by David Nasaw
“I can’t tell you what a relief it is to me to get this cleaned up,” he wrote his friend and former business associate J. J. Murdock five days later. “It was so loaded with dynamite over the last three or four years that anything could have happened at any time. I think we have worked out a deal for the Pathé security stockholders which can’t help but make them all more than satisfied. I believe this has probably taken another five years off my life. I am going to stay around until the Stockholders’ Meeting in January and if there is anything left of me then, I am going away for three or four months.”25
Kennedy and his associates might have been delighted with the RKO deal, which protected their investments in bonds. Not so the thousands of stockholders who were left holding near worthless Pathé common and preferred shares. As chairman of the board and Pathé’s most visible executive officer, Kennedy was bombarded with angry letters, many of them handwritten and addressed to him personally, such as the ones from Margaret Walsh of Brighton and Anna Lawler of Jamaica Plain, each of whom claimed that she had bought Pathé stock because Kennedy was involved with the company. “Knowing your father, the late P. J. Kennedy [and Honey Fitz],” Anna Lawler wrote, “I put my money into your enterprise, only to see where you are willing or trying to pass it over to another concern for about nothing. This seems hardly Christian-like, fair or just of a man of your character. I wish you would think of the poor working women who had so much faith in you as to give their money to your Pathé.”26
Kennedy thanked Margaret Walsh—and the others—for their letters but emphasized that as an inviolable practice, he “never urged any of my friends to buy securities of any company in which I may be interested. . . . I honestly believe that this proposed trade will be of great benefit to the corporation and I urge you to send along your own proxies with those of your friends.”27
Other communications were not nearly as polite as Walsh’s and Lawler’s. Some stockholders threatened to sue unless the company bought their stock from them, which it did in some cases, on the advice of its attorneys, Cravath, de Gersdorff, Swaine & Wood. A few threatened violence. “We are not going to plug you or we are not going to stick you in the back, but we are going to cut your throat from ear to ear as a warning to others what pulls the same deal. Now you may go to Florida or Europe or any other place but we will get you anyway when you least expect it.”28
On January 5, 1931, “at a boisterous meeting, at which,” according to the New York Times, “heavily armed private detectives were unable to preserve order, although they did succeed in preventing physical violence,” the Pathé stockholders gathered to consider the RKO deal. The deal’s opponents were livid beyond words at the way Pathé officials had “‘rushed stockholders off their feet’ to induce them to sign proxies.” When Joseph P. Kennedy, considered by most to be the evil mastermind of the deal, “entered the room, he was greeted with epithets from minority stockholders, who questioned and heckled him when he tried to reply to them. The shouts of the irate minority carried through the partitions into the elevator corridor.” Kennedy was asked directly “if it were not true that directors of Pathé were also directors of R.K.O., implying that the sale had been engineered by an interlocking directorate. Mr. Kennedy said that some directors, but not all, were on the boards of both companies.” He answered as many questions as he thought he had to, then made his exit before the balloting began.29
Though the opponents of the sale may have been in the majority at the meeting—and certainly made the most noise—they did not control anywhere near the one third plus one shares required to block the sale. They could shout and heckle all they wanted and organize lawsuits to overturn the sale, but the deal went through.
The price of the Pathé preferred and common stock, already at its low, continued to fall to the point where the stock was delisted from the New York Stock Exchange. The price of the 7 percent bonds also fell as uncertainty gripped the market. Kennedy, with insider knowledge that the bonds would be protected and that RKO had sufficient funds to redeem them at par when they came due, took advantage of the falling prices and bought bonds, which he held on to until mid-September 1931, when he sold them for a considerable profit. To guarantee that the sale remained secret, he executed it through J. H. Holmes, a broker he had never used before and never would again.30
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Immediately after the Pathé stockholders’ meeting and the approval of the RKO deal in late January 1931, Kennedy boarded the train for Palm Beach, where he would spend the rest of the winter and a sizable portion of the spring. He kept in touch with his children—and with Rose—by telephone, telegram, and letter. To show his love, he sent them all crates of oranges. Joe Jr. got one at Choate, as did Rosemary at Devereux and Jack, who, having completed the seventh grade at Riverdale with decent grades, no apparent illnesses, and a sturdier frame, had been sent off not to Choate, which might have appeared a bit too formidable for him as yet, but to Canterbury, a smaller school closer to home—and Catholic.
Away from home for the first time since he’d contracted scarlet fever as an infant, Jack was miserable. He was also losing weight, which had become a matter of concern not only to his parents, but to the headmaster and his wife, who had taken it upon themselves to put more flesh on his slender frame. While the other boys were allowed to switch tables in the dining hall each week, Jack was stuck with Dr. and Mrs. Hume for five straight weeks.
At age thirteen, he was already making light of the physical ailments that defined his daily existence. In a letter to his father, he described how at Mass that morning, he “began to get sick dizzy and weak. I just about fainted and everything began to get black so I went out and then I fell and Mr. Hume caught me. I am O.K. now. Joe fainted twice in church so I guess I will live. . . . We are reading Ivanhoe in English and though I may not be able to remember material things such as tickets, gloves and so on I can remember things like Ivanhoe and the last time we had an exam on it I got a ninety eight.”31
Kennedy was worried enough about Jack’s health to bring him to Palm Beach for Easter to rest and relax in the sun. On returning to Canterbury, Jack came down with a serious case of appendicitis. His appendix was removed, but too frail to return to school, he stayed in Bronxville for the remainder of the term. Kennedy, who had never been entirely happy with Canterbury (it had been Rose’s choice), decided that come September, Jack would join his brother at Choate.
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In May 1931, after a four-month vacation in Palm Beach, Kennedy returned north, stopping over at the Homestead in Hot Springs, Virginia, one of the nation’s most prestigious and expensive resorts. Accompanying him was Arthur Houghton, with whom he no longer had any business dealings, only a commitment to golf and good times. During his three weeks at Hot Springs, his every step was chronicled in the New York society columns as he lunched, dined, rode, golfed, entertained, and was entertained by the Hot Springs royalty, including Ben Smith, one of Wall Street’s most notorious—and successful—traders. Two weeks into his stay, Rose joined him at the Homestead. Husband and wife spent only a few days together before Kennedy took the train north to New York, leaving Rose behind for another week of vacation. “They went their separate ways,” Jean Kennedy Smith recalled, and no one in the family thought it odd. When together, they appeared, at least to their children, to be quite content with each other. “Strange as it might seem,” Ted Kennedy recalled in his memoirs, “Dad and Mother never fought.” When, much later, Caroline Kennedy asked Rose how she had handled her “differences” with her husband, Rose replied, “I would always just say, ‘Yes dear,’ and then I’d go to Paris.”32
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Nine months after her rendezvous with her husband at the Homestead in Hot Springs, Rose Kennedy, back in Brookline again with Dr. Good, gave birth to her ninth child, Edward Moore (“Ted”) Kennedy. Her husband had left months before for Palm Beach. “There was no need keeping Joe around in the winter,” Ros
e remembered, “not in the middle of February for a baby so he went to Palm Beach.” Still, she insisted to her ghostwriter, he was a devoted husband. While she was in the hospital giving birth to Ted, he had her meals sent “from the Ritz in a taxi. He felt so sorry for me being in a hospital.”33
PART III
Washington
Ten
ON THE ROOSEVELT TRAIN
WORST OF DEPRESSION OVER, SAYS HOOVER . . . RECOVERY NEAR, HE STATES, read the May 2, 1930, headline in the New York Times. In a speech the night before to the Chamber of Commerce, the president had declared unequivocally that the nation had “passed the worst of the great economic storm. . . . There is one certainty in the future of a people of the resources, intelligence and character of the people of the United States—that is prosperity.”
The stock market, reassured perhaps by the optimistic predictions that followed President Hoover’s cheerleading conferences with business leaders, had risen steadily through the first three months of 1930, closing at 294 on April 17, almost one hundred points above the low reached five months earlier. And then it resumed its steady slide downward. It would fall another 52.7 percent in 1931 and continue downward until it reached 41 on July 8, 1932. The economy collapsed with the market. Between 1929 and 1932, thousands of banks and tens of thousands of businesses failed; national income fell from $87.4 billion to $41.7 billion; annual net farm income decreased from $6.1 billion to $2 billion; residential construction declined 82 percent; sales in automobile and electrical manufacturing shrank by over two thirds; iron and steel production fell by 59 percent; unemployment rose from under 5 percent to nearly 25 percent.1
And Joseph P. Kennedy made money, lots of it. Having left the film industry with no intention of returning, he could concentrate his attention on trading securities from wherever he happened to be: Bronxville, Palm Beach, Hyannis Port, or somewhere in between. All that he required was a telephone connection to 35 West Forty-fifth Street, his New York City office, where loyal and discreet accountants and associates kept track of his financial records, recorded his stock transactions, monitored the trusts he had set up in 1926 before going to Hollywood, compiled monthly reports and profit and loss statements on all his accounts, paid his bills, and filed his tax returns.
After 1930, he increased his short selling in the nation’s largest companies, anticipating that stock prices would continue to fall, which they did. He made money as American Tobacco, DuPont, Standard Oil, Pennsylvania Railroad, Liggett & Myers, Reynolds Tobacco, Westinghouse, and other blue-chip companies lost it. His short positions in the blue chips were balanced by long positions in the stocks of companies he had some connection to, such as Transamerica, Todd Shipbuilding, and the Atchison, Topeka and Santa Fe Railway.
He had an almost uncanny knack for being in the right stock, short or long, at precisely the right time. His December 1931 balance sheets show him with large short positions in American Can, which fell from 113¾ on January 2, 1931, to 57¾ a year later, and U.S. Steel, which over the same period declined from 142 to 371/8. The other blue-chip stocks that he shorted behaved in much the same way. In many regards, he was his own hedge fund. In his largest non-trust accounts, the ones in his and Rose’s names, he balanced his short positions with investments in stocks he expected to rise over time and/or pay healthy dividends. If the market went up, he would lose on the short sales but gain on the longs, and vice versa. In good times and bad, he found a way to make money. His end-of-the-year balance sheet for 1931 listed assets of $2.1 million; for 1932, his assets were listed as $4.2 million. And this in a year when the Dow Jones Industrial Average fell by more than 20 percent.2
Unlike the vast majority of American families, the Kennedys were not obliged to do any belt-tightening during the Depression years. Kennedy felt no need to go back to work or earn a regular salary. Rose was not put on a tightened expense account or asked to reduce the increasing costs of household servants and expenditures or the amounts she spent on her wardrobe and travel. The children experienced no difference in their daily lives. Joe Jr.’s and Jack’s allowances at Choate were not as capacious as those of some of their classmates, but large enough. When Jack needed a new pair of skates, he bought them and informed his parents afterward. For him, the Depression was almost something to joke about. He was, he wrote his father in December 1931, doing his “Christmas shopping Saturday with another boy. Due to financial difficulties at Wall Street we will not be encumbered by any weight in that direction. Woolworths five and ten store will probably be our object Saturday.”3
Kennedy was proud of his wealth, but he worried that the children might become spoiled by it. Jack especially was becoming too undisciplined, too careless, and too devil-may-care about everything he came in contact with: his health, grades, clothes, and money. It was not Kennedy’s nature to scold or tease or punish his children, but it was also not in his nature to look away when he believed they needed a bit of firm guidance. “In looking over the monthly statement from Choate,” he wrote Jack in April 1932, “I notice there is a charge of $10.80 [$170 today] for suit pressing for the month of March. It strikes me that this is very high and while I want you to keep looking well, I think that if you spent a little more time picking up your clothes instead of leaving them on the floor, it wouldn’t be necessary to have them pressed so often. Also, there are certain things during these times which it might not be a hardship to go without, such as the University hat. I think it would be well to watch all these expenditures in times like these, in order that the bills will not run too high.”4
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The news that the industry’s wonder boy was leaving the picture business had surprised many of those who had charted his rapid rise. The Boston Daily Globe reported on May 19, 1930, days after the announcement of his retirement from Pathé and Gloria Productions, that “those few in Hollywood who know the ‘Blonde Banker’ from Boston have a ‘hunch’ that he is about to break out in a bigger and stronger way! They say Lon Chaney, ‘the man of many faces,’ is a piker compared with Joseph Kennedy, the man of many plans, who operates so quietly and mysteriously in perfecting them that his close associates never know what he’s going to do until he’s already done it.”
Over the next few years, Kennedy would be contacted on several occasions by those who hoped he would reinvolve himself with the industry. His answer was always no. In November 1931, he declined B. P. Schulberg’s invitation to become a member of the Academy of Motion Picture Arts and Sciences, “inasmuch as I am now definitely out of the motion picture industry.” “When I retired from Pathé and the Swanson thing,” he explained to a friend trying to interest him in a film start-up company, “I really washed up my entire interest in the picture business.” Other offers came his way as well, but he deflected them all, including one to meet with Bob Quinn, the owner of the Boston Red Sox, during spring training in Florida to discuss the possible purchase of the team.5
With millions of dollars in safe investments and real estate, much of it in trusts, he had retired secure in the belief that neither he nor his children nor his grandchildren would ever have to worry about money. But as the market continued to fall and the economic picture darkened through a second and into a third year of depression, he began to worry that the large fortune he had accumulated might not be safe and secure. He accelerated short selling in his own accounts through 1931 and in 1932 shifted more than $200,000 of the $780,000 in the children’s trust funds out of equities and into cash. These were short-term expediencies. If the market continued to deepen, there would be no safe haven for the riches he had accumulated.6
In 1936, he would recall that during the darkest days of the Depression, in the winter and early spring of 1932, he had “felt and said I would be willing to part with half of what I had if I could be sure of keeping, under law and order, the other half. Then it seemed that I should be able to hold nothing for the protection of my family.” Note the emphasis on “law and o
rder.” What Kennedy was beginning to fear was not simply the diminution of his fortune, but the destruction of the capitalist system that had made that fortune possible.7
As the Depression deepened, so too did the anger at the bankers, the brokers, the financiers, the men who had led the nation into this disaster. Some could simply be accounted fools or dreamers. But many more were indicted by the public as confidence men, criminals, thieves, and parasites who had stolen the people’s wealth and the American future.8
The Depression, as Arthur M. Schlesinger, Jr., noted in the first volume of his The Age of Roosevelt, offered “radicalism its long awaited chance.” The unemployed, underemployed, dispossessed, and hungry were not sitting idly by waiting for prosperity to return. Many were too numbed, too crushed, to protest, but a small and vocal minority were not. The Socialist and Communist parties more than doubled their tiny memberships and exploded in visibility. Communist Party organizers were actively operating in city neighborhoods from Harlem to Detroit, in the coal fields of Pennsylvania and Kentucky, at the River Rouge plant in Dearborn, among tenants and sharecroppers in the South and migrant workers in California, and outside and inside closed and closing mills and factories in the Northeast. Their argument was simple: capitalism had failed and needed to be replaced.9