Tuxedo Park

by Jennet Conant

  By early 1929, Loomis and Thorne had pulled off what was in many regards its largest and most important enterprise, merging three important holding companies into a new group known as the Commonwealth & Southern Corp. On January 11, Stimson received from Ellen a glowing report of Bonbright’s success: “Alfred has been having thrilling days,” she wrote, referring to the prospects for another new utility holding company they were putting together, the United Corporation. “Alfred and Landon have had a most interesting time, and enjoyed every minute of it.”

  While the two brothers-in-law divided the team work according to their individual talents, they were of one mind when it came to doing everything together on a partnership basis. This included adhering to a strict policy of keeping the bulk of their profits in cash. Bonbright, unlike most other investment houses, never carried large inventories of the securities it underwrote—which would prove to be the undoing of many of the biggest promoters of the bull market. With the stock market shattering record after record, paper speculation was spiraling higher and higher, and most of their competitors were betting confidently that the country’s new prosperity would never end. The boundless optimism reached to the highest levels of the government. On October 24, 1929, Thomas Lamont, one of Herbert Hoover’s chief advisers on Wall Street, sent a memo to the White House in which he dismissed the skittish president’s fears about the wild marketplace and, citing the success of new holding companies such as the United Corporation, reassured him that “the future appears brilliant.”

  But Loomis and Thorne were chary of the speculation fever and, like Stimson, doubted it could continue on unchecked. After all, they had been the architects of the so-called second industrial revolution of the twenties: they had helped build the generators that powered the big new automobile, telephone, and appliance factories that fueled the thriving consumer economy. Experts in the law of supply and demand, they understood that the conveyor belt factories that had proliferated across the country were now in danger of saturating the market and watched with foreboding as first automobile sales slumped and then department store earnings dipped for the first time. Loomis would later maintain that everybody on the Street knew the crash was coming, the only difference was that he and Thorne refused to bank on its being inevitably delayed.

  When the house of Morgan, which considered itself the king of the Street in those days, decided to enter the public utility field for the first time, it did the unheard of—and asked Bonbright to act as its ally and agent. Because of their broad experience in power mergers, Loomis and Thorne were able to bring together the different entities and incorporate United as the Morgan-Drexel-Bonbright holding company in record time, without the usual rancor and difficult, drawn-out negotiations. The United Corporation literally united under one umbrella the giant Mohawk-Hudson Corp. of New Jersey, Columbia Gas and Electric, and a string of smaller utility companies—in all, controlling more than a third of the power production in twelve eastern states. Its board was filled by Loomis’ and Thorne’s friends and Morgan men and was as incestuous as could be.

  At the time of the offering in January 1929, Loomis and Thorne suggested a value for the stock that they thought the market would bear and were surprised and somewhat uneasy when Morgan, which had been caught up in the flurry of stock promotion, insisted on a higher price. But Loomis and Thorne masterfully orchestrated the financing, and so persuasive were their arguments in favor of expanding ownership and unifying control, they easily effected the offering at the higher price. The initial market value of the new United Corp. was $260 million. “It was viewed as a great triumph at the time,” said Ed Thorne, “but my father and my uncle realized that the price was unreal—the value wasn’t there behind the stock. After that, they came to the conclusion that the market was completely out of hand and they said, ‘Let’s sell out.’ ”

  Very quietly, over a period of months, Loomis and Thorne liquidated their remaining securities and converted everything into sound, long-term treasury bonds and cash. Then came Black Thursday. When the market broke on October 24, 1929, stock prices plummeted, and stunned investors, many of whom had been buying shares with borrowed money, saw their entire net worth wiped out overnight. As panic seized Wall Street, not everyone looked kindly on the two prudent financiers who were conveniently caught with their “pockets full of money,” as Ed Thorne put it. Others in their class did not fare as well: the Vanderbilts lost an estimated $40 million of their railroad holdings alone, and J. P. Morgan Jr. was thought to have lost at least that much, if not more. It did not help that in the midst of so much despair, with the economic situation deteriorating day after day, Loomis and Thorne continued to profit handsomely. From that time onward, Loomis’ critics would always try to cast a shadow on his prescience, implying that his good fortune in such a dark time could only have been the result of some extraordinary deviousness on his part.

  Maybe they were “just lucky,” as Landon Thorne always maintained, or perhaps, as Loomis would later claim, the mathematical charts he devised to follow the market did not justify gambling on a bell curve. The fact that Loomis made an estimated $50 million during the first few years of the Depression served only to intensify the mystique about the “scientific approach” he used to guide his financial affairs. He was among those few Street veterans who had foiled Black Thursday—Bernard Baruch always claimed that he saw the Crash coming and made a bundle shorting stocks he later bought back at a profit—and his foresight was now legendary. According to one popular theory recounted in Fortune magazine, and which may or may not be apocryphal, Loomis adapted the standard biological growth chart to the problem of timing—namely, when to get into and out of businesses:

  Loomis, it seems, once sat down with graph paper, pencil and documentary material to plot the “growth curves” of various industries along a time axis. According to the story, he decided from this comparative analysis that the time to put your money into any particular industry is while its growth curve is still on the upgrade, and that the time to cash in is just before the curve starts to level off. On this theory, he is also supposed to have decided that public utility investments were the thing to get into in 1920 and to get out from under in early 1929. Some market operators might consider this just a fancy way of saying that it is important to buy at the low and sell at the high, might even raise the point that Mr. Loomis had one of the best inside tracks in Wall Street at the time. . . .

  Loomis and Thorne went into the Depression period with all their balances in cash. Despite “some arguments between them about whether they should get back into the market,” they held their position, insulating themselves from the brutal battering investors took again in 1933 and 1934. They also shrewdly advised those closest to them, including Stimson, who was then serving his second stint as secretary of state, this time in President Herbert Hoover’s beleaguered administration. Stimson, who traveled regularly to New York to consult them about the country’s economic problems, as well as his personal finances, found them “well-heeled and prepared for the future”:

  Alfred and Landon had been very wise in the way they handled affairs over the depression, and incidentally handled mine, and the situation is not discouraging, although nobody knows what is going to happen. They have their own formula and it is a wise one. Having in mind the possibility of inflation and the effect that would have upon long-time investments, they have, therefore, kept their investments all in a very liquid condition, like a boxer in the ring ready to meet danger from any direction. . . .

  Even in a crisis, Stimson found he could always count on Loomis; his loyalty and sound judgment were unshakable. “I always have a feeling of the affection which Alfred Loomis has for me,” he noted in his diary. “It is a very comforting thing.” To his surprise, Stimson discovered he liked Loomis’ smooth partner better than he had first judged. Following “a very satisfactory talk over business conditions” with Thorne, who had obligingly driven out to Highhold from Bay Shore early on a Sunday morning
to meet with the busy secretary of state, Stimson conceded, “He is a very thoughtful, high-minded fellow, and I was glad to find that his views, hopes and ideals corresponded very closely with mine.”

  If Loomis emerged from the Crash in an even stronger position, the opposite was true of the majority of Wall Street bankers and stockbrokers who populated Tuxedo. The Crash wiped out huge fortunes and devastated the community that had once been a smug citadel of inherited wealth. As the Depression took hold in the early 1930s, many families departed from the park, and some of the great mansions were boarded up to reduce maintenance costs or even burned down to save on real estate taxes. Loomis reportedly bailed out several neighbors and made loans to others to help tide them over. If life was difficult for Tuxedo’s elite, it was bleak for the villagers who toiled inside the park, who had for generations been dependent on the residents of the big manor houses for their livelihood. Loomis was more sympathetic to the workingman’s plight than some of his distressed and penny-pinching peers. In 1930, at a meeting of the Tuxedo Park Association, the general manager suggested that wages for employees be reduced from $3.50 per day to $3.00 as a way to economize. When Loomis asked him if he thought he could live on such a wage, he replied that he could not, but then, “he was different.” Loomis objected that he could see no difference, and the wages were not cut.

  Loomis’ own household was not immune to the effects of the Crash. According to one story, a number of the cooks and maids who had served at the elaborate parties at his home and at Tower House had made a practice of listening to the dinner conversation for stock tips and had acted on what they heard—several of them forfeiting their life savings. Gambling on the markets had been the contagion of the Jazz Age, and the women in his private employ, it seemed, were no more immune than the men on Wall Street. When Loomis learned that several of them had lost substantial sums, he immediately called in all seven of his staff, gave them each $1,000, and sternly lectured them “never to invest on the basis of gossip.”

  Chapter 5

  CASH ON THE BARREL

  Once he’s made his mind up about something there’s no talking to him.

  —WR, from Brain Waves and Death

  IN the years following the Crash of 1929, Loomis and Thorne turned increasingly to the field of investment banking, becoming the dominant players in the Bankers Trust Company. They were also the major powers in the Central Hanover Trust Co. and in the First National Bank, which was the old institution of George F. Baker, the “Titan of Tuxedo,” as Cleveland Amory dubbed him, and one of the richest men in the country until his death in 1931. Thorne, who was close to the Baker family, was appointed a director of both Bankers and First National and joined the board of First National. Loomis became a trustee of the Central Hanover, as well as a member of the executive committee of Bankers Trust. While the Bankers Trust, First National, and Central Hanover were not the biggest banks in the city, they were among its most influential. By the beginning of 1932, with their many directorships and overlapping spheres of influence, Loomis and Thorne were towering figures on Wall Street. The New York Evening Journal reported: “[They] are one of the two or three most important financial interests in the banking business. The others are the Rockefellers, with their interest in the Chase National, and the Morgans.”

  As the economic consequences of the Depression necessitated, the two financiers took an active role in trying to restore confidence in the banking industry and avoid a collapse. After a dinner with President Hoover at the White House on January 4, 1932, Stimson raised the matter of “a new proposal for a bank bill” that had come to him from Loomis:

  Alfred Loomis, Landon and George Roberts [senior partner of Winthrop, Stimson, Putnam & Roberts] are all very much troubled over the banking situation and are very much in fear of a really big collapse of all the banks, and they have been working over with the officers of Bankers Trust Company a plan, rather ingenious in its nature which I think Alfred has been at work on, which amounts to an amendment of the banking law and will permit the officers of a closed bank to use its liquid assets to form a new subsidiary and go right on in business, making the new assets available at once for distribution among the depositors and thus restoring credit. The President was at work on the same thing from another aspect. That evening when I was with him, he was talking over the telephone with Barney Baruch and others. So that this suggestion fell right in with his thoughts. He authorized me to arrange an interview between Alfred and George Roberts and Ogden Mills of the Treasury. . . .

  When he got back to Woodley, his baronial estate on the outskirts of the city, Stimson phoned Loomis and company to tell them to “come right on to Washington” to meet with Mills. The evening papers carried a report of the emergency message Hoover had sent to Congress laying out all his defense measures against the panic. Loomis’ proposal, Stimson confided in his diary, “came right in time.” He added: “Everybody is working under pressure now, so I was glad to have my chance to help a little bit.”

  It was a bleak winter, and as the banking crisis became acute, Loomis found himself frequently called to Washington by Stimson, Mills, and other Republican advisers who anxiously sought his advice. Stimson continued to lobby vigorously for Loomis’ amendment to the banking law. He also consulted Loomis, who had close contacts in British banks, about the worsening situation in Europe. There were dreadful reports from Germany, which showed ominous signs of being economically depleted and at the end of its rope. Britain, which regarded Germany as an economic bellwether, was contending with the loss of confidence that had spread to its own banking system, where there had been a run on the pound and the abandonment of the gold standard. Both Stimson and Loomis understood better than most in Hoover’s administration that the fate of American finance was intricately tied to Europe’s. If Germany fell into bankruptcy, it would be vulnerable to the forces of revolution, either on the Right or the Left, and that could only have grave implications for the rest of the world’s fortunes.

  Europe’s travails, however, were secondary to the desperate situation at home. Ten million people were unemployed, and thousands of banks had gone under, with more failures threatened every day. Hoover, who ran for reelection in a climate of fear and confusion, lost by a landslide to Franklin Delano Roosevelt. Distracted by the demands of a brutal campaign, Hoover had overlooked the pressing problem of the war debts, and the half yearly deadline for payment was set for that December 15. During the summer of 1932, the European nations had negotiated a revision of the German war reparations and reached a “gentlemen’s agreement” that this revision depended on the United States’ willingness to accept changes in the European debt structure. Unfortunately, by November 1932, Congress was in no mood to review the debts and defer payment. Two days after the election, both France and Britain delivered notes indicating they might default on their debt payments. The news hit “like a bombshell,” and Stimson would spend his final days in office trying frantically to negotiate a workable compromise. The American banks that had extended the credit reacted in panic and demanded help from the White House. During the tense four-month interregnum, Loomis commuted back and forth to Washington, trying to help Hoover’s lame duck administration push through last minute legislation to rescue the banking industry.

  On February 14, 1933, disaster threatened when Michigan closed all its state banks. Stimson wrote in his diary the following day that he feared there might not be enough time to implement Loomis’ measures:

  Alfred Loomis lunched with us after a long talk at the Treasury all this morning. He had been in a conference with Ogden Mills, [Arthur] Ballantine, and [Eugene] Meyer of the Federal Reserve Board, and others. Then he went back there afterwards and was with them all afternoon and spent the night again with us. The situation is very gloomy. They have decided they cannot get through the measures that Alfred and Landon had proposed to permit failing banks to segregate their good assets and go on in business with those, because it would have all kinds of bad amendmen
ts stuck on it in the House of Congress. So they were trying to work it out a different way, and by nightfall, they had devised a plan by which they thought it could be done through the medium of legislation in the different states aided by a joint resolution from the Federal Government permitting the Comptroller to do things in every state which the state law allowed. . . .

  By the end of the week, Stimson’s worst fears were confirmed. None of the requisite steps had been taken, and when the banks opened again, there would still be no relief in sight:

  The talk at Cabinet Meeting this morning was about the situation at Detroit, which has become very serious and has not yet been settled. . . . Everybody now agrees that the proposed plan of legislation I brought forward a year ago from Alfred Loomis and Landon Thorne is the solution of the general situation throughout the country, but Mills reported that [Democratic senator] Carter Glass would not agree to it in the Senate and that blocked the whole situation. . . .

  It would be left to the new administration to take action. On March 3, the night before Roosevelt’s inauguration, Stimson called Loomis, who was back in New York, and they had a long talk. Loomis was “a good deal worried” and said he thought the approaching weekend would be “the critical one, and we will know better after Roosevelt’s announcement tomorrow what is going to happen and how we are going to weather the storm.” Loomis felt the great danger was that there could be a bad inflation that would upset values and destroy national credit. “That is what everybody is afraid of,” observed Stimson, “and nobody has been able to get Roosevelt to take a strong position on it.”