ANDREW ROSS SORKIN
NEW YORK TIMES BESTSELLING AUTHOR OF TOO BIG TO FAIL
1929
the inside story of the greatest crash in wall street history
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Andrew Ross Sorkin
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For my children, Henry, Max, and Sydney.
Love you always.
The ordinary human being does not live long enough to draw any substantial benefit from his own experience. And no one, it seems, can benefit by the experiences of others. Being both a father and teacher, I know we can teach our children nothing . . . Each must learn its lesson anew.
— Albert Einstein, October 26, 1929
AUTHOR’S NOTE
Many people know 1929 as the year of the stock market crash— the event that triggered the Great Depression and scarred a generation.
But what led to it, and what followed, is a far more intricate, complex drama—one that is misunderstood or unknown. At its core, it is a deeply human story.
After writing Too Big to Fail, about the financial crisis of 2008, I wanted to explore the most infamous crash in history with the same level of depth, granular detail, and human emotion—not just to tell the story but to better understand what we might learn from it.
The narrative that follows is the product of more than eight years of reporting and thousands of hours of research: an account built on private letters, diaries, memos, notes, oral histories, court records, board transcripts, depositions, and lawsuits—some of which had never been published or closely examined.
In one instance, I was granted access, for the very first time, to the confidential board minutes of the Federal Reserve Bank of New York during the most pivotal months of 1929. In another, I was able to secure a revealing, unpublished memoir of a Wall Street insider who lived through it all.
Each scene in this book was assembled from fragments: an offhand remark in a four-hundred-page transcript, a forgotten oral history, a clipped line in a newspaper, a floor plan showing how far someone had to walk to deliver a message. Detail by detail, layer by layer, the picture came into focus.
By understanding the motivations and disparate stories of the central actors, we can begin to understand how this calamity happened. Which is why this is not a story about those who endured the fallout—it’s about those who helped set it in motion, because that’s where the responsibility lies, and where the lessons remain.
What emerged from this work changed how I understood this period in history. Much of what I uncovered challenged my assumptions—and may challenge yours. And if the characters, issues, and policy choices from that time appear to echo our present moment a little too clearly, that’s because they do.
The arc of the story of 1929 may feel like the response to Ernest Hemingway’s famous line: “How did you go bankrupt?”
“Two ways,” Hemingway’s character replies. “Gradually, then suddenly.”
That’s how confidence—the lifeblood of our economy— disappears: gradually, and then suddenly.
While I was fortunate to uncover previously unseen documents during my research, this book would not exist without the enduring scholarship of others. Because this is written as a narrative,
most citations appear in the endnotes, along with commentary that expands or contextualizes particular details.
I’m indebted to the many researchers, archivists, economists, and historians who devoted their lives to studying this period; to the journalists who wrote contemporaneously in the newspapers and magazines of the time; and to authors like John Kenneth Galbraith, whose The Great Crash 1929 remains canonical; John Brooks, whose Once in Golconda is a classic; and Gordon Thomas and Max Morgan-Witts, who wrote the riveting The Day the Bubble Burst. There are many more who are credited at the end of this volume.
In 1920, H. G. Wells, the futurist, already anxious about the direction of the modern world, wrote: “Human history becomes more and more a race between education and catastrophe.”
I didn’t write this narrative to declare a winner in that race. But I hope that by piecing together the story of 1929, I’ve made the path a little clearer—and the stakes a little harder to ignore.
THE CAST OF CHARACTERS AND THE COMPANIES THEY KEPT
FINANCIAL INSTITUTIONS
THE HOUSE OF MORGAN
John Pierpont Morgan Sr., founder
J. P. “Jack” Morgan Jr., partner, son of John Pierpont Morgan
Thomas William Lamont, partner
Thomas Stilwell Lamont, partner, son of Thomas William Lamont
George Whitney, partner
Henry Davison, partner
Dwight Morrow, former partner, ambassador to Mexico
Russell Cornell Leffingwell, partner
Frank Bartow, partner
THE CAST OF CHARACTERS AND THE COMPANIES THEY KEPT
Parker Gilbert, partner and associate
Martin Egan, publicist
NATIONAL CITY COMPANY AND NATIONAL CITY BANK
Charles Edwin Mitchell, chairman and CEO
Hugh Baker, head of National City’s stock-trading unit
Gordon Rentschler, bank president
COUNTY TRUST COMPANY
James Riordan, founder and president
CHASE NATIONAL BANK
Albert H. Wiggin, chairman and CEO
FIRST NATIONAL BANK OF NEW YORK
George F. Baker Sr., chairman
George F. Baker Jr., vice chairman
BANKERS TRUST
Seward Prosser, chairman
IRVING TRUST
Lewis Pierson, chairman
REICHSBANK
Dr. Hjalmar Schacht , president
BUSINESS LEADERS
Colonel Sosthenes Behn, founder and chairman of International Telephone and Telegraph
Louis-Joseph Chevrolet, co-founder of Chevrolet Motor Company
Walter Percy Chrysler, founder of Chrysler Corporation
Pierre Samuel du Pont, board member of DuPont and General Motors
T. Coleman du Pont, president of E. I. du Pont de Nemours and Company, two-term U.S. senator from Delaware
Henry Ford , founder of Ford Motor Company
William Fox , founder of Fox Film Corporation
John Jakob Raskob, executive at DuPont and General Motors and chairman of the Democratic National Committee (1928–1932)
Colonel William P. Rend , president of the W. P. Rend Coal Company
David Sarnoff, founding general manager of Radio Corporation of America (RCA)
Charles M. Schwab, president of Bethlehem Steel
Alfred Sloan, president of General Motors
Owen D. Young , president and chairman of General Electric, cofounder of Radio Corporation of America (RCA)
THE NEW YORK STOCK EXCHANGE
E. H. H. Simmons, president (1924–1930)
Richard Whitney, vice president, broker for J.P. Morgan & Co.
William Crawford , superintendent
Michael Meehan, RCA or “Radio” specialist and pool operator
General Oliver Bridgeman, U.S. Steel specialist
Ben Smith, pool operator
Tom Bragg , pool operator
Michael Levine, overseer of Wall Street’s army of messenger boys
STOCKBROKERS
Charles Merrill, Merrill Lynch co-founder
William Van Antwerp, partner at E. F. Hutton and Co.
THE SPECULATORS
Evangeline Adams, astrologist known as the “stock market’s seer”
Bernard Baruch
Pat Bologna , Wall Street bootblack with a reputation as a tipster
Arthur Cutten
William Crapo Durant
Clarence Hatry, British financier
Joseph Kennedy
Jesse Livermore
Groucho Marx , actor
Oris and Mantis Van Sweringen
NEW YORK
Jimmy Walker, mayor of New York City (1926–1932)
Fiorello La Guardia , mayor of New York City (1934–1946)
Al Smith, governor of New York (1919–1920, 1923–1928), Democratic candidate for president in 1928
UNITED KINGDOM
Winston Churchill, British member of Parliament, former chancellor of the exchequer, future prime minister (1940–1945, 1951–1955)
Randolph Churchill, son of Winston Churchill
Ramsay MacDonald , British Labour Party leader, foreign secretary, prime minister (1924, 1929–1935)
U.S. GOVERNMENT
William Howard Taft , chief justice of the U.S. Supreme Court (1921–1930), U.S. president (1909–1913)
Warren G. Harding , U.S. president (1921–1923)
Calvin Coolidge, U.S. president (1923–1929)
Herbert Clark Hoover, U.S. president (1929–1933)
Franklin Delano Roosevelt, governor of New York (1929–1933), U.S. president (1933–1945)
Andrew William Mellon, American banker and businessman, treasury secretary (1921–1932)
William Woodin, industrialist, treasury secretary (1933)
Senator Carter Glass, Democrat from Virginia, co-founder of the Federal Reserve Act of 1913, co-sponsor of the Glass–Steagall Act of 1932
Senator Hiram Johnson, Republican from California
Senator Huey Long , nicknamed “the Kingfish,” Democrat from Louisiana
Senator Kenneth McKellar, Democrat from Tennessee
Senator George Moses, Republican from New Hampshire
Senator George Norris , Republican from Nebraska
Senator Robert L. Owen, Democrat from Oklahoma, co-sponsor with Carter Glass of the Federal Reserve Act
Senator Arthur Robinson, Republican from Indiana
Senator Reed Owen Smoot, Republican from Utah, co-sponsor of the 1930 Smoot–Hawley Tariff Act
Representative Henry B. Steagall, Democrat from Alabama, co-sponsor of the Glass–Steagall Act of 1932
Learned Hand , federal judge on the U.S. Court of Appeals for the Second Circuit
Harold R. Medina , federal judge on the U.S. District Court for the Southern District of New York
THE FEDERAL RESERVE
Marriner S. Eccles, chairman of the Federal Reserve Board (1934–1948)
George L. Harrison, governor and then president of the Federal Reserve Bank of New York (1928–1940)
Adolph C. Miller, member of the Federal Reserve Board (1914–1936)
Benjamin Strong Jr., governor of the Federal Reserve Bank of New York (1914–1928)
Charles Sumner Hamlin, first chairman of the Federal Reserve Board (1914–1916), remained a member of the board until 1936
Paul M. Warburg , head of the International Acceptance Bank, involved in creating the Federal Reserve, on the first Washington board of governors
THE INVESTIGATORS
William O. Douglas, chairman of the Securities and Exchange Commission (SEC), future associate justice of the U.S. Supreme Court
Ferdinand Pecora , New York prosecutor known as the “Hellhound of Wall Street” for leading an investigation of the city’s bankers in the wake of the 1929 crash
Arsène P. Pujo, Louisiana congressman and head of Committee on Banking and Currency, chaired the “Pujo Committee” investigation into the financial industry in 1912
THE ECONOMISTS
Roger Babson, statistician and economist who predicted the crash
Irving Fisher, Yale professor, one of the nation’s leading economists
John Kenneth Galbraith, Harvard professor of economics
John Maynard Keynes, British economist
Joseph Stagg Lawrence, Princeton economist
Royal Meeker, pro–stock market economist
THE JOURNALISTS
Claud Cockburn, British writer for The Times of London
Samuel Crowther, author of “Everybody Ought to Be Rich” for Ladies’ Home Journal
William Floyd , author of People vs. Wall Street
Major Robert H. Glass, newspaperman, father of Carter Glass
William Randolph Hearst, publisher of Hearst Newspapers
Matthew Josephson, writer who had worked in the financial industry
Edwin Lefèvre, author of Reminiscences of a Stock Operator
Walter Lippmann, writer, reporter, and political commentator
Charley Michelson, Hearst newspaper writer turned Democratic publicist
Alexander D. Noyes, financial editor of The New York Times
Drew Pearson, syndicated columnist of Washington Merry-GoRound
Charles Mitchell strode up the steps of 55 Wall Street, determined to project his usual sense of confidence and certitude. It had been a crushing afternoon. As he returned to his office, he knew that the eyes of Wall Street were on him— everyone from the traders in the street to his own secretary was assessing his gait and searching his face, trying to read meaning into every twitch, every line, every wrinkle of his face.
In his gray three-piece suit, shoulders back, Mitchell kept up his smile as he passed through the glass-domed central hall of his National City Bank. With its eighty-three-foot ceiling and two solid bronze doors protecting a safe weighing some three hundred tons, the bank was the largest in the country.
It was just past 5:30 p.m. on Monday, October 28, 1929. Hours earlier, the stock market had closed with a sharp, dizzying drop of 13 percent after a week of downward convulsions; today was by far the greatest fall. The darkening downtown streets still teemed
with anxious brokers in their fedoras and flat caps, messenger boys and switchboard girls, all gossiping and speculating about the collapse. What caused the fall? How much further might it go tomorrow? Would the markets even open?
As Mitchell made his way to his office, the teller windows he passed reflected the weary puffiness under his eyes and his disheveled, graying eyebrows. He collapsed into the chair behind his mahogany desk. The room was furnished with the high formality befitting an eighteenth-century statesman: antique wood chairs, a grandfather clock that stood against the cream-white woodwork flanked by portraits of George Washington orchestrating the newly independent nation with the purpose and resolve that Mitchell sought to emulate in his own life.
The athletic fifty-two-year-old bank chairman—an unusually optimistic man whom the press called “Sunshine Charlie”—had spent the afternoon in emergency meetings at the Federal Reserve Bank of New York, puzzling over how to calm the market. It was a moment for which a self-consciously Great Man like Mitchell should have been utterly prepared. He had the experience, the stature, and the steely nerves necessary to steer Wall Street through these tough times.
Yet he felt exposed, vulnerable.
But he didn’t have time to consider his emotional state.
He walked upstairs to confer with Hugh Baker, who ran National City’s stock-trading unit.
Baker, a tall, bald man with piercing eyes, began to explain to Mitchell, calmly, if somewhat obliquely, what had taken place while Mitchell had been at the Federal Reserve.
“Our portfolio today has been tremendously increased in our holdings of National City Bank stock,” Baker told him.
Mitchell stared at him, waiting to hear exactly what he meant.
Baker finally blurted out: “We purchased seventy-odd thousand shares.”
Mitchell, who could calculate numbers instantly in his head, immediately grasped the nature and scale of the problem. That is unbelievable, he thought. The bank didn’t have the cash to pay for so many shares. He was outraged—and terrified. Everything he had built was suddenly at grave risk of collapse.
Barely a month earlier, Mitchell had been on top of the world. He had finalized an agreement to take over the Corn Exchange Bank, a bold acquisition that would turn National City from the largest bank in the country into the largest in the world, stealing the mantle from London and helping New York finally eclipse its rival city as the world financial center. This was history in the making, an overthrow of the established order, the kind of gambit that made Mitchell a king among men.
But to pull off the deal, Mitchell had made a big—and risky— bet on the strength of his own stock. Corn Exchange shareholders could take $360 in cash for each of their shares, or four fifths of a share in National City Bank. On paper, the stock was the better deal: As long as National City stock stayed above $450, four fifths of a share was worth more than $360 in cash. At the time the deal was struck, it was comfortably higher, trading at $496 a share. Mitchell needed it to stay there until the deal could be completed, likely in the next month—because, in truth, National City didn’t have the cash to pay everyone, a crucial detail he kept to himself.
So he quietly instructed his traders to buy the bank’s shares whenever the price slipped.
In a relatively stable market, this posed no problem. Big publicly traded companies bought back their own shares all the time. In a rapidly falling market, however, doing so could quickly become like shoveling money into a furnace, which was what had been happening that afternoon. In the chaos of all that selling pressure, National City’s bids had been accepted so quickly that they lost track of how many they had amassed. By the time traders got a handle on the situation, National City had committed to buy seventy-one thousand of its own shares, far more than it could afford to hold.
“With that news,” he told Baker, “I could be knocked over with a feather.”
There were very few good options. To fund their daily operations, big banks like National City had to constantly borrow against their assets. But banking law prevented them from offering their own stock as collateral. Thus, those seventy-one thousand shares—which cost about $32 million—were a deadweight that could possibly take down the whole bank.
“It would be embarrassing for us to attempt to borrow on that stock in other banks,” Mitchell said, knowing full well that his rivals would seize on any such move as a sign of vulnerability. With the market in free fall, short sellers—traders who bet that stocks would go down—were lining up targets, probing for weakness.
The stock market was at the breaking point. Sales volume had overwhelmed the human apparatus of the trading floor to such an extent that, on the previous Thursday, the ticker had fallen four
hours behind in reporting stock prices, more than twice the longest previous delay.
What this meant was that the big board of prices that loomed over the floor of the New York Stock Exchange was hopelessly inaccurate. Trading stocks in this environment was like being a gambler at a baseball game in the eighth inning and looking at a scoreboard that hadn’t been updated since the third, while everybody around you was shouting conflicting opinions about which team was ahead and by how much. The prices of stocks sold privately—known as “off-exchange,” which was the case with National City shares—were even further behind because they were tied to the broader market’s movements without being fully updated in real time, exacerbating the delay. For Wall Street traders, the only prudent decision was to sell and get the hell out of the market. Which is exactly what they were doing.
Mitchell knew that if he tried to unload even a small fraction of National City’s position back into such a weak market, rumors would begin to fly about the bank’s solvency, and that could easily turn into a vicious cycle that would be impossible to stop. If prices declined fast enough, it could trigger a much larger crisis: A “lack of confidence might bring a run,” Mitchell told Baker, envisioning depositors lining up outside every one of its fifty-eight branches around the country.
A run on the country’s largest bank. There was nothing bankers feared more.
National City was not just any bank—the forerunner to Citigroup, it was responsible for originating a quarter of all loans to
American corporations in the 1920s. This would be an epic collapse, a bigger bank run than the world had ever seen.
Mitchell was all too familiar with the chaos that bank runs could unleash. During the Panic of 1907 he had been a young assistant at the Trust Company of America, a robust institution brought to its knees by rumors that falsely linked it to an unsuccessful effort to corner the copper market. The moment confidence vanished, fear took over. Mitchell had worked behind the cages with the tellers to hand over cash to frightened customers who ran home and hid it in their cupboards and under their beds. The bank had come within days of collapsing. The current situation Mitchell faced would be a thousand times worse, with an impact extending well beyond National City.
Despite his wrenching experience at the Trust Company, he had never imagined National City would find itself in so precarious a position. The financial industry had evolved. He’d built the place from the ground up to be a fortress that could withstand any siege. There was no way it could be taken down.
And yet here he was, alone at the top, with no game plan, no course of action, no obvious next move.
After their conversation, Mitchell and Baker collected Gordon Rentschler, the bank’s president, and the three men piled into the back of Mitchell’s black Rolls-Royce. They were driven through the choked, noxious streets of Manhattan up to their homes on the Upper East Side, relieved to be away from the prying eyes of the crowds that had descended on Wall Street to watch the carnage. While their employees ate sandwiches for dinner at their desks,
tallying trade confirmation slips and double-checking the accounting ledger into the night—with some sleeping on the floors of their offices given the sheer volume of work that needed to be completed before the morning—the brain trust of National City headed for the refuge of their luxurious dwellings along the eastern edge of Central Park.
In the car, they reviewed the events of the day and the outlook for Tuesday. None of the three men were under any illusion that the market was likely to rebound. The question was how to keep National City out of the line of fire. Mitchell himself was certain that if dramatic steps weren’t taken “there would be a perpendicular drop in the stock.” Mitchell relied heavily on the judgment of Baker and Rentschler, who, like him, were highly optimistic by nature. He never made a major decision without seeking their advice. But in the hour the trip took them, neither of them had a solution to offer. All they could agree upon was the severity of the problem.
When Mitchell arrived at his Fifth Avenue mansion at 74th Street—a five-story residence modeled after an Italian Renaissance palazzo—his butler, one of sixteen household staff, was waiting at the door as he did every evening. Mitchell passed through the resplendent foyer, with its coatrooms on either side and fountain at the back, and made his way up the sweeping circular stairwell, past the second floor, where a grand living room faced Central Park, and on to his library on the third floor, a place where he often took meetings and where, more than anywhere else, he liked to be alone and think.
This evening, however, he had to rush to freshen up before heading to the home of another titan of finance, Bernard Baruch, for a formal dinner attended by a who’s who of banking and
industry giants in honor of an English politician by the name of Winston Churchill.
Mitchell was not generally a man to cancel plans, and tonight it was out of the question. Everything now had to be done with careful consideration of what people might say. If he failed to show up, it might spark rumors that something was amiss at National City.
Mitchell woke early the next morning after a sleepless night replaying the prior day’s events, still desperately searching for a solution. He did what he considered his mandatory daily fifteen minutes of calisthenics—a “setting up” drill, he called it—which usually had a soothing effect on him. “No amount of brilliance or personal charm will carry a man to the top and keep him there unless he can come up smiling day after day,” he liked to say about his exercise routine.
As he ate breakfast, Mitchell always scanned the newspapers. Had anything leaked out about National City? Did anyone know about his predicament? “Stock Prices Slump $14,000,000,000 in Nation-Wide Stampede to Unload; Bankers to Support Market Today” was the headline on the New York Times front page, while the Daily News led with “Stock Crash 10 Billion Dollars.” None of that was news to him.
On the second page of the Daily News, however, was a picture of Mitchell’s own face. He used to like seeing himself in the papers, but not so much lately, not since the context had gone from pleasantly positive to decidedly negative: He had become a lightning rod for Washington politicians bashing Wall Street.
The fiercest of Mitchell’s critics was Senator Carter Glass,
Democrat from Virginia, who considered the stock market a tax on American prosperity and blamed bankers for heedlessly extending credit to speculators. He had even coined a term for this: “Mitchellism.”
Mitchell and his fellow bankers had already established a clear strategy for dealing with the likes of Senator Glass—they simply ignored him. What happened on Wall Street, in their view, was none of Washington’s business. It was a position that would no longer be tenable after October 1929.
Mitchell left his house and met Rentschler on Fifth Avenue. It was overcast and chilly, and though Mitchell kept two drivers on his payroll, as well as having a fully equipped garage on NinetySeventh Street, he often preferred to walk. The two men headed south on foot. At Sixty-Fifth Street and Fifth Avenue, as they waited for the automobile traffic crossing the Central Park transverse, Mitchell dropped an astonishing surprise on his friend.
To protect the bank, Mitchell said he had decided that morning that he would personally borrow $12 million—a figure several times his net worth—and use it to buy National City stock from the bank. “Something must be done,” he said.
Rentschler was dumbstruck. Don’t do it, he pleaded with his friend. Don’t put yourself on the line that way. We’ll figure out something else.
Mitchell’s proposal would put not just his fortune but his family’s future in peril. If the stock kept falling, Mitchell could be wiped out, along with his wife, Elizabeth, and two children, Rita and Craig.
That was one risk. But there was another: If his scheme had any chance of working, it would have to be executed with the utmost
secrecy. If rival traders were to discover that the chairman of the largest bank in the United States was personally bailing out his own company, all hell would break loose.
As they continued their walk, Rentschler did everything he could to dissuade Mitchell—without success.
It was now Tuesday, October 29, 1929, a day that economist John Kenneth Galbraith would later describe as “the most devastating day in the history of the New York stock market, and it may have been the most devastating day in the history of markets.”
Nearly a century has passed since the crash of 1929, yet it remains the most significant—and largely misunderstood—financial disaster in modern history. Today’s public may have a vague conception of what took place then, but few have any sense of the individuals who played a role in this drama, what they did to precipitate the crisis, why they failed to see it coming, and what steps they took to try to end it. Nor, more important, do they perceive the remarkable parallels between that era and today’s political and economic climate.
The 1920s, more than any other period in our country’s history, saw the birth of the modern consumer economy that we take for granted today. As millions of Americans left farms and small towns and followed higher paying jobs to metropolitan areas, they created markets for astonishing new conveniences and goods. They bought cars, radios, and dishwashers, products that nobody knew they needed but that made life so much easier and more enjoyable. But the greatest product, the one that made all the others possible, was credit. Buy now, pay later. It was a kind of magic.
In 1919, General Motors struck a blow against the American taboo of taking personal loans by starting to sell its vehicles on credit. Soon after, Sears, Roebuck & Co. offered “installment plans” for expensive appliances, and later for more everyday items. Taking notice of this cultural shift, banks mechanized the process for smaller merchants. Wall Street went one step further and started offering stock on credit—“on margin,” it was called. By the thousands, middle-class Americans opened margin accounts, putting up 10 or 20 percent of a stock purchase and borrowing the rest. When the market went up, the returns felt like free money.
Americans no longer had to save for the goods they wanted. Borrowing became a habit, born along with optimism. So long as faith in tomorrow was maintained, debts could be rolled over endlessly into the future.
Individuals became spectacularly rich. The wealthiest in the nation amassed fortunes in excess of $100 million, which, in today’s dollars, would be nearly $2 billion. Some of the most senior executives of America’s biggest companies had salaries and bonuses of $2 to $3 million annually, the equivalent of $37 to $56 million today.
And with that wealth came fame. It was, arguably, the first true celebrity age: a mass-produced, media-driven obsession with individuals not just for their talent or achievements but for their sheer visibility. And, increasingly, those in the spotlight were not artists or athletes—but men of wealth. Hollywood stars like Charlie Chaplin, Clara Bow, and Douglas Fairbanks still drew headlines, as did Babe Ruth and Charles Lindbergh. But for the first time, businessmen joined their ranks. In an era that equated fortunes with brilliance, the titans of Wall Street and industry became
household names. Magazines like Time, which started in 1923, and Forbes, which began in 1917, turned financiers into cover stars. Their salaries were scrutinized, their pronouncements quoted like scripture. The richest men in America were cast as visionaries, symbols of success in a nation enthralled by it.
What is clear, in hindsight, is the extent to which the heady times of the 1920s disguised a set of underlying imbalances, a massive bifurcation of American society. As technology made farming more efficient and less dependent on physical labor, huge numbers of farmworkers fell into economic distress, along with the towns they lived in, creating a widening gulf between the urban haves and the rural have-nots. Wall Street became like a giant balloon floating above the common people, its selfmythologizing leaders enjoying the comforts of what felt like a privileged realm. Government took little notice, as an extreme form of laissez-faire reigned in Washington. President Calvin Coolidge was proudly committed to slashing taxes and restoring the federal government to its pre–World War I size and capacity. The American people, he believed, could solve their own problems. He was wildly popular.
Business was only too happy to make its own rules. As giant corporations such as U.S. Steel and General Motors achieved market dominance and racked up profits, the wealthy became a class unto themselves, particularly in New York City, home of Wall Street, the greatest wealth-creating engine the world had ever seen. While jazz flourished in Harlem and Dorothy Parker presided over the literary scene at the Algonquin Hotel, the stock market gilded the city and the privileged built temples to their own good fortune that survive to this day. Fifth Avenue, Park Av-
enue, and Central Park West as we know them are largely products of the 1920s. Manhattan went vertical. The city’s population swelled to almost seven million, driven not simply by immigrants coming through Ellis Island, as it had been in previous decades, but by migrants from the rest of the country, leaving the hinterland for the allure of big-city life—and, for many, the chance to strike it rich.
Until the turn of the twentieth century, stock markets were small and parochial, dominated by insiders. The practice of buying and selling stock was disdained by polite society as a grubby endeavor, the handiwork of gamblers and social misfits. Most Americans knew nothing of the daily travails of the stock market. In the small- and medium-sized towns where most lived, the money games played in the big cities were but a distant rumor.
That changed in the early 1900s, as industrialization took hold of the country. In need of capital to invest in factories and market their products, companies flocked to the New York Stock Exchange, where daily trading volumes soared and ambitious young men matched wits. (It is impossible to ignore that this was a world shaped almost entirely by men. Women were neither welcomed on the trading floor nor permitted to shape its rules—they were observers in a drama they were not allowed to direct, cast in supporting roles as hostesses, wives, or muses.)
By the 1920s, the stock market was like the engine room of the entire economy, its machinery pushed to the very edge of its capacity, running red-hot, a spectacle that drew Americans to it like moths to a flame.
Until finally it broke.
Lengthy, uninterrupted booms, like the one in the 1920s,
produce a collective delusion. Optimism becomes a drug, or a religion, or some combination of both. Propelled along by a culture of hot tips, one-of-a-kind deals, killer sales pitches, and irresistible slogans, people lose their ability to calculate risk and distinguish between good ideas and bad ones.
And at the top of industry and government during any mania are people who are often no different than anyone else—flawed, self-interested, complicated. They push events forward, sometimes boldly, sometimes blindly, often without fully grasping the consequences of their actions. It is a slow boil—until everything spills over. Some take advantage of the moment without even realizing it. Others rationalize, convincing themselves they’re serving a greater good. Whether seeking power, approval, or simply the thrill of beating the odds, they rarely believe the worst is coming.
The almost singular through line behind every major financial crisis is one thing: debt. It’s a powerfully optimistic force. If we envision the future as a land of ever-expanding opportunity and affluence, why shouldn’t we marshal some of those resources for use today? That’s what debt does. It draws the wealth of tomorrow into the present. Problems arise when we get greedy and take too much. Nobody knows for sure where the line is—or what to do when we discover we’ve gone past it. At that point, panic is the natural reaction. The future suddenly grows so small and dark that there isn’t enough optimism left to draw from.
A telling anecdote from this era involves a young Groucho Marx.
In the fall of 1929, with the market’s seemingly unstoppable rise, Marx was regularly spending hours reading the ticker tape at his local brokerage, the Newman Brothers & Worms branch in
Great Neck, Long Island. He had, according to his son, “no gambling instincts, and never even in the most prosperous times did he stop looking for ways of keeping expenses down around the house.”
“Look at this, will you? RCA is up to five hundred and thirtyfive a share. Have you ever seen anything like it?” Groucho’s broker, Mr. Green, said to him.
Groucho hadn’t. “One thing I don’t understand, Mr. Green. I own RCA, too. But how can it be selling for five hundred and thirty-five a share and never declare a dividend?”
As if speaking to a child, the broker explained, “Mr. Marx, it’s different for the average man not schooled in high finance to comprehend what is going on today. But I can tell you this. Wall Street is no longer localized. We’re now in a worldwide market. It’s going to keep going up and up and up. Is that clear?”
Groucho was skeptical.
“Look, Mr. Marx, this thing is bigger than both of us. Don’t fight it. Just be assured that you’re going to wind up a very wealthy man. And I know what I’m talking about. I’m in the market myself. I’m a family man, and I wouldn’t take the risk if I didn’t know the market is sound.”
Groucho was impressed by this line of reasoning and repeated it to his friend Max Gordon, a theatrical producer in New York, who had also started playing the market: “Wall Street is no longer localized. We’re now in a worldwide market. The possibilities are limitless.”
“This is better than working,” Gordon said.
Marx, who was still a vaudeville performer at that point in his career, took stock tips from almost anyone, friends and strangers
alike. When an elevator man at the Ritz in Boston tipped him off to buy stock in Union Carbide, Marx went to the nearest brokerage— which was literally inside the hotel, given their ubiquity—and wrote out a check for $9,000 to purchase shares. A fellow actor who dropped by his dressing room told him about the Goldman Sachs Trading Corporation, a public trust company that the private partnership of Goldman Sachs had launched to get in on the action of the stock market boom. Marx promptly bought $27,000 worth of shares.
Then, during the last week of October 1929, Marx got a phone call from his broker: “There’s been a slight break in the market, Mr. Marx. You’d better get down here with some cash to cover your margin.”
Groucho ended up having to mortgage his home to pay the broker.
“Aren’t you the fellow who said nothing could go wrong—that we were in a world market?” Groucho said to Mr. Green.
“I guess I made a mistake,” said an embarrassed Green.
“No, I’m the one who made a mistake,” said Groucho. “I listened to you.”
We all love a good story, a concise explanation of how the world works. We all love an easy buck. Temptation has driven human folly for centuries, whether the serpent in the Garden of Eden or the market manias of cryptocurrency or artificial intelligence. Each wave seduces us into thinking that we’ve learned from history and, this time, we can’t be fooled.
Then it happens again. This is how it happened in 1929.
PART I
FEBRUARY 1, 1929
On the chilly, windswept evening of February 1, 1929, an hour or so before midnight, Thomas Lamont and his wife, Florence, arrived by limousine at Pier 54 near Fourteenth Street in Manhattan. The Beaux Arts complex, designed by the same architects as Grand Central Terminal, was a beacon of grandeur and elegance amid the industrial squalor and reeking meat markets of the far West Side.
The handsome, well-dressed Lamonts beamed as they made their way through a throng of reporters and photographers to the gangway of the Aquitania , a luxurious, four-funneled, 901-foot ocean liner bound for Cherbourg, France.
Lamont, the distinguished fifty-eight-year-old senior partner of J.P. Morgan & Co., was part of a delegation of celebrated American businessmen who were being dispatched to Paris for what was expected to be a sharply contentious conference on German war reparations.
It was the second such conference in four years and the one
major geopolitical challenge that hung over the global economy. The problem that Lamont and his peers needed to address had remained essentially unchanged since the end of the Great War— Germany was either unwilling or unable, depending on whom you believed, to pay England and France the immense financial settlement that had been agreed upon at Versailles in 1919. The United States, which hoped to relieve some of the pressure by convincing its allies to reconfigure the debt payments owed by its former enemy, was trying to keep the conflict from boiling over.
That American business leaders now bore the responsibility for such diplomacy was emblematic of just how completely commerce had eclipsed politics as the driving force of the 1920s.
“Mr. Lamont! Mr. Lamont!” reporters cried out, hoping to pry loose a useful quote.
“What do you have to say about Germans not making payments?”
“Not one word,” he said cheerfully, steering his wife toward the Aquitania.
Lamont, who enjoyed chatting to reporters, always exercised the discretion of a topflight banker and wouldn’t allow himself to be goaded into igniting a controversy on such a sensitive issue.
Though he was technically second in command to Jack Morgan at J.P. Morgan, everyone knew that Lamont effectively ran the bank. Jack, the eldest son of John Pierpont Morgan Sr., may have been the image of his late father, with the same jowly, unhandsome face etched in permanent irritation, but the resemblance ended there. Jack lacked his father’s gravitas. Smart enough to understand his limitations, Jack made sure to always have Lamont close at hand to serve as the controlling authority in any
room, the iron fist in the velvet glove, always keenly aware of how a given situation was unfolding. “Mr. Morgan speaks to Mr. Lamont, and Mr. Lamont speaks to the people” was an office adage.
Jack was also bound for Paris that night. He had been chosen as one of the lead negotiators and brought Lamont along as his “alternate” knowing full well he would be relying heavily on him. Avoiding the press by having his car take him around to the back side of the Aquitania , Jack boarded via a special gangplank for the ship’s workers, away from the hoopla. He quickly made his way to his stateroom while the photographers were focused on American businessmen like Lamont, who Jack knew savored their time in the limelight.
Lamont was feeling very much at the peak of his powers, the epitome of what it meant to be a banker at the so-called House on the Corner, at 23 Wall Street. Patricianly handsome in his de rigueur black pinstripe suit and white shirt, he had striking blue eyes that crinkled when he smiled—which was often. The son of a minister, Lamont had more money than he could have ever imagined and was on a first-name basis with everyone from Charles Lindbergh to Benito Mussolini. His reputation was immaculate. “A tangible person” is how Time described him. “Tell him a joke and he will laugh. Offer him an idea and he will develop it. Put him in the middle of a problem and he will begin to solve it. The doors of his mind swing easily ajar . . .”
Having negotiated deals for J.P. Morgan across Europe, Latin America, and Asia, Lamont thought of himself not just as a banker but as an ambassador of American affluence—a friend to kings, dictators, and whoever might be in charge in a given country. There wasn’t a problem in the world that couldn’t be solved
through the wizardry of credit, he believed. Whatever might be unaffordable today could be structured into a manageable schedule of future payments. This model had brought incredible prosperity to the United States over the past decade; why should it not work wonders for Europe—and for war reparations?
As he boarded the Aquitania that night, Lamont was especially proud that his success was about to become dynastic: His oldest son, Thomas Stilwell Lamont, was following in his footsteps. Just a month earlier, on January 1, 1929, young “T.S.L.” had been elected to a partnership at Morgan, along with Jack’s son Henry.
In announcing the appointments, The New York Times noted the young men had won “the most coveted posts in Wall Street . . . From a financial standpoint . . . a Morgan partnership always has been rated among the chief plums in American banking . . . It is believed that a partnership in the firm yields at least $1,000,000 a year.” Indeed, on December 31, 1928, to mark a stellar year, Jack Morgan had handed out bonus envelopes to Lamont and the other senior partners, each containing a minimum of $1 million.
In Lamont’s view—and that of almost everyone in his inner circle—1929 promised to be an even better year. “Some influences that will serve to shape this year’s financial history,” opined a New York Times columnist, “are exceedingly favorable; among them the country’s great wealth, its sound banking system, its expanding production and consumption . . . the conservative methods of trade, labor’s high wages and contentment, and the increasing exports.” The New York Evening Post, its conservative competitor, was in rare agreement. “There are basic indications that indicate this prosperity is self-perpetuating,” its financial expert, Paul Willard Garrett, wrote.
The stock market was up a remarkable 62 percent since the same time in 1928, more than anyone had imagined was possible. At the market’s close on that February 1, the Dow Jones Industrial Average sat at 319.69, up from 197.87 a year prior.
On the same day that young Tom had made partner, New Year’s Day, the Lamonts hosted a dinner party at their vacation cottage near Charleston, South Carolina, in honor of Ambassador to Mexico Dwight Morrow and his wife, Elizabeth. The guests included the distinguished federal appellate judge Learned Hand and his spouse, Frances, and Walter Lippmann, chief of the editorial page of The New York World, and his wife, Faye.
In an after-dinner parlor game, Judge Hand, acting out his assigned role of Othello, pretended to smother the petite Faye with a pillow. Unfortunately his enthusiasm and heft were too much for Faye. Blood streamed from her nose, which now looked askew as she pushed herself up, unsteadily, from the couch. The judge was utterly embarrassed.
Lamont, who was enamored with the dinner and perhaps what it said about how far he had come in high society, boasted to his youngest son, Austin, in a letter about the evening that Judge Hand “fears that all the rest of his life his career as a United States judge will be dogged by the fact that he went to a party and broke a lady’s nose.”
As fervently as he espoused the new religion of Wall Street, however, Lamont stood apart from his peers. His modest upbringing and self-propelled rise through the world of business gave him a broader perspective. He aspired not to wealth so much as greatness. He knew that he, not Jack Morgan, was the true inheritor of the J.P. Morgan ethos, the idea that great men could govern the
unruly powers of the market and create a better world. He had spent his whole life training for this moment, mastering the highstakes diplomacy so badly needed to deflate the growing German bitterness. He felt more than ready for the challenge.
With Florence on his arm, he turned away from the photographers in front of the Aquitania. This trip—and this year, 1929— could cement his legacy.
Born in 1870, Lamont was raised in upstate New York, where his father, an impoverished Methodist minister, encouraged his four children to read books and develop skills as independent thinkers.
Although the Lamonts had little money, Thomas was an overachiever who earned his way into Exeter and then Harvard, where he thrived thanks to his intellect, solicitous personality, and sincerity. As a freshman he became an editor of The Harvard Crimson and later president of the paper. Two days after graduating, Lamont went to work as a reporter at the New-York Tribune, immersing himself in the “grimiest parts of the city.” He boldly sought out stories that took him far from the respectable precincts of Manhattan, including “a murder in Hell’s Kitchen, an outbreak of cholera on the Lower East Side and gang battles in Chinatown.”
“The other reporters used to poke fun at me,” he would later remember, “saying that I was always trying to learn the job of the man just ahead of me. That was more or less true.”
Married at the age of twenty-five, and wanting to give his new wife, Florence, the standard of living he believed she deserved, Lamont switched to a career in business, eventually joining his friend Henry Davison at Bankers Trust, a new type of financial
firm that took far more risk than traditional banks. The first decade of the twentieth century was a spectacular time to begin a career in finance. People who’d amassed fortunes throughout the country—whether in textiles, mining, metal, retail, or railroads— poured into New York, eager to put their wealth to work in new and exciting ways. All you needed to attract these newly minted millionaires was an honorable reputation and an imposing building with expensive marble detailing.
Lamont prospered, as did Bankers Trust, but just as he was settling into his new career, the great Panic of 1907 enveloped Wall Street, the same traumatic event that had left such a powerful impression on Charles Mitchell. Bankers Trust, though an honest and well-respected institution, was not immune. Its survival, along with perhaps the entire industry, ended up depending on the whims of one man, the great J. Pierpont Morgan.
The legendary Morgan was seventy years old in the fall of 1907, nearing the end of his epic reign. Founded in 1871, J.P. Morgan & Co. was regarded as the “greatest international banking firm in the world” and “what the business world considered the headquarters of financial power.” No single person in the history of Wall Street had ever wielded more power and influence than J. Pierpont Morgan. Under his rule, the House of Morgan had helped modernize the American economy, transforming the sprawling hinterland of relatively small enterprises that characterized nineteenth-century capitalism into the mighty corporate structures that dominated the twentieth century.
Morgan had been attending an Episcopalian conference in Richmond, Virginia, when the crisis struck. The veteran of a half dozen panics, he was initially unfazed; however, after several frantic
messages from his partners, he had his private Pullman car attached to a steam engine and returned to Manhattan.
On the evening of Saturday, November 2, 1907, after a week of more than two dozen bank failures, Morgan gathered the titans of the financial world at his home on Thirty-Sixth and Madison and ordered the men to decide among themselves which of them would be fortified with infusions of capital and which would be allowed to fail, in the process wiping out the holdings of thousands of depositors, destroying businesses, and ruining careers and lives. Lamont, who had been invited to the meeting by Davison with the hope he’d help find a solution, arrived just past midnight and was only a bit player at the edge of the room. But he never forgot the experience. “A more incongruous meeting place for anxious bankers could hardly be imagined,” he later reflected. “In one room—lofty, magnificent tapestries hanging on the walls, rare Bibles and illuminated manuscripts of the Middle Ages filling the cases; in another, that collection of the Early Renaissance masters— Castagno, Ghirlandaio, Perugino, to mention only a few—the huge open fire, the door just ajar to the holy of holies where the original manuscripts were safeguarded . . . And . . . an anxious throng of bankers, too uneasy to sit down or converse at ease, [paced] through the lovely marble hall and up and down the high-ceilinged rooms, with their cinquecento background, waiting for the momentous decisions of the modern Medici.”
Tensions ran so high that Morgan locked the bankers in his library to prevent them from leaving without a deal while he played solitaire and smoked cigars in an adjacent room. It was clear that unless they found a solution, the American banking system could
fail. “The situation must not get further out of hand,” Lamont later wrote about the crisis. “It had to be saved.” And it was. The bankers agreed to draw a line between the institutions they deemed viable and all the others and commit to funding those that fell on the right side of the line. By sheer force of will, one man had pulled the entire economy back from the abyss, a demonstration of personal power by an American financier that felt instantly anachronistic. Would such a gambit ever work again?
Three years later, in late October 1910, Lamont got a surprise summons by Morgan himself to appear at 23 Wall Street. Although the panic had long since subsided, it was still fresh in his mind, and Lamont, who was enjoying success at Bankers Trust, didn’t know whether to be thrilled about the invitation or wary that another crisis was unfolding.
Ushered into the partners’ enclosure, where the chosen few worked side by side, he encountered J. Pierpont sitting behind his own rolltop desk.
“Come over by me,” Morgan said, directing his piercing eyes at the younger man. He then stared contemplatively at Lamont as if to measure his worth. “Lamont,” he finally said, “I want you to come down here as a partner on January first next.”
Lamont was then forty years old and had little experience compared to other Morgan partners, like his friend Davison from Bankers Trust, who had moved to J.P. Morgan as a partner the year before.
“But what could I do for you?” Lamont, always seeking favor, asked.
“Oh, you’ll find plenty to keep you busy,” J. Pierpont assured
him. “Just do whatever you see before you that needs to be done.” There was a pause, and then Morgan asked, “You’ll come, of course, won’t you?”
Lamont nodded in agreement but returned the next day to add one condition: He wanted three months of vacation a year. Travel, he explained to Morgan, was essential to understanding the world and would therefore be valuable to his work at J.P. Morgan.
“Yes,” said J. Pierpont, “by all means,” and proceeded to recommend a cruise down the Nile.
“That’s probably more than I can manage with four children,” Lamont replied. By now Thomas and Florence had three sons and a daughter: Thomas S., Austin, Eleanor, and Corliss.
“Nonsense,” Morgan told him. “Take along a couple of nurses, and you will be all right. That’s what I did with my children when they were young.”
The news of Lamont’s elevation to a rolltop desk at 23 Wall Street spread quickly. “You have joined the seats of the mighty,” wrote a close business associate, and as a result, Lamont would be able to influence the moral standards of the “lesser lights in the business community.”
In his early days at Morgan, Lamont was inculcated in the firm’s rituals and customs, but he also gently pushed against the tide. The Morgan ethos was that its employees stay out of the public eye. The firm did dispense money—via intermediaries, never directly—to bribe journalists and plant stories. But talking directly to a reporter was to be avoided at all costs.
By shunning the press, Morgan had created an air of mystery and intrigue around itself. Lamont ushered in a new strategy. By engaging journalists, he explained, the firm would stand a much
better chance of getting the coverage it wanted. Through personal letters and lunches, he cultivated writers, editors, and publishers, and placed advertising where it bought “goodwill.” He encouraged the other partners to do the same, to demonstrate that the House of Morgan was indeed “composed of human beings.”
After the Panic of 1907, the national political sentiment turned sharply against the New York banking establishment. Critics called it “the money trust” and said its members enriched themselves at the expense of ordinary Americans.
“The great monopoly in this country,” said Woodrow Wilson early on in his run for president in 1911, “is the money monopoly.”
That same year a congressional investigation was mounted by the Committee on Banking and Currency, led by Representative Arsène P. Pujo of Louisiana. The main target was J. Pierpont Morgan himself. His health fading, Morgan was called to testify before Congress, facing off against an intelligent, ambitious lawyer named Samuel Untermyer, who was the committee’s counselinvestigator. Morgan had spent his life trying to avoid such a public spectacle; in past years, he would have arranged to be out of the country until the scrutiny subsided. But now there was simply too much public pressure for him to avoid responding.
Rather than hire a publicist to handle questions surrounding the investigation, Lamont convinced Morgan and his partners that he would handle the matter himself. In doing so he assumed huge personal risk, for if his strategy backfired, what standing would he have left at the firm?
Lamont’s plan was simple: He would meet with reporters and
editorial boards and offer them a counternarrative. The problem was not that bankers had too much power, he would tell the press, but rather that the banking system itself was poorly organized and administered. Courageous private citizens like J. Pierpont Morgan had been effectively forced to step into the breach left by the government, he suggested.
To help prepare him to testify, Lamont returned to Morgan’s library on Thirty-Sixth Street. Morgan bristled with resentment at being compelled to defend a career he regarded as honorable and above reproach.
The proceedings took place a week before Christmas 1912. Morgan’s performance over the course of two days was an epic clash of the old world running hard into the new. Under questioning by the hard-charging Untermyer, Morgan fiercely held his ground, admitting nothing, not even that he held any influence whatsoever over the actions of others.
Q: Your idea is when a man has vast power, such as you have—you admit you have, do you not?
A: I do not know it, sir.
Q: You admit you have, do you not?
A: I do not think I have.
Q: You do not feel it at all?
A: No, I do not feel it.
Morgan made no attempt at persuasion or conciliation, rejecting any notion that the authority he wielded was the result of his
own machinations. If other people deemed him powerful and bent their will to suit his, well, how could he be held accountable for that?
Perhaps the finest distillation of the Morgan creed came when Untermyer pressed Morgan about the nature of credit.
Q: Is not commercial credit based primarily on money or property?
A: No, sir, the first thing is character.
Q: Before money or property?
A: Before money or anything else. Money cannot buy it.
Q: So that a man with character, without anything at all behind it, can get all the credit he wants, and the man with property cannot get it?
A: That is very often the case.
Q: That is the rule of business?
A: That is the rule of business, sir.
Bitter to his last days, J. Pierpont Morgan died three months later in Rome on March 31, 1913. His body was returned to New York for a funeral at St. George’s Episcopal Church on East Sixteenth Street. Morgan left instructions for the ceremony: It was to be brief, lasting only forty-five minutes, and feature mostly hymns with no eulogy. Morgan, as ever, was not going to let anyone speak on his behalf.
There was no question that Morgan’s successor as head of the firm would be J. P. Morgan Jr., Jack. But there was also no question
that Jack would ever be capable of filling his father’s shoes on his own. And he didn’t like being in the limelight: When he was a teenager he had been the subject of an attempted kidnapping, an experience that led him to do everything he could to avoid having a public profile. So he was content to play the role of a quiet figurehead while Davison, Lamont, and a handful of other senior partners dictated the direction of the firm. During the Great War these men took turns being Morgan’s proxy, dealing with presidents, prime ministers, secretaries of state, finance ministers, and other high-ranking officials, especially those of America’s closest ally, England.
At the dawn of the 1920s Lamont was entering the prime of his career as one of the last links between the old system, when a single man could virtually bend the market to his will, and the hardrushing future, when it grew into a force almost beyond human comprehension.
Lamont knew that the eight-day voyage aboard the Aquitania would be an important one, as he would have to deal with matters beyond the reparations negotiations he was on his way to oversee.
Earlier that February morning in 1929 before boarding the ship, he and his Morgan partners had sent nearly 230 letters and telegrams to their leading clients and connections within and outside of the banking community to announce what they considered an irresistible offer.
The House of Morgan had begun a new kind of banking business, putting together syndicates of investors to create new
speculative companies using enormous amounts of leverage. Such blatantly risky ventures would have prompted a look of disgust from Morgan if he were still alive, but Lamont and his team had gotten caught up in stock market fever. This was a new era. Customers were clamoring for deals. They had to get with it or be left behind.
The most audacious of the firm’s partnerships was with the Van Sweringen brothers of Cleveland, reclusive, oddball bachelors named Oris and Mantis, who shared a bedroom at their sprawling country estate. For all their quirks, the Van Sweringens were fearless dealmakers, taking on gigantic loans to build the beautiful Shaker Heights suburb, as well as the commuter rail that linked it to the city, and assembling a portfolio of railroad lines. With the aid of Morgan partners, the Van Sweringens consolidated their assets under a $3 billion holding company called Alleghany Corporation, a complex teeter-tottering empire of bonds and preferred shares.
To the general public, Alleghany shares were priced at $35, which Lamont knew would sell easily in the rising stock market. Morgan partners, however, were able to buy them at a secret price of $20 a share. Lamont availed himself of 18,500 shares, netting a quick paper profit of $277,500. Seizing the opportunity to spread goodwill, Lamont then went around to “friends of the firm”— including former President Coolidge, Secretary of the Navy Charles Adams, the pioneering aviator Charles Lindbergh, General John J. Pershing, as well as Mitchell, Bernard Baruch, and John Raskob—and offered them the same discount. These telegrams, such as the one sent to prominent businessman William Woodin, read like a casual friendly note:
Dear Mr. Woodin,
Although we are making no offering of stock, as it is not the class of security we wish to offer publicly, we are asking some of our close friends if they would like some of this stock at the same price it is costing us, namely, $20 a share. I believe the stock is selling in the market around $35 to $37 a share, which means very little, except that people wish to speculate. We are reserving for you 1,000 shares at $20 a share, if you would like to have it. There are no strings tied to this stock, so you can sell it whenever you wish . . . We just want you to know that we were thinking of you in this connection.
Lamont personally dictated the telegrams that went to the most important people, including one to Albert H. Wiggin, the chairman of Chase National Bank, who, it was rumored, was the only man to have ever turned down a Morgan partnership. Wiggin was traveling by rail that afternoon, so Lamont, wanting to make sure he received it immediately, sent it to the train he was aboard: “Car No. 27, Room A, arriving Douglas, Arizona, 1:01 p.m. today.” The offer of ten times the number of shares than had been offered to Woodin amounted to an instant profit of $150,000.
The Van Ess boys of Cleveland have just organized Alleghany Corporation, being a holding company, to take over their principal investment in railroad shares. Yesterday we issued 35 million of collateral trust bonds. Today Guaranty is offering 25 million preferred stock. We are making no offering of common stock, but have set aside for you and immediate