by John Brooks
Levy and the Chase men arrived red-eyed in London shortly after daybreak on a depressingly drizzly morning. They went to the Savoy to change their clothes and have breakfast and then headed straight for the City, London’s financial district. Their first meeting was at the Fenchurch Street establishment of William Brandt’s Sons, which had put up over half of the five and a half million. The Brandt partners courteously offered condolences on the death of the President, and the Americans agreed that it was a terrible thing, whereupon both sides came to the point. The Brandt men knew of Haupt’s impending failure but not of the plan now afoot to rescue the Haupt customers by avoiding a formal bankruptcy; Levy explained this, and an hour’s discussion followed, in the course of which the Britons showed a certain reluctance to go along—as well they might. Having just been taken in by one group of Yankees, they were not anxious to be immediately taken in by another. “They were very unhappy,” Levy says. “They raised hell with me as a representative of the New York Stock Exchange, one of whose members had got them into this jam. They wanted to make a trade with us—to get a priority in the collection of their claims in exchange for coming along with us and agreeing to defer collection. But their trading position wasn’t really good; in a bankruptcy proceeding, their claims, based on unsecured loans, would have been considered after the claims of creditors who held collateral, and in my opinion they would have never collected a nickel. On the other hand, under the terms of our offer they would be treated equally with all the other Haupt creditors except the customers. We had to explain to them that we weren’t trading.”
The Brandt men replied that before deciding they wanted to think the matter over, and also to hear what the other British banks said. The American delegates then repaired to the London office of the Chase, on Lombard Street, where, by prearrangement, they met with representatives of the three other British banks and Levy had a chance for a reunion with his Kleinwort, Benson friends. The circumstances of the reunion were obviously less than happy, but Levy says that his friends took a realistic view of their situation and, with heroic objectivity, actually helped their fellow-Britons to see the American side of the question. Nevertheless, this meeting, like the earlier one, broke up without commitment by anyone. Levy and his colleagues stayed at the Chase for lunch and then walked over to the Bank of England, which was interested in the Haupt loans to the extent that their default would affect Britain’s balance of payments. The Bank of England, through one of its deputies, assured the visitors of its distress over both America’s national tragedy and Wall Street’s parochial one, and advised them that while it lacked the power to tell the London banks what to do, in its judgment they would be wise to go along with the American scheme. Then, at about two o’clock, the trio returned to Lombard Street to wait nervously for word from the banks. As it happened, a parallel vigil was then beginning on Wall Street, where it was nine o’clock on Monday morning, and where Funston, just arrived in his office and very much aware that only one day remained in which to get the deal wrapped up, was pacing his rug as he waited for a call that would tell him whether London was going to cause the pot to fall in.
Kleinwort, Benson and S. Japhet & Co. were the first to agree to go along, Levy recalls. Then—after a silence of perhaps half an hour, during which Levy and his colleagues began to have an agonizing sense of the minutes ticking away in New York—an affirmative answer came from Brandt. That was the big one; with the chief creditor and two of the three others in line, it was all but certain that Ansbacher would join up. At around 4 P.M. London time, Ansbacher did, and Levy was finally able to place the call that Funston had been waiting for. Their mission accomplished, the Americans went straight to the London airport, and within three hours were on a plane headed home.
On getting the good news, Funston felt that the whole agreement was pretty well in the bag at last, since all that was needed to seal the bag was the signatures of the fifteen Haupt general partners, who seemed to have nothing to lose and everything to gain from the plan. Still, the task of getting those signatures was a vital one. Short of a bankruptcy suit, which everyone was trying to avoid, no liquidator could distribute the Haupt assets—not even the marble-topped cabinets and the refrigerators—without the partners’ permission. Accordingly, late on Monday afternoon the Haupt partners, each accompanied by his lawyer, trooped into Chairman Watts’s office at the Stock Exchange to learn exactly what fate the Wall Street powers had been arranging for them.
The Haupt partners could hardly have found the projected agreement pleasant reading, inasmuch as it prescribed, among other things, that they were to execute powers of attorney giving a liquidator full control over Haupt’s affairs. However, one of their own lawyers gave them a short, pungent talk pointing out that they were personally liable for the firm’s debts whether or not they signed the agreement, so they might as well be public-spirited and sign it. More briefly, they were over a barrel. (Many of them later filed personal bankruptcy papers.) One startling event broke the even tenor of this gloomy meeting. Shortly after the Haupt lawyer had wound up his disquisition on the facts of life, someone noticed an unfamiliar and strikingly youthful face in the crowd and asked its owner to identify himself. The unhesitating reply was “I’m Russell Watson, a reporter for the Wall Street Journal.” There was a short, stunned silence, in recognition of the fact that an untimely leak might still disturb the delicate balance of money and emotion that made up the agreement. Watson himself, who was twenty-four and had been on the Journal for a year, has since explained how he got into the meeting, and under what circumstances he left it. “I was new on the Stock Exchange beat then,” he said afterward. “Earlier in the day, there had been word that Funston would probably hold a press conference sometime that evening, so I went over to the Exchange. At the main entrance, I asked a guard where Mr. Funston’s conference was. The guard said it was on the sixth floor, and ushered me into an elevator. I suppose he thought I was a banker, a Haupt partner, or a lawyer. On the sixth floor, people were milling around everywhere. I just walked off the elevator and into the office where the meeting was—nobody stopped me. I didn’t understand much of what was going on. I got the feeling that whatever was at stake, there was general agreement but still a lot of haggling over details to be done. I didn’t recognize anybody there but Funston. I stood around quietly for about five minutes before anybody noticed me, and then everybody said, pretty much at once, ‘Good God, get out of here!’ They didn’t exactly kick me out, but I saw it was time to go.”
During the haggling phase that followed—a painfully protracted one, it developed—the Haupt partners and their lawyers made a command post of Watts’s office, while the bank representatives and their lawyers camped in the North Committee Room, just down the hall. Funston, who was determined that news of a settlement should be in the hands of investors before the opening of the market next morning, was going wild with irritation and frustration, and in an effort to speed things up he constituted himself a sort of combination messenger boy and envoy. “All Monday evening, I kept running back and forth saying, ‘Look, they won’t give in on this point, so you’ve got to,’” he recalls. “Or I’d say, ‘Look what time it is—only twelve hours until tomorrow’s market opening! Initial here.’”
At fifteen minutes past midnight, nine and three-quarters hours before the market’s reopening, the agreement was signed in the South Committee Room by the twenty-eight parties at interest, in an atmosphere that a participant has described as one of exhaustion and general relief. As soon as the banks opened on Tuesday morning, the Stock Exchange deposited seven and a half million dollars, a sum amounting to roughly one-third of its available reserve, in an account on which the Haupt liquidator could draw; the same morning, the liquidator himself—James P. Mahony, a veteran member of the Exchange’s staff—moved into the Haupt offices to take charge. The stock market, encouraged by confidence in the new President or by news of the Haupt settlement, or by a combination of the two, had its greatest one-da
y rise in history, more than eliminating Friday’s losses. A week later, on December 2nd, Mahony announced that $1,750,000, had already been paid out of the Stock Exchange account to bail out Haupt customers; by December 12th, the figure was up to $5,400,000, and by Christmas to $6,700,000. Finally, on March 11, 1964, the Exchange was able to report that it had dispensed nine and a half million dollars, and that the Haupt customers, with the exception of a handful who couldn’t be found, were whole again.
THE agreement, in which some people saw an unmistakable implication that Wall Street’s Establishment now felt accountable for public harm caused by the misdeeds, or even the misfortunes, of any of its members, gave rise to a variety of reactions. The rescued Haupt customers were predictably grateful, of course. The Times said that the agreement was evidence of “a sense of responsibility that served to inspire investor confidence” and “may have helped to avoid a potential panic.” In Washington, President Johnson interrupted his first business day in office to telephone Funston and congratulate him. The chairman of the S.E.C., William L. Cary, who was not ordinarily given to throwing bouquets at the Stock Exchange, said in December that it had furnished “a dramatic, impressive demonstration of its strength and concern for the public interest.” Other stock exchanges around the world were silent on the matter, but if one may judge by the unsentimental way that most of them do business, some of their officials must have been indulging in a certain amount of headshaking over the strange doings in New York. The Stock Exchange’s member firms, who were assessed for the nine and a half million dollars over a period of three years, appeared to be generally satisfied, although a few of them were heard to grumble that fine old firms with justified reputations for skill and probity should not be asked to pay the losses of greedy upstarts who overstep and get caught out. Oddly, almost no one seems to have expressed gratitude to the British and American banks, which recouped something like half of their losses. It may be that people simply don’t thank banks, except in television commercials.
The Stock Exchange itself, meanwhile, was torn between blushingly accepting congratulations and prudently, if perhaps gracelessly, insisting that what it had done wasn’t to be regarded as a precedent—that it wouldn’t necessarily do the same thing again. Nor were the Exchange’s officials at all sure that the same thing would have been done if the Haupt case had occurred earlier—even a very little earlier. Crooks, who was chairman of the Exchange in the early 1950s, felt that the chances of such action during his term would have been about fifty-fifty. Funston, who assumed his office in 1951, felt that the matter would have been “questionable” during the early years of his incumbency. “One’s idea of public responsibility is evolutionary,” he said. He was particularly annoyed by the idea, which he had heard repeatedly, that the Exchange had acted out of a sense of guilt. Psychoanalytic interpretations of the event, he felt, were gratuitous, not to say churlish. As for those older governors who glared, quite possibly balefully, at the negotiations from their gilt frames in the Governors’ Room and the North and South Committee Rooms, their reaction to the whole proceeding may be imagined but cannot be known.
7
The Impacted Philosophers
AMONG THE GREATEST problems facing American industry today, one may learn by talking with any of a large number of industrialists who are not known to be especially given to pontificating, is “the problem of communication.” This preoccupation with the difficulty of getting a thought out of one head and into another is something the industrialists share with a substantial number of intellectuals and creative writers, more and more of whom seem inclined to regard communication, or the lack of it, as one of the greatest problems not just of industry but of humanity. (A group of avant-garde writers and artists have given the importance of communication a backhanded boost by flatly and unequivocally proclaiming themselves to be against it.) As far as the industrialists are concerned, I admit that in the course of hearing them invoke the word “communication”—often in an almost mystical way—over a period of years I have had a lot of trouble figuring out exactly what they meant. The general thesis is clear enough; namely, that everything would be all right, first, if they could get through to each other within their own organizations, and, second, if they, or their organizations, could get through to everybody else. What has puzzled me is how and why, in this day when the foundations sponsor one study of communication after another, individuals and organizations fail so consistently to express themselves understandably, or how and why their listeners fail to grasp what they hear.
A few years ago, I acquired a two-volume publication of the United States Government Printing Office entitled Hearings Before the Subcommittee on Antitrust and Monopoly of the Committee on the Judiciary, United States Senate, Eighty-seventh Congress, First Session, Pursuant to S. Res. 52, and after a fairly diligent perusal of its 1,459 pages I thought I could begin to see what the industrialists are talking about. The hearings, conducted in April, May, and June, 1961, under the chairmanship of Senator Estes Kefauver, of Tennessee, had to do with the now famous price-fixing and bid-rigging conspiracies in the electrical-manufacturing industry, which had already resulted, the previous February, in the imposition by a federal judge in Philadelphia of fines totaling $1,924,500 on twenty-nine firms and forty-five of their employees, and also of thirty-day prison sentences on seven of the employees. Since there had been no public presentation of evidence, all the defendants having pleaded either guilty or no defense, and since the records of the grand juries that indicted them were secret, the public had had little opportunity to hear about the details of the violations, and Senator Kefauver felt that the whole matter needed a good airing. The transcript shows that it got one, and what the airing revealed—at least within the biggest company involved—was a breakdown in intramural communication so drastic as to make the building of the Tower of Babel seem a triumph of organizational rapport.
In a series of indictments brought by the government in the United States District Court in Philadelphia between February and October, 1960, the twenty-nine companies and their executives were charged with having repeatedly violated Section 1 of the Sherman Act of 1890, which declares illegal “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations.” (The Sherman Act was the instrument used in the celebrated trust-busting activities of Theodore Roosevelt, and along with the Clayton Act of 1914 it has served as the government’s weapon against cartels and monopolies ever since.) The violations, the government alleged, were committed in connection with the sale of large and expensive pieces of apparatus of a variety that is required chiefly by public and private electric-utility companies (power transformers, switchgear assemblies, and turbine-generator units, among many others), and were the outcome of a series of meetings attended by executives of the supposedly competing companies—beginning at least as early as 1956 and continuing into 1959—at which noncompetitive price levels were agreed upon, nominally sealed bids on individual contracts were rigged in advance, and each company was allocated a certain percentage of the available business. The government further alleged that, in an effort to preserve the secrecy of these meetings, the executives had resorted to such devices as referring to their companies by code numbers in their correspondence, making telephone calls from public booths or from their homes rather than from their offices, and doctoring the expense accounts covering their get-togethers to conceal the fact that they had all been in a certain city on a certain day. But their stratagems did not prevail. The federals, forcefully led by Robert A. Bicks, then head of the Antitrust Division of the Department of Justice, succeeded in exposing them, with considerable help from some of the conspirators themselves, who, after an employee of a small conspirator company saw fit to spill the story in the early fall of 1959, flocked to turn state’s evidence.
The economic and social significance of the whole affair may be demonstrated clearly enough by citing
just a few figures. In an average year at the time of the conspiracies, a total of more than one and three-quarters billion dollars was spent to purchase machines of the sort in question, nearly a fourth of it by federal, state, and local governments (which, of course, means the taxpayers), and most of the rest by private utility companies (which are inclined to pass along any rise in the cost of their equipment to the public in the form of rate increases). To take a specific example of the kind of money involved in an individual transaction, the list price of a 500,000-kilowatt turbine-generator—a monstrous device for producing electric power from steam power—was often something like sixteen million dollars. Actually, manufacturers sometimes cut their prices by as much as 25 percent in order to make a sale, and therefore, if everything was above board, it might have been possible to buy the machine at a saving of four million dollars; if representatives of the companies making such generators held a single meeting and agreed to fix prices, they could, in effect, increase the cost to the customer by the four million. And in the end, the customer was almost sure to be the public.