He alluded in his talk to the “world-wide financial disturbance” touching Paris, Berlin, and London, but then implied that Wall Streeters were deliberately undermining the US markets to strike at him personally. “It may well be that the determination of the government (in which, gentlemen, it will not waver), to punish certain malefactors of great wealth has been responsible for something of the trouble,” he said, employing a phrase he had scribbled onto the typescript of his speech prepared earlier. He accused the bankers of having “[combined] to bring about as much financial stress as possible, in order to discredit the policies of the government . . . so that they may enjoy unmolested the fruits of their own evil-doing.”
* * *
Theodore Roosevelt’s campaign against “malefactors of great wealth” captivated editorial cartoonists such as Samuel Ehrhart of Puck, who depicted the president bidding farewell to a troupe of tycoons including Morgan and Harriman at the front and John Jacob Astor, John D. Rockefeller, Russell Sage, and Andrew Carnegie trailing behind.
* * *
The bankers may not have thought highly of Roosevelt’s speech, but his own impression, perhaps inevitably, was that it was a roaring success. “My speech told, I believe,” he wrote his son Kermit the next day. “Of course it did not suit Wall Street, but I did not expect that it would.”
The president did not name any individual “malefactors” in his speech, but he hardly needed to be explicit. Any members of the public attentive to current affairs knew that the administration was in the throes of battle with Harriman and the Rockefellers, with Morgan not far removed from Roosevelt’s gun sights. Roosevelt’s associates had even less cause for doubt, as he had been disparaging Harriman in private; in a typical tirade, he called Harriman “at least as undesirable a citizen as Debs, or Moyer, or Haywood” in a letter to New York Republican Congressman James S. Sherman. The references were to the socialist Eugene V. Debs and the radical union leaders Charles Moyer and William “Big Bill” Haywood, both of whom were about to go on trial for the murder of a former Idaho governor. (Haywood, who was defended by Clarence Darrow, would be acquitted and the charges against Moyer dropped.)
Still, throughout this period Roosevelt was not above turning again to his wealthy targets for assistance when crisis beckoned. In October, the markets broke down decisively; the trigger was a failed attempt by a pair of financial adventurers to corner copper stocks, provoking depositor runs on the trust companies that had backed them. These trust companies were shadow banking institutions—as overleveraged and lightly supervised as the “non-bank banks” in the market crash of 2008, a century later. Their activities threatened to bring down the entire financial community, and with it the US economy. The October crash brought together Morgan and George B. Cortelyou, Roosevelt’s treasury secretary, for a series of all-night meetings in New York that resulted in Cortelyou’s commitment of $25 million in government funds to shore up the tottering banks, in return for Morgan’s raising millions more from the banking community to halt the stock market plunge.
The spirit of cooperation shown by the ever-opportunistic Morgan did more to temper Roosevelt’s trust-busting campaign than any amount of public blustering by bankers. After Morgan helped the government weather the crisis, Roosevelt began to soft-pedal his attacks. Partially in recognition of Morgan’s services, Roosevelt even allowed Morgan’s US Steel to acquire yet another steel company, Tennessee Coal & Iron, ostensibly to rescue a large brokerage firm endangered by its investments in the failing TC&I. A debate would rage well into the administration of Roosevelt’s handpicked successor, William Howard Taft, over whether the trustbuster had been duped into approving the merger or yielded to necessity with his eyes wide open. Roosevelt’s version, naturally, was the latter: “We were in the midst of the most intense crisis of the panic,” he said later, explaining that failing to rescue the brokerage would have precipitated “such a crash as we saw in 1893.” The TC&I deal would cast a long shadow, however. Taft would lose a lawsuit to break up US Steel in 1911 partially on the grounds that Roosevelt had implicitly approved the steel trust by waving the TC&I merger through.
* * *
PERHAPS BECAUSE THEY once had had a warm personal relationship, Roosevelt’s treatment of Harriman continued to be distinctly chillier than his relations with Morgan. That was especially evident in Roosevelt’s high-handedness during a catastrophic break in a Colorado River canal that threatened permanently to inundate California’s Imperial Valley, then as now one of the nation’s most productive agricultural regions. Harriman’s Southern Pacific had made a $200,000 loan in June 1905 to the California Development Company, which had incompetently built the canal. (Harriman thought he was investing in an expansion of the valley’s irrigation, which would produce more freight for his railroad—but in an uncharacteristic moment of absent-mindedness, failed to learn of the canal builders’ ineptitude in time.) Roosevelt chose to interpret this modest investment as evidence that the railroad owned the canal company and was therefore responsible for the break.
In an exchange of testy telegrams, the two tried to saddle each other with the cost of repairing the damaged canal and restoring the valley. With icy formality, Harriman on December 13, 1906, tallied all the money the railroad had spent in its fruitless attempt to control the river—roughly $2 million, by his reckoning—on behalf of the valley’s settlers and the federal government. “It does not seem fair,” he wrote, “that we should be called upon to do more.”
Roosevelt replied to Harriman with condescending terseness: “I assume you are planning to continue work immediately on closing break in Colorado River. I should be fully informed as to how far you intend to proceed in the matter.” Harriman offered to contribute his tracks and crews and to allow use of the Southern Pacific’s quarries for gravel, but he asked that the labor be performed by men employed by the government’s Reclamation Service. “Can you bring this about?” he asked Roosevelt.
* * *
A poorly constructed canal cut into the Colorado River produced a devastating flood over California’s Imperial Valley, wiping out farms and railroad tracks until the Southern Pacific, at Harriman’s direction and Roosevelt’s insistence, muscled the unruly river back into its natural course.
* * *
The president refused the bait. He promised Harriman to ask Congress to reimburse the railroad for the repair work when it reconvened in the new year. But he told Harriman on December 20, “This is a matter of such vital importance . . . that there is not the slightest excuse for the California Development Company [that is, the Southern Pacific] waiting an hour for the action of the Government.” That very day Harriman wired Epes Randolph, his on-site engineering chief: “Close that break at all cost.” The job would take seven attempts over eighteen months, and cost the railroad more than $3.2 million.
Roosevelt would exploit the great flood to his own advantage. On January 12, 1907, even before the Southern Pacific closed the breach, he delivered to Congress his personal vision of a vast western desert reclaimed for agriculture. He proposed a monumental program of “diversion dams and distribution systems in the arid West,” summing it all up as “a broad comprehensive scheme of development for all the irrigable land upon [the] Colorado River . . . so that none of the water of this great river which can be put to beneficial use will be allowed to go to waste.” (More than a quarter century later, Theodore Roosevelt’s distant cousin Franklin would preside over the dedication of the first great Colorado River project built in response to his call for action: Hoover Dam.)
The ICC investigation and Roosevelt’s relentless attacks had severely eroded Harriman’s reputation by 1907. “Very few there were who remained loyal to him,” Kahn would recollect, “and still fewer who dared believe that he would ever recover his old position of prestige and influence.” His friends advised him to resign from his companies and quarantine himself in Europe for a year or more. Yet “amidst all this terrifying din, this avalanche of vituperation, misrepre
sentation, threatening and assault, amidst the desertion of some friends, the lukewarmness of others, amidst the simultaneous strain and stress of a financial panic, . . . Mr. Harriman stood firm as a rock. . . . He never for one moment took his hand off the helm—and thus he rode out the storm.”
Circumstance brought him a chance to regain his “prestige and influence,” in the form of that old financial harlot, the Erie Railroad. In the spring of 1908, the Erie was again on the verge of insolvency. A bond issue of $5.5 million was due to mature on April 8, with no money or credit available for redemption. In Morgan’s library on the afternoon of April 7, an emergency meeting was convened of the Erie board, including Harriman. Morgan himself was in Europe, but his partners made clear that they would not finance the redemption, and indeed already had prepared legal papers to place the road in receivership.
Harriman listened silently to the dispirited discussion, smoking and staring into the fire. In his mind, receivership portended disaster—not only for the Erie, but for the still-nascent recovery from the 1907 panic. If the Erie defaulted, so too would every other company still struggling to work its way out of the post-panic economic doldrums. The depression would be indefinitely prolonged. Finally he spoke up. He would advance the entire $5.5 million, he said, if the other directors would lend him the money on his collateral. The deadline for redemption was 3 P.M. on April 8. The deal was done before noon.
Harriman’s venture to rescue the Erie by placing his own assets at risk transformed him into the hero of the hour. “He has taken a heavy load from off the market and ought to receive the gratitude of the public,” asserted the Commercial and Financial Chronicle. The New York Times contrasted Harriman’s bold action with his longtime adversary’s timidity: “Harriman Cash Saves the Erie,” its headline read the next day; “Morgan Plan a Failure.”
But this would be Harriman’s last major financial deal. The following spring, his health failing, he sailed to Europe for a rest cure—after a preliminary trip west to Mazatlán to inspect the Mexican branch of the Southern Pacific, which had just been completed. The full roster of his medical ailments has not been documented, but they certainly included chronic bronchitis, ulcerative colitis, and physical exhaustion. At the end of August, when he disembarked from his return voyage at Jersey City, he insisted on meeting personally with the throng of reporters, as though to demonstrate his haleness. It was a bad idea, for the reporters instead witnessed the gaunt tycoon, his skin a waxy yellow, collapsing several times into the arms of an associate. “I’m feeling fine,” he gasped out. “It’s only that seasickness again.” Commented the New York Tribune, with a solicitude that would have been unthinkable only two years earlier, “E.H. Harriman will go down in Wall Street history as the gamest little man that ever lived.”
He was game almost to the last breath. After leaving the waterfront on August 24 he was taken directly to Arden House, the country home he had built north of New York City some twenty years before, on the outskirts of a community now known as Harriman, New York. He never left Arden again. The end came on September 9, at the age of sixty-one. Jacob Schiff recalled for a friend his last conversation with Harriman, days before his death. “He did not believe for a moment that his last hour was near . . . He talked so confidently about his plans! . . . I myself almost believed he would recover.”
* * *
Showing the ravages of multiple infirmities and what friends considered the rigors of overwork, a gaunt Harriman pays one of his final visits to his Manhattan headquarters before heading home to Arden, where he passed away on September 9, 1909, at sixty-one.
* * *
MORGAN OUTLIVED HARRIMAN by more than three years, but his final years were trying psychically and physically. His particular burden was the congressional investigation of Wall Street in which Representative Arsène Pujo, Democrat of Louisiana, placed Morganization in the dock.
Morgan spent a day and a half on the witness stand starting Wednesday, December 18, 1912, getting politely but relentlessly interrogated by Samuel Untermyer, Pujo’s counsel. Untermyer bore down on the intricate threads tying together the country’s banks and industrial enterprises, all of which seemed to run through Morgan’s hands. Morgan’s denial that he had any real power rang transparently false.
“Your firm is run by you, is it not?” Untermyer asked.
“No, sir.”
“You are the final authority, are you not?”
“No, sir.”
“You have never been?”
“Never have.”
Untermyer then asked, “You do not think you have any power in any department of industry in this country?”
“I do not.”
“Not the slightest?”
“Not the slightest. . . . I am not seeking it, either.”
When the ordeal was over, Pierpont accepted the plaudits of his family and partners for having seemingly bested Untermyer with his resolute circumspection and oracular mien. Pierpont’s daughter Louisa confided to her diary: “Father made a magnificent showing. Untermyer nowhere.”
Yet the experience had left the seventy-five-year-old financier profoundly rattled. “The long preparation and the inimical atmosphere of the committee room had offended him deeply and wearied him extremely,” reported that assiduous chronicler, Herbert Satterlee. Morgan spent the last months of his life haunted by the experience. A doctor treating him in Cairo, where he took respite in March, diagnosed him as having been laid low by “nervous depression and insomnia,” which were manifestations of “prolonged excessive strain.” Biographer Jean Strouse reported that his visitors found him “thin, exhausted, terrified of losing his mind, obsessed with the idea that he was about to be subpoenaed or cited for contempt of court, and that he was dying.” Never fully regaining his equilibrium, he died in Rome on March 31, 1913, after suffering through bouts of delirium possibly caused by a series of strokes.
Pujo had released his report on the “money trust” one month earlier, on February 28, and it became clear from its 258-page text that Morgan had not pulled the wool over his interrogator’s eyes at all. The committee laid out in pitiless detail all the interrelationships and financial maneuvers of a small group of powerful men, which Morgan had tried to obscure. The report devoted special attention to “our archaic, extravagant, and utterly indefensible procedure for the reorganization of insolvent railroads”—one of the capstones of “Morganization”—concluding that these arrangements had furnished to the interconnected banking groups “opportunities of which they have not been slow to avail themselves, of securing the dominating relation that they now hold to many of our leading railroad systems.” Pujo acknowledged that Morgan and his ilk had “added to the prosperity of the country” in some ways, but nonetheless concluded that they had broken the law to the extent they aimed “to throttle the competition upon which they had thrived. . . . Whilst they were struggling against one another for supremacy they were a valuable asset to the country; since they have pursued the opposite policy they have become a menace.”
The Pujo Report would provide grist for financial reformers for decades, perhaps none so august as a Boston lawyer named Louis Brandeis, presently to be appointed to the Supreme Court by Woodrow Wilson. A few weeks after the report appeared, Brandeis pored over it line by line with Untermyer, and soon produced a deconstruction of the report for the general reader, published as a series of articles in Harper’s and in book form under the title Other People’s Money, and How the Bankers Use It.
Here Brandeis set forth the themes that would undergird his jurisprudence during his twenty-three years as one of the court’s outstanding progressive figures. These included a deep skepticism of “bigness” in government and business, especially when it placed inordinate power in too few hands: “Big railroad systems, Big industrial trusts, Big public service companies; and as instruments of these[,] Big Banks and Big trust companies.” He scoffed at Morgan’s rationalization before the Pujo Committee that financial concentration was d
emanded by “the needs of Big Business.” Those ostensible needs were merely justifications for lawbreaking.
Brandeis argued that the bankers’ power over capital allocation put the economic cart before the horse. Morgan and his colleagues portrayed themselves as crucial players in the creation of great industries; Brandeis argued that they should be seen instead as rent-seeking exploiters of spadework done by others. He ridiculed Morgan’s claim that “practically all the railroad and industrial development of this country has taken place initially through the medium of the great banking houses,” writing,
On the contrary nearly every such contribution to our comfort and prosperity was “initiated” without their aid. The “great banking houses” came into relation with these enterprises, either after success had been attained, or upon “reorganization” after the possibility of success had been demonstrated but the funds of the hardy pioneers, who had risked their all, were exhausted. This is true of our early railroads, of our early street railways, and of the automobile; of the telegraph, the telephone and the wireless; of gas and oil; of harvesting machinery. . . . The initiation of each of these enterprises may properly be characterized as “great transactions”; . . . But the instances are extremely rare where the original financing of such enterprises was undertaken by investment bankers, great or small. [Emphasis in the original.]
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