by Jean Strouse
“All hands are leaning on the Senior,” Perkins cabled Jack in London before he went home—“he is in fine form.” The old man was in fine form, although he had come down with a heavy cold. He had had no time for lunch and barely touched his dinner on Tuesday. Instead of food he was consuming cigars.
The next morning—Wednesday, October 23—the Satterlees had trouble waking him up. When they finally succeeded, he had no voice and seemed to be in a stupor. Dr. Markoe came and dosed him with lozenges, gargles, and sprays.
John D. Rockefeller, at the urging of his philanthropic adviser, told the Associated Press on October 23 that he would give half his fortune to sustain the country’s credit in this crisis. When reporters asked him if he was really willing to put up half his securities to stop the panic, he said, “Yes, and I have cords of them, gentlemen, cords of them.”
On arriving, late, at 23 Wall Street, Morgan found Harriman, Frick, and Thomas F. Ryan waiting to ask him how to stop the spreading disaster. He said he did not yet know. He called several trust company presidents to his office at noon, settled them in a back office, and told them to come up with a plan.
That morning’s headlines—AID TRUST COMPANY OF AMERICA: J. P. MORGAN IS TO HELP—spooked the TCA depositors, who lined up to get their money out. At 1:00 P.M., TCA president Oakleigh Thorne told Morgan he had only $1.2 million in cash left. Without a loan he could not stay open until closing time at 3:00. As Thorne left the Morgan bank, Ben Strong arrived with a preliminary report on the TCA finances. He and Davison had stayed up all night studying the accounts. Strong later recalled that as he presented his findings to the senior trio (Morgan, Baker, and Stillman), Morgan said little: the old man wanted no details, just general facts and results. Several times he asked, “Are they solvent?” Strong said the TCA surplus was gone but its assets were more or less intact.
Would the bankers be justified in seeing this company through? Morgan wanted to know.
Strong said he thought they would.
Morgan turned to Baker and Stillman: “This is the place to stop the trouble, then.”
He dismissed the trust company presidents, and asked Thorne to come back with securities TCA had accepted as collateral for its loans. By 2:15 Thorne’s cash was down to $180,000, and his employees were trooping into 23 Wall Street with leather boxes and sacks full of certificates. Morgan, Strong, and Thorne sat down around a big table to add up the value of the stocks and bonds. Stillman got on the phone to his bank. Morgan, coughing and sneezing, took notes on a pad, and as soon as he had enough collateral for an advance, told Stillman to send that amount around to the Trust. By 3:00, about $3 million had been delivered and the Trust Company of America had, for the moment, survived. The advance from Stillman’s till would be shared in equal parts by First National, National City, the Hanover National, and J. P. Morgan & Co. The securities went down to the Morgan vault.
Strong spent the rest of that day and night confirming his appraisal of the TCA’s assets. Baker trusted Davison; Davison trusted Strong. The key figure supplying Morgan with crucial information during this crisis was a man he had just met.
Though the TCA had pulled through until closing time on October 23, it was not yet in the clear, and other institutions were getting clobbered. Westinghouse had gone into receivership, a run had started on the Lincoln Trust Company, and the Pittsburgh Stock Exchange had suspended trading—which would probably precipitate a stock market panic in New York. The interest rate on call money loaned by banks to brokers on the Exchange had risen to 90 percent. The entire credit structure of the country was under siege.
Morgan told the heads of the trust companies to meet him, Baker, and Stillman late that night at the Union Trust, on Fifth Avenue at 38th Street. Once they had assembled, he announced that a trust company panic was at the root of all the trouble: the TCA was going to need $10 million the next day, and if the solvent trusts pledged money, the commercial banks and Morgan’s firm would help. The presidents talked. Nothing happened. Prepared for this impasse, George Baker directed the head of Bankers Trust to commit $1 million. The others made no move.
Sick and worn-out, Morgan fell asleep in his chair, cigar in hand. Talk continued around him for half an hour. When he woke up, he asked Strong for a pencil and paper. “Gentlemen,” he said, “the Bankers Trust Company has agreed to take its share.” Turning to one of the men near him, he asked, “Mr. Marston, how much will the Farmers Loan and Trust Company subscribe?” Marston agreed to match the Bankers Trust pledge. Morgan went around the room until he had $8.25 million. He committed the commercial banks to make up the rest, and left with Stillman to bring Cortelyou up to date.
After conferring with the bankers, the Treasury Secretary told reporters that the government would deposit another $25 million in New York to ease the crisis. He himself would stay in Manhattan, working out of the Subtreasury. If the public would “reflect on the real strength of our banking institutions,” he advised, confidence would quickly return.
Morgan went home. Perkins cabled Jack in London: “We have had tremendous day; whole financial district thronged with people.… As far as human foresight can tell, believe we have passed the crisis; Thursday will decide. All well!”
CORTELYOU PUTS IN $25 MILLION, announced The New York Times on Thursday morning, and MORGAN’S BANK LEAGUE WILL DO FOR THE TRUST COMPANIES WHAT THE CLEARING HOUSE DOES FOR THE BANKS. As Morgan drove down to his office at ten, people shouted, “There goes the Old Man!” and “There goes the Big Chief!” He pretended not to notice, recalled Satterlee, “but it was evident that he was pleased.”
John D. Rockefeller provided $10 million to support the trust companies on Thursday, but the panic had spread to the Stock Exchange. Financial institutions calling in loans were choking off the market’s money supply. Every few minutes a broker came into J. P. Morgan & Co. from the Exchange across the street to report on plummeting stock prices. By 12:30 cash was so scarce that the call rate reached 100 percent. At 1:30, Stock Exchange president Ransom H. Thomas told Morgan he would have to suspend operations before the 3:00 P.M. close.
Shutting down the Exchange was out of the question, Morgan said. It would destroy public confidence. He would find money to lend the brokers.
Because of the Armstrong laws, he could no longer borrow cash from the big life insurance companies. Instead, he telephoned the presidents of New York’s major commercial banks, and by 2:00 they were gathered in his office. He said he needed $25 million to lend to the Exchange or fifty brokerage houses would fail. Stillman pledged $5 million from the City Bank. Minutes later, Morgan had $23.5 million. When he sent word of relief to the trading floor, euphoric traders ripped the messenger’s coat off. The market took up $19 million in half an hour, at rates ranging from 10 to 60 percent. “The rebound was instantaneous,” reported the Times. The Exchange stayed open till 3:00.
Thursday had been the fourth straight day of panic. As the hysteria spread, banks across the country stepped up their withdrawals from New York. Perkins cabled Jack at 4:30 A.M.: “Situation appears very desperate … several New York State banks probably cannot get through tomorrow.… All things considered I am very apprehensive and yet there is chance still to get through.”
On Friday morning, Morgan, Baker, and Stillman announced that they would furnish more money to the Stock Exchange and the trusts, but by noon the call-money rate had soared to 150 percent. Morgan gathered the commercial bankers at the Clearing House and raised another $10 million to be lent to the Exchange at 25 to 50 percent. He marched back to his office to notify the floor: “With his coat unbuttoned and flying open, a piece of white paper clutched tightly in his right hand, he walked fast down Nassau Street,” reported Satterlee. “His flat-topped black derby hat was set firmly down on his head. Between his teeth he held a paper cigar holder in which was one of his long cigars, half smoked. His eyes were fixed straight ahead. He swung his arms as he walked and took no notice of anyone. He did not seem to see the throngs in the street
, so intent was his mind on the thing that he was doing.… He simply barged along, as if he had been the only man going down the Nassau Street hill past the Subtreasury.… Not more than two minutes after he disappeared into his office, the cheering on the floor of the Stock Exchange could be heard out in Broad Street.”
As Morgan left his office late that afternoon, he told reporters that if people would leave their money in the banks, everything would be all right. Perkins cabled Jack: “We have successfully passed another day and feel much encouraged. This gives us till Monday in which to try to restore confidence. All well.”
The Stock Exchange had weathered its siege, and most of the trusts were still open. No money would be lent over the weekend. Before the Morgan teams took a recess, however, they set up a public relations committee to give out encouraging information to the press, and a spiritual relations committee that urged city clergymen to counsel calm.
Lord Rothschild in London praised “the unselfish, remedial action of Mr. Morgan. Before now it has been generally recognized and agreed that he is worthy of his reputation as a great financier and a man of wonderful resources. His latest action fills one with admiration and respect.” Jacob Schiff told an English friend that no one else “could have got the banks to act together, and to join hands in the work, as [Morgan] did, in his autocratic way.”
Saturday’s newspapers reported that $5 million in gold would be sent from London, that confidence had returned to the French Bourse, “owing to the belief that the strong men in American finance would succeed in their efforts to check the spirit of the panic,” and that “J. P. Morgan has a cold.” With liquidity still New York’s chief problem, the senior trio on Saturday authorized a $100 million issue of Clearing House certificates—temporary paper loans that would expand the currency in circulation.§
Morgan, who had not had more than five hours’ sleep any night that week, took a Saturday-afternoon train to Cragston and slept most of the way. “Very quiet evening,” wrote Fanny in her diary. “[P.] says he feels that the end of the trouble has come.” All day Sunday it rained. From pulpits throughout the city, religious leaders told people not to panic.
Roosevelt had been on the sidelines all week. In Nashville on Tuesday, October 22, he insisted that his policies had not caused the panic, and promised to pursue them “unswervingly.” He paid a visit that afternoon to Andrew Jackson’s Hermitage—perhaps to align himself with another president who had challenged a financial elite, although October 1907 was a poor moment to highlight the parallel: Jackson’s destruction of the Second U.S. Bank had left the country with no national monetary authority and therefore dependent on men like Morgan. After TR returned to Washington Wednesday night and conferred with Bob Bacon and Elihu Root, he changed his tune. He sent Cortelyou a letter designed for publication—the newspapers printed it on Sunday—congratulating the Treasury Secretary and “those conservative and substantial business men who in this crisis have acted with such wisdom and public spirit.” The fundamentals of the American economy were essentially sound, the President wrote, and the actions taken in New York to check the panic should “produce entire confidence in our business conditions.”
Late Sunday afternoon, Morgan returned to the city. Perkins cabled Jack that night: “The week’s work has been one of the greatest of all the Senior’s triumphs. He is being showered with congratulations. Believe we have the situation well in hand. All well here, but very shy on sleep.”
By Monday nearly $20 million of European gold had started for New York, but the bankers did not yet have the situation in hand. The next domino to totter was New York City. Mayor George B. McClellan (son of the Civil War general) came to see Morgan, Baker, and Stillman on Monday afternoon. The city needed $30 million to meet its payroll and interest obligations, and there was no money to borrow. Without help, New York would be bankrupt by the end of the week. The trio put together a syndicate to take $30 million in municipal revenue bonds paying 6 percent—Morgan traded them for new Clearing House certificates credited to the city’s accounts at the First National and City Banks—and New York did not default.
On Tuesday, U.S. Steel reported third-quarter earnings of almost $44 million—second only to the figures reported in June—and holdings of $76 million in cash. Judge Gary made an explicit point of the corporation’s strength, hoping to offset the current “delirium.”
For the rest of the week the battle-fatigued Morgan troops continued to shore up trusts, plug holes in the banking system with cash, scan the financial horizon for more signs of trouble, and try to steady shattered nerves. When one banker reported to 23 Wall Street that he was worried because his reserve had dipped below the legal limit, Morgan snapped: “You ought to be ashamed of yourself to be anywhere near your legal reserve. What is your reserve for at a time like this except to use?”
Morgan’s men met at the library every day and issued optimistic reports each night, but on Friday, November 1, the probable failure of a brokerage house called Moore & Schley threatened to set off a new round of panic.
This firm, headed by Grant Schley, had played a leading role in the promotion of industrial mergers between 1898 and 1902—second in prominence only to the house of Morgan. It was for years the largest brokerage on Wall Street. In the fall of 1907 Moore & Schley owed about $35 million to various banks, and among the securities it had used to guarantee its loans were shares of the Tennessee Coal, Iron & Railroad Company, an independent steel producer with headquarters in Birmingham, Alabama. The brokerage house did not actually own this stock. Grant Schley had helped organize two syndicates in 1905–6 to buy a controlling interest in TC&I shares. His firm had lent money to members of both syndicates, taking TC&I stock as collateral, and then pledged the shares again to secure its own bank loans. A prominent member of the syndicates was John W. “Bet-a-Million” Gates, who controlled Republic Iron & Steel in Birmingham, and was hoping to build a steel empire in the South.
What happened with TC&I in 1907 provoked more controversy than any other aspect of the two-week panic, and became the subject of congressional investigations in 1909 and 1911. Witnesses gave testimony at the second hearing that directly contradicted what they said at the first, and made statements that bore little relation to facts recorded at the time. There has been so much dispute about these events, and so many conflicting retrospective claims on all sides, that it is nearly impossible to reconstruct the complete story.
The problem in late October 1907 had to do at first not with Moore & Schley but with Schley himself and one of his syndicate partners, a wine merchant named George Kessler. Both had been speculating in TC&I stock and using the shares as collateral for large loans. Kessler was vastly overextended, with accounts at ten different houses. When his brokers asked him to pay off his loans and take back the stock, he could not come up with cash.
The banks that autumn refused to accept more TC&I stock as collateral, Schley said later, partly because the bankrupt Kessler’s “name had been mixed up with it.” Another reason was that the value of the shares had fallen far below $130, the price Schley’s second syndicate had paid. There were no transactions at the asking price of 135, and steel industry experts considered the shares worth only about 60. Asked again what had caused the banks’ objection to TC&I, Schley this time answered: “Chiefly its position marketwise …”
Schley himself was also hugely leveraged in 1907. He owed money to his firm, his friends, and several banks—about $1 million to J. P. Morgan & Co., and more than $2 million to First National—and he could not cash out on the unmarketable TC&I stock. At the beginning of the panic he had taken his case to Morgan, who arranged for U.S. Steel to lend him $1.2 million worth of its own bonds for eighteen months, taking $2 million worth of TC&I shares valued at 60 as security. No one else would lend against TC&I even at 60, less than half the 135 asking price. The Steel loan was a drop in a draining bucket.‖
Two weeks of panic intensified the pressure on Schley. He had been discussing his troubles
all along with another TC&I syndicate member, Oliver Hazard Payne, a director of American Tobacco and Standard Oil (and brother-in-law of the recently deceased William C. Whitney), who had large loans out to Schley and his firm. On Friday, November 1, Payne suggested that the syndicate simply “sell the Tennessee Coal & Iron [company] and be done with it.” There was, both men agreed, only one potential buyer—U.S. Steel. Accordingly, Schley sent for Payne’s lawyer and Morgan’s friend, Lewis Cass Ledyard, to open negotiations for the sale of TC&I. Earlier in the year, George Kessler had tried to interest Morgan in buying TC&I for $130 a share. Morgan had consulted U.S. Steel officials Gary and Frick, who thought the company was not worth that price. At the end of October, Ledyard went over the Moore & Schley books, and asked Schley what would pull him out. Schley said he and the majority of shareholders would be willing “to sell that [TC&I] stock at par [$100].… It had to be disposed of if it could be.”
The next morning Ledyard took this information to Morgan. Kessler had just defaulted, and it looked as though Schley would be next. Morgan, having navigated through two straight weeks of crisis, was determined to forestall further panic, and thought Schley’s failure likely to wreck the incipient recovery. In addition to the brokerage’s $35 million of outstanding debt in Boston, Chicago, Philadelphia, and New York, Schley had borrowed millions on his own. If he went bankrupt and the banks auctioned off his securities, other financial firms would fail as well, returning public confidence would erode, and it would be impossible to raise more money for the still-foundering trusts.