frowni
ng over card tables Monday night as their children, huddled by radios, hoarded the currency of the young—Ralston box tops, Ovaltine seals, Rice Krispies labels, Tastyeast wrappers. None of the puzzle workers, of course, suspected that very soon American parents would be reduced to even stranger exchange. But the time was at hand, and for Detroit it was the very next day, St. Valentine’s Day, 1933.
President Hoover was singing his swan song over the networks at ten o’clock that evening before the Republican National Committee. Among those not listening was the Democratic governor of Michigan, William A. Comstock. It was nothing personal. At three o’clock that afternoon he had received an urgent telephone request to join a conference of bankers in downtown Detroit, and he had been there ever since. Detroit’s Union Guardian Trust Company was in straits. If it failed it probably would take every other bank in the city with it, and the bankers were asking Comstock to declare a banking moratorium throughout Michigan. At midnight he agreed, drove to the state capital at Lansing, and issued a proclamation closing the state’s 550 banks. He called it a holiday.
The idea was not new. For more than a year the nation’s harassed business community had been begging for breathers, and in two states, Nevada and Louisiana, it actually had been given them. Nevada, however, had a population of only 91,000, and Louisiana’s moratorium covered just one weekend. Michigan, on the other hand, was the heart of the automotive industry. Its citizens, moreover, were depleted of cash after the long weekend, and unprepared for Comstock’s valentine. The proclamation was too late for the regular editions of the morning papers; extras greeted workers arriving downtown with the news that they were cut off with whatever cash they had in their pockets. In some cases this was almost nothing, but there was no hysteria, no gathering in front of the closed banks. The general mood was casual, even gay. After all, it was a holiday.
To be sure, it was awkward. Many of the newsboys peddling the extras were obliged to sell on credit. Those who did collect coins found themselves hailed by cruising merchants waving bills and pleading for change. A few storekeepers, unable to locate silver, had to close their stores; those who sought relief in Windsor, Ontario, were coldly told their checks would be accepted “subject to collection,” and under the phony holiday air there was a feeling of uneasiness about the value of what currency there was. The Dow Chemical Company of Midland began coining magnesium into “Dow-metal Money,” with an arbitrary value of twenty cents—the first of a series of substitutes which were to plague the economy for a month.
Still, there were reassuring signs. Merchants talked of organizing a change bureau. Milk companies promised to continue deliveries. Before noon a shipment of gold estimated at $20,000,000 was flown from Federal Reserve coffers in Chicago, and that night another $5,000,000 arrived from Washington to meet money orders and Postal Savings withdrawals. Surely, everyone said, the bronze doors would yawn wide the next day. Wags told other wags the story of the man who had to call his wife, couldn’t cash a bill, and borrowed a nickel from an apple seller on Woodward Avenue.
But the doors didn’t yawn. Later in the week they were held slightly ajar—depositors could withdraw five percent of their accounts. It wasn’t enough even to meet local payrolls. Detroit’s Colonial Department Store, frankly resorting to barter, offered dresses for salted Saginaw herring, suits for livestock, assorted merchandise for eggs and honey. By the following week jokes were discarded. The holiday had been extended.
Michigan’s plight had been aggravated by plunging real-estate values, but the Depression was nationwide. Since the crash of 1929 more than 5500 American banks had failed, and the public, understandably, was edgy. It responded by hoarding. Gold was vanishing from vaults at the rate of $20,000,000 a day, and depositors who couldn’t get metal were taking paper, so that the government was called upon to expand its currency at the very time the gold on which it was based was disappearing.
Bank panics are always suicidal. In 1933, however, the situation had been complicated by three years of deflation. Even the soundest institutions held securities which had fallen to a fraction of their former value. The nation’s 18,569 banks had about $6,000,000,000 in cash to meet $41,000,000,000 in deposits, and bankers who were forced to sell mortgages or securities to raise cash would suffer heavy losses. President Hoover was trying everything he could think of to turn the tide—R.F.C. loans to banks, debtor relief, higher duties on Japanese sneakers and Czech rubbers—but nothing seemed to work.
Now Michigan had fallen. Abruptly the daily outflow of gold from the rest of the country’s banks jumped to $37,000,000; currency withdrawals to $122,000,000. Banks everywhere were swarming with wild-eyed depositors taking out cash—in the Bronx a young mother rented her baby, at twenty-five cents a trip, to women who used it to claim preference at the head of bank lines—and the week of February 20 in Maryland the Baltimore Trust Company paid out $13,000,000, nearly half of it on Friday. Late Friday night Governor Albert C. Ritchie declared a three-day holiday for the state’s 200 banks. The second state had collapsed.
Responsible men were making a painfully self-conscious effort to keep their heads. The Detroit News commented, “It is an experience we shall have to look back upon, and no doubt grin over,” and the Baltimore Sun said cheerily, “Life… will be filled with pleasant and unpleasant things as it was before. And it will have the additional advantage that everybody will have something to talk about.” The president of the Baltimore Association of Commerce saw no reason why business should not continue as usual; the Bureau of Internal Revenue issued a stern reminder that income taxes were due in two weeks.
Nothing from Hyde Park dispelled the illusion of unreality. Indeed, the pixie mood of the press seemed superbly matched by President-elect Roosevelt’s selection of a man to be Secretary of the Treasury, a puckish little railway-equipment manufacturer who wore a gray toupee, loved puns, collected five-dollar gold pieces, and spent his leisure time composing on a guitar. A week later, when the new administration took office, the country was to know another William H. Woodin—hard-driving, ingenious—but on the eve of office his most striking achievement, so far as the public was concerned, was the composition of a song for children:
Let us be like bluebirds,
Happy all day long,
Forgetting all our troubles in
A sunny song.
In Indianapolis and Akron that Sunday, February twenty-sixth, banks followed Michigan’s lead in announcing that withdrawals would be limited to five percent of balances. During the night institutions in a dozen other Ohio cities fell into line, and on Monday—as flames gutted the Berlin Reichstag and Japanese troops marched into a Manchurian blizzard—the number grew to one hundred. Across the river from Cincinnati, five Covington, Kentucky, banks adopted similar restrictions. Monday evening Governor Gifford Pinchot of Pennsylvania signed a bill permitting individual institutions to close at will, and Thomas W. Lamont informed Hyde Park that in the view of J. P. Morgan, “the emergency could not be greater.”
It could be, and soon was. By Wednesday, frantic governors had declared bank holidays in seventeen states. Pinchot acted so hurriedly he had to watch the inauguration five days later with only ninety-five cents in his pocket. Governor Allen of Louisiana, on the other hand, openly withdrew his expense money for Washington and then entrained, leaving behind his dictated proclamation closing all banks.
It was on Wednesday, March first, that the President-elect—who, Arthur Krock reported, was being asked by responsible men to assume power now—drove to his Manhattan home at 49 East Sixty-fifth Street and went into conference with Woodin. They did not emerge until Thursday afternoon, when, preceded by the screaming sirens of twenty motorcycles, they raced down Fifth Avenue and turned west toward the river. During the morning a light snow had sifted over the city. New Yorkers stood silently in it, staring at the cavalcade. Outside Radio City Music Hall, a cardboard King Kong, enjoying his first Manhattan run, leered toothily. In the Hudson the French Line steamer Paris lay
quietly at berth, her cargo space reserved—though no one in the party knew it yet—for $9,000,000 in fleeing gold. On the other side of the river a special B.&O. train was waiting, and all that afternoon, talking now with Woodin of banks, now with Farley of religion, Franklin Roosevelt thundered through a cold fog, toward Washington.
It was sleeting when they reached Union Station. In the presidential suite of the Mayflower Hotel a sheaf of telegrams Awalted Roosevelt: banks were closed, or closing, in twenty-one states and the District of Columbia, and Federal Reserve figures showed the week’s gold loss to be $226,000,000. He was scarcely unpacked when Woodin drew him aside. Secretary of the Treasury Ogden Mills and Eugene Meyer, of the Federal Reserve Board, had telephoned to suggest a proclamation closing all banks. President Hoover felt less drastic action, under the Trading-with-the-Enemy Act of 1917, would do. Roosevelt’s approval was solicited, but he, still declining to act until he had the authority, refused to advise anyone. Fair skies had been forecast for Saturday’s inauguration, but now the barometer was falling.
The last page of the New York Times of Friday, March third, carried an ad depicting “John Doe” and “Jane Doe” acclaiming the “Good Work” of the Bowery Savings Bank. Presumably its purpose was to hearten depositors. It failed. By noon long lines of New Yorkers had formed opposite Grand Central Station and were filing into the world’s largest private savings bank, demanding cash. By 3 P.M. the Bowery closed its doors, with a huge crowd still unpaid. At that same hour Governor Henry Horner of Illinois sat in the Federal Reserve Bank of Chicago, plucking nervously at his mustache, reading figures which showed that Chicago banks had paid out $350,000,000 in two weeks. After seventeen days in the hinterland, the storm was hammering at the nation’s two financial strongholds.
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