1929: Inside the Greatest Crash in Wall Street History--and How It Shattered a Nation - 12

William Durant feared someone might spot him.

He arrived by train at Union Station in Washington in the afternoon, quickly making his way to the recently built 250-room Carlton Hotel at Sixteenth and K Streets, two blocks from the White House.

Only his wife, Catherine, knew about his secret trip. They’d had breakfast together that morning at their home at 907 Fifth Avenue, and after a shave by his personal barber, Durant dressed carefully, packed a valise, and kissed her goodbye. Rather than have his chauffeur drive him, he took a taxi to Penn Station, making it easier to blend into the crowd.

He was going to the White House to see President Hoover.

A few days earlier, Durant persuaded Mabel Walker Willebrandt, a U.S. assistant attorney general known as the “First Lady of Law,” to send a note to President Hoover’s secretary, Lawrence Richey.

“ Won’t you please bring to the President’s attention the suggestion of seeing W. C. Durant for a few minutes’ conference before he goes abroad on April 17th?” she wrote. “He is an outstanding figure in the financial world.” Willebrandt told Hoover that Durant was also a supporter of Prohibition and “can do a great deal of good for us as an ‘unofficial ambassador,’ spreading faith in the administration while he is abroad.”

Durant remained out of sorts about the way the Federal Reserve was trying to clamp down on speculation ever since his phone call with Mitchell back in February. He was convinced more than ever that he needed to warn Hoover about the genuine threat he believed the Federal Reserve had become to the stock market’s continued rise. And he was increasingly irritated with Carter Glass’s public proclamations that he felt were threatening prosperity. Radio, air travel, consumer goods—these were all inventions, Durant believed, that were improving millions of people’s lives. In his view, so was the stock market.

He considered Charles Mitchell an American hero and Glass’s attack on him nearly treasonous. “ Senator Glass probably is not aware that the Industrial Rayon Corporation is at this moment building a plant in Covington, VA, his own state, costing about $5,000,000,” Durant told a reporter in the days after Glass called for Mitchell’s removal from the Fed board. (Durant was heavily invested in Industrial Rayon.) “This industrial enterprise and hundreds of others making for our present prosperity would never have been attempted if the securities of these companies could not, by order of the Federal Reserve Board, be accepted as collateral when offered by brokers or others to the banks of the country.”

The conflict between Mitchell and Glass had become a national fracas as politicians, columnists, and even economists took to radio and newspapers to battle over wealth and speculation and their relationship to the very definition of what it meant to be an American.

“ Some members of the Senate appear to be under the impression they know how to stop speculation on the New York Exchange, which they apparently hold to be against public policy,” former Oklahoma senator Robert L. Owen, a Democrat, said in support of Mitchell. “My study of the fiscal system and the Reserve Act…convince me that speculation cannot be stopped without closing the exchange, a remedy worse than the disease. Moreover, speculation on the stock and commodity exchanges never has been declared to be against public policy, either by congress or the courts. The Supreme Court, in the Chicago Board of Trade case, has emphatically sustained speculation as necessary and unavoidable.”

Glass and the Fed came in for a good chiding by a young Princeton economist named Joseph Stagg Lawrence, who accused the senator and his cronies of class bias. “It seems incredible that in the year of our Grace 1929 a body of presumably intelligent public men should permit fanatical passions and provincial ignorance…to condemn an innocent community.” As the economist John Kenneth Galbraith drolly observed years later, “ Some hardened Wall Streeters may have been surprised when they realized that the ‘innocent community’ meant them.”

L. M. Williams, a Virginia banker and president of the Virginia Central Railroad, called on Glass to quit instead of Mitchell: “ I believe it would be far more appropriate that you resign as senator from Virginia.”

Much as he provoked the ire of the finance community, Glass was not without allies in the Senate. “ We have had testimony before the Senate Agriculture Committee even today that Western and Midwestern money is being sent into the speculative market,” Senator George Norris of Nebraska observed. “Witnesses have said that they were charged 6 percent for money they could have obtained for 4 percent if such a great amount of money had not been drawn into the speculative whirlpool…That man Mitchell is one of the very men who should be trying to check speculation and yet he is trying to encourage it.”

Senator Duncan Fletcher of Florida, ranking Democrat of the Banking and Currency Committee, also threw his weight behind Glass and the Fed: “I think he [Mitchell] should be disciplined. He has no right to defy the Federal Reserve Board. He is going beyond his powers and his rights. I don’t know what the board thinks it best to do. It can remove him if it wants to.”

Paul M. Warburg, in his annual report to stockholders of the International Acceptance Bank, criticized the Fed for failing to take proper action to check the “orgies of unrestrained speculation.” His role in contributing to the creation of the Fed, and his early membership on the first Washington Board of Governors, lent Warburg’s words particular weight. “That the country’s banking system is tossing about today without its helm being under the control of its pilots gives cause for deep concern,” Warburg said.

“The Federal Reserve System, pursuing a well-conceived and far-sighted policy, rose to a position of world leadership. Yet within the short span of a year it lost that leadership, owing to its failure promptly and effectively to reverse the engines at the critical moment,” Warburg continued.

On and on the debate raged. Alexander D. Noyes, financial editor of The New York Times , accused Warburg of “ sandbagging American prosperity.” Warburg’s warning, he said, “first caused alarm, then indignation, and presently, when the stock market resumed its upward rush, expression of supercilious contempt.”

In his room at the Carlton, Durant prepared the arguments he planned to spring on Hoover. He didn’t have an appointment—but he felt confident in his powers of persuasion. As his friend Walter Chrysler once said, “He could coax a bird right down out of a tree.” Knowing that Hoover was enamored of polling, Durant had quizzed executives from one hundred of the most important companies, asking them if they considered the price of their stock to be too high. A majority had answered no, which was just the kind of evidence that Durant thought would appeal to Hoover.

At dusk Durant slipped out of the hotel and walked the neighborhood, ambling past the White House. Bright lights shone from its windows; it looked as if the president was hosting a party. Durant strolled back to the hotel. At 9:30 p.m., dressed in his carefully pressed suit, he left the Carlton again and hailed a taxi for the five-minute ride to the White House.

The guards waved the cab through, apparently assuming that the passenger was a late-arriving dinner guest.

A footman came forward, and Durant announced himself.

Mr. Billy Crapo Durant. For a meeting with the president.

The footman was flummoxed. According to the list of attendees, every invited guest had already arrived.

Durant persisted, demanding to see Hoover.

Why hadn’t he made an appointment?

Durant tried to explain that his meeting needed to be kept a secret.

The ruse worked. The butler led Durant to a waiting room. A few minutes later Hoover himself bustled in.

Hoover sat and listened while Durant warned in a calm tone that a major financial disaster was imminent.

As persuasive a salesman who ever lived, Durant pleaded with Hoover to reverse the Federal Reserve Board’s clampdown on brokerage loans and security credit.

Hoover, the Great Engineer, was not convinced by Durant’s warnings. He was skeptical, tending to believe that stock prices would soon fall to a more rational level—a downturn, yes, but hardly a financial calamity, Hoover believed.

The president intended to get in touch with Richard Whitney, vice president of the Exchange, though Hoover was not inclined to tell him what to do. “ I preferred to let American institutions and the states govern themselves, and that the exchange had full power under its charter to control its own members and to prevent it from being used for manipulation against the public interest,” Hoover later said.

Durant, sitting in the White House that night, passionately argued over and over again to Hoover that the financial health of the entire economy, and not just the stock market, was based on credit, and Hoover, if he did nothing, was about to bring an end to an unprecedented era of prosperity.

“It’s up to you now,” Durant said before leaving the White House.