Real Lace

by Birmingham, Stephen;

  He was less fortunate in his efforts to take over the Equitable Life Assurance Society of the United States, “Protector of the Widow and Orphan,” and the largest insurance company in the country. The company became suddenly very much a Wall Street plum in 1908 following the death of its founder, H. B. Hyde, and its inheritance by his son, James Hazen Hyde. Young Hyde found himself, at the age of twenty-three, the custodian of a billion dollars’ worth of life insurance policies and the savings of over 600,000 individuals. At the time of his father’s death, Equitable had more than $400 million in its treasury, and James Hazen Hyde received a 51 percent controlling interest of it.

  It was quickly apparent that young Hyde cared little and knew less about running an insurance company. An aesthete and a dandy, James Hazen Hyde was more given to extravagant dress and elaborate party-giving. When he drove his private hansom cab down Fifth Avenue, matching bunches of fresh violets were tucked behind his horses’ ears, sprouted from his coachman’s hat, and bloomed from young Hyde’s lapel. He tossed huge costume galas at his Long Island château, and once hosted a bal masqué at Sherry’s that cost him $200,000. Here, the ballroom was transformed into an exact replica of the Hall of Mirrors at Versailles. Fond of all things French, Hyde imported chefs from the greatest restaurants of Paris and Lyons and stationed them in his favorite Manhattan eating places, where they had nothing at all to do but wait until their employer took a notion to drop by and order some favorite dish. One day, just for the fun of it, Hyde and his friend Alfred Gwynne Vanderbilt I drove a team of seventy-eight drag horses from New York to Philadelphia to see how long the trip would take them. In addition to the horses, a considerable retinue of humans was required, including a carriage expert, a photographer, and a valet. On their return, the young men proudly announced that the journey to Philadelphia had taken exactly nine hours and twenty-five minutes. They had stopped in Philadelphia six minutes, and were back in New York in another ten hours and ten minutes. Seven cases of champagne had been consumed. Such carryings-on made Hyde and his friends the darlings of the press in that golden era, but Wall Street took a more practical view. Hyde, Wall Street decided, needed help running his company to make sure that it “did the right thing” for the widows and the orphans. In their quietly determined way, the giants of the Street moved in to take over Equitable.

  The two leading contenders for control were the principal Jewish investment house, Kuhn, Loeb & Company, headed by Jacob H. Schiff, and the leading Protestant banker, J. P. Morgan. Morgan already had a large interest in another insurance company, the New York Life, and Morgan’s plan was to acquire Equitable and merge it with New York Life; Morgan’s client and ally, James J. Hill, believed that Equitable’s half-billion-dollar treasury would be a handy source of capital for Mr. Hill’s railroad ventures. Schiff, and his pet client, E. H. Harriman, had much the same thought in mind with regard to Harriman’s railroads. What neither Schiff nor Morgan realized was that a Roman Catholic financier was also working quietly behind the scenes, and it was therefore something of a shock to both to learn that James Hazen Hyde had suddenly and without explanation sold all his Equitable stock to “that Irish upstart”—as Morgan put it—Thomas Fortune Ryan.

  Perhaps young Hyde had succumbed to Ryan’s famous charm. But when the price Ryan had paid—$2.5 million for controlling interest in a half-billion dollar company—was revealed, things looked very fishy indeed. They looked even fishier when it turned out that the dividend income on this amount of stock was only $3,514 a year. The reason for this, Ryan explained, was that the company’s charter stipulated that all profits except 7 percent of the $100,000 par value of the stock should go to Equitable policy-holders. (The stock could, of course, be used as a massive borrowing tool for whoever controlled it.) All this was too much for Mr. Morgan, who was, in the first decade of the twentieth century, the foremost financial power in America and who ran what amounted to his own Federal Reserve System before a real one was invented. By 1908 the financial community had become so thoroughly “Morganized” that literally nothing could be done that did not meet with Morgan’s approval. (The only reason Morgan tolerated Schiff was that he respected Schiff’s ability, and found him useful in dealing with other Jewish houses.) A year earlier, Morgan had forced another upstart, John W. “Bet-a-Million” Gates out of the Tennessee Coal & Iron Company, and now, marshaling all the power at his command, Morgan set out to accomplish the same thing with Ryan.

  And Ryan, alas, powerful though he was, was no match for Morgan. As Morgan piously explained, after successfully compelling Ryan to dispose of his controlling interest in Equitable, he had done so to prevent “hands that might prove injurious from manipulating the Society’s funds.” He had done it for the sake of the widows and the orphans. But there was more to it than that. There was more to it than revenge or reprimand against an upstart who had acted rashly and, perhaps, illegally. Under the rules of Morganization, according to William Miller in A New History of the United States, room at the top of American businesses was reserved strictly for “the congenial clubmates, churchmates, and cliques of the ruling oligarchy.”

  Rich he might be, but Thomas Fortune Ryan was an Irishman and a Roman Catholic. He could never join the club.

  Chapter 14

  AND FOR MY ELDEST SON, ONE SET OF PEARL STUDS

  By 1910 it was well known among the Thomas Fortune Ryans’ friends that Tom and Ida Ryan were having marital difficulties. Ida Barry Ryan complained that her husband spent most of his time on his business dealings, and virtually none on herself or their children; when not doing business, he was working on his sculpture collection and posing for more busts of himself. Tom Ryan complained of his wife’s complaints. There were also whispers of another woman. Since both were staunch Catholics, however, there was never a question of divorce. Ida Ryan’s health was failing, and she became a virtual invalid. When she died in October, 1917, the rumors of another romance were quickly confirmed when Thomas Fortune Ryan, at the age of sixty-six, married again—just twelve days after his wife’s death. His second wife was Mary T. Nicoll, the sister of the late De Lancey Nicoll, and a member of a family that had been socially prominent in New York since the early eighteenth century. She had also been married twice before, to James Brown Lord and Cornelius C. Cuyler. This hasty remarriage did not please any of Ryan’s children, but it particularly distressed his eldest son, Allan, who commented at the time, “It is the most disrespectful, disgraceful, and indecent thing I’ve ever heard of.” Allan Ryan’s antipathy to his father’s marriage, and to his stepmother, created a deep rift between father and son. By 1920 it was known that the two men were not on speaking terms.

  Allan A. Ryan was, if anything, even handsomer than his father had been as a young man, and he had inherited a full share of his father’s Irish charm. He lacked, however, his father’s quiet reserve, and enjoyed talking freely to the press—a thing his father almost never did. He was physically on the weak side, and caught colds easily, but he had his father’s stubborn will and knack for financial manipulation. Also, unlike his father, he had had a proper education and had graduated from Georgetown University. He was, in other words, in every way a promising young successor to his father and, until their falling-out, had been his father’s favorite son. At the age of thirty-five, Allan had been given his father’s seat on the New York Stock Exchange for his birthday, and his father had also brought him under the wing of Charles M. Schwab of United States Steel, who had helped the career of another bright young Irishman, James A. Farrell. “Thomas F. Ryan and I have been friends for many years,” Mr. Schwab once said. “When he was retiring from business, he brought his boy Allan to me. Told me Allan was his hope for the future. Would I look after him? I have looked out for Allan ever since.”

  With such backing as this, plus whatever financial assistance his father may have supplied at the outset (it was always supposed that this was considerable, but members of the family insist that Allan’s father staked him to only nine h
undred dollars, in order that he would have to prove himself), Allan’s firm, Allan A. Ryan & Company, quickly became known as a powerful Wall Street house. His reputation was gained as a “bull operator,” a stock optimist, whose particular talent was squeezing short sellers, stock pessimists, or “bear operators.” (Selling short is a technique by which a dealer borrows stock, and then sells it for delivery at a future date; the dealer hopes that the price of the stock will drop before the delivery date so that he can buy it back at a lower price, return the stock to the lender, and keep the profit.) In the bull-market year of 1919, Allan Ryan was known as the most powerful bull of all. Word that Ryan was buying was enough to send any stock up in price. That year, Allan Ryan told a friend that he was now worth thirty million dollars—well on his way to matching his father’s huge fortune.

  Like his father, Allan Ryan operated in a variety of fields. But it was known that his biggest investment was in the Stutz Motor Car Company of America, Inc. He had acquired a controlling interest in Stutz, and made himself its president in 1916. Stutz was one of the glamour issues of the day, and a company that was in splendid shape. Its famous Bearcat (“Knows No Master on the Road”) was the glamorous symbol of the Flapper Era, when in its snappy bucket seats, fair-haired youths in raccoon coats with Prohibition flasks in their pockets tore across the landscape and through the pages of Scott Fitzgerald novels. The new president of Stutz was barely thirty-six, part of the nation’s Flaming Youth himself, with a beautiful wife, six fine children, a grand house on Murray Hill, and of course a specially styled Stutz Bearcat. With the exception of a certain penchant for gambling—Allan Ryan was often seen out at the racetrack in Jamaica—he seemed like a man who could know no limits.

  Projecting ahead for the year 1920, Allan Ryan had announced that he expected Stutz’s profits would amount to around five million dollars, and this estimate was considered to be on the conservative side. But in January of that year Allan Ryan came down with influenza and had to enter a hospital. In February, still suffering from the pneumonia that had followed the influenza, Allan Ryan discovered certain facts that caused him immediate concern. Stutz had been selling for around $100 a share, but, throughout January, its price had jumped to around $120. Then, on February 2, the price of Stutz suddenly jumped again for no valid reason from $120 to $134 in a single day’s trading, and it seemed clear that manipulators were at work, forcing the stock up beyond its worth, and that organized short selling was taking place; raiders were grabbing up Stutz shares, hoping to trap Stutz in its highly exposed position. These raiders were, Ryan had good reason to believe, members of the Stock Exchange’s ruling clique, the Old Guard old-school club to which Allan Ryan, like his father, had never been admitted. In a raid like this the raiders stood a good chance of losing their shirts—if the stock continued upward. If it didn’t, the raid could ruin Stutz and Allan Ryan’s heavy position in it.

  This was just the sort of fight that Allan Ryan enjoyed, and had been good at in the past—though now he was battling the men who really ran the Street, and the Exchange itself. Still ailing, and in the company of a nurse, Ryan went from his Murray Hill house to his downtown office. His strategy was simple: to buy up all the Stutz stock that he could, supporting the inflated price and forcing it even higher, and buying more on a constantly rising scale. The short sellers would be forced to buy stock themselves in order to cover what they had borrowed and sold, and Ryan would have caught them in a viselike squeeze. To carry out his plan successfully, however, Ryan needed sizable amounts of cash. He could no longer turn to his father. But he did turn to friends and to banks, where he obtained large loans, and he even resorted to putting up articles of his own and his wife’s personal property as collateral. “We never loaned him more than $1,500,000 on furs,” the president of the Chase National Bank once told a reporter. It must have been a chilly winter for Mrs. Allan Ryan.

  At first, things looked very bad. Ryan had underestimated the tremendous pressure of the short sellers, who, by early March, had succeeded in pushing the price of Stutz back down to $100. Still, having embarked upon his strategy he could not abandon it—he was in debt too deeply now—and presently his efforts began to take effect. On March 24, Stutz was up to $245, and during that day it rose to $282. A week later it had leaped to a startling $391 and, in the face of this spectacular rise, many shareholders decided to take their profits and sell their shares, which Ryan quickly bought. At the same time, the inflated price of Stutz had become even more attractive to the short sellers, who, convinced that the price had to drop, were borrowing Stutz to sell for future delivery wherever they could. By the end of the month of March, a situation had developed where, in order to borrow stock to sell short, the short sellers had to borrow it from Allan Ryan. After all, now no one but Ryan owned any Stutz. In other words, the stock that they were selling to Ryan had first to be borrowed from him, and in the process Ryan not only got to know the name of every individual in the enemy camp but was also doing lively business with them. Also, in the process and in the clerical confusion surrounding this spiral of mind-reeling activity, Allan Ryan found himself the owner of more shares of Stutz stock than actually existed, and was in the odd position of owning more than 100 percent of his company. Still, confident that he was winning, Ryan went on lending stock and buying it back—borrowing more money to protect his cash position—and, on March 31, when Stutz skyrocketed to $391, he knew that he had won. The short sellers had either to buy back the stock they owed him, at his price, incurring huge losses, or else face professional ruin—or jail sentences for breach of contract if they defaulted on their loans. Allan Ryan had managed a “corner” on Stutz.

  But the trouble was that his cornered foe represented the Wall Street Establishment, and included members of several of the Stock Exchange’s key committees. He had taken on not just a handful of brash manipulators, but the New York Stock Exchange itself. And so, on the morning of the day Stutz peaked at $391, Allan Ryan was called before the Exchange’s powerful Business Conduct Committee, and asked to explain just what had been going on with Stutz. He might have easily tossed the question right back at the committee, since many of the principal short sellers were seated facing him in the room. That would not, perhaps, have been quite in keeping with the unwritten gentleman’s “code” of the Exchange, which, in many ways, was a Mafia-like Code of Silence, but he could have done it, and been within his rights. After all, the short sellers’ dilemma was of their own making. Instead, possibly because he was flushed with success and drunk with power, he made a move that was both bold and rash. He offered to sell them all the shares they needed to fulfill their contracts—at $750 per share.

  In theory, according to the loose rules and practices of the Stock Exchange at the time, the losers in a battle of this sort had nothing to do but pay the winner’s price, as had happened in the famous Northern Pacific Railroad corner of 1901, which had nearly wrecked the economy of the country. Or they could beg Ryan for mercy, as had also happened in the past—anything to avoid a public scandal that might reveal the names of the manipulators, or to avoid a lawsuit, or an investigation, or—most dreaded of all—interference by the U. S. Government in the Exchange’s methods and activities. But, perhaps because Ryan was regarded as an “outsider,” and perhaps because his price was too high, the Exchange was in no mood either to pay or to ask for pity. That afternoon the Business Conduct Committee called Allan Ryan on the carpet again—again taking the attitude that Ryan was the guilty party. The joint committee sternly told Ryan that it was considering removing Stutz from the trading list—a serious threat since, if this happened, Ryan would have trouble finding a market for Stutz. But Ryan decided to call the committee’s bluff. If they did this, he said, his price per Stutz share would go from $750 to $1,000. With this exchange of warnings, the meeting broke up angrily, and the two Exchange committees went to report the proceedings to the Governing Committee.

  The Governing Committee took exactly half an hour to reach a
decision. At the close of the day’s trading, the New York Stock Exchange announced that, in a unanimous decision of its board of governors, the Exchange had voted to suspend all dealings in Stutz. In the excitement that followed the release of this news, a reporter reminded the Stock Exchange spokesman that no Exchange rule or precedent appeared to support this move. The Exchange spokesman replied, “The Stock Exchange can do anything.”

  It was a remark that must have struck a chill in the heart of Allan Ryan. Because, in those days, it was absolutely true.

  There was no doubt that Ryan was now in deep trouble. He had borrowings hanging over his head, and only a few months before the loans would be called. And yet all was not lost. Stutz, which he now owned completely, was still selling Bearcats at a lively and profitable rate. But rumor, that most intangible and unfightable of Wall Street enemies, was running against him. The identity of the short sellers was still a closely guarded secret within the Exchange, and the story began to circulate that the leader of the band that was out to “get” Allan Ryan was none other than his own father, Thomas Fortune Ryan. It was also said that Allan’s old protector, Mr. Schwab, had abandoned him as a result of a slighting comment about Stutz that Schwab had uttered at a dinner party, and that a lady guest had repeated to Ryan. (Actually, Schwab had loaned Ryan a million dollars to help him fight for Stutz, had a heavy stake in Ryan’s success, and Ryan had not taken the dinner-table remark all that seriously.)

  Then, while Ryan was marshaling advice and legal opinions and planning tactics, he was dealt another blow by the Exchange. Its Law Committee, it announced, had decided that it considered all Ryan’s contracts null and void. “The Exchange will not treat failure to deliver Stutz Motor stock, due to the inability of the contracting party to obtain same, as a failure to comply with contract.” In order to protect its precious Establishment, the Exchange was therefore ready to overlook the fundamental tenet on which its entire operations were based. Yes, the Exchange could do anything, and its Law Committee could reverse the law. If Ryan didn’t like it, the Exchange announced, he could sue. But, it pointed out ominously in its release to the press, in its 128-year history only twice had rulings of the mighty New York Stock Exchange been overthrown in the courts.