1929: Inside the Greatest Crash in Wall Street History--and How It Shattered a Nation - 13

John Raskob, one of the wealthiest men in the nation, was planning a big dinner party at his apartment, at the lavish Carlton House, adjacent to the Ritz-Carlton on Forty-Sixth Street, where he enjoyed the finest hotel services money could buy, including a novel new amenity: “electronic ‘buttonpads’ with four buttons—each used to summon a different servant.” The dinner was to take place in a week for a handpicked group of some of the most elite members of the Democratic Party, including his good friend and recently defeated presidential candidate Al Smith, along with Smith’s running mate, Senator Joseph Robinson of Arkansas, and several other U.S. senators. Raskob had just returned from Palm Beach, in part, to get everything ready ahead of what could be described as his “Anti-Hoover Banquet.”

Raskob—a hero to the business community and a villain to much of the political establishment and public—planned to use the private dinner to set the record straight; he had no plans to resign from his role as chair of the Democratic National Committee, despite his friend Smith’s brutal loss to Hoover. Instead, Raskob was doubling down: He planned to promise that he would get the party’s finances in order and use his own fortune—estimated to be as much as $500 million—to underwrite the party’s fight against Hoover. That was what the dinner was really about; he wanted the Democrats to spend the next four years single-mindedly and relentlessly attacking Hoover with everything they had.

Raskob saw his role—and his immense wealth—as the country’s most vital counterweight to Hoover. He believed his money could be used as a political weapon: a way to obstruct the president’s agenda, weaken his standing, and ensure he would be a one-term leader. Raskob considered Hoover a sanctimonious bureaucrat whose meddling and moralizing stood in stark contrast to his own bold, unapologetic faith in capitalism and risk. But it was more than that, too. This was deeply personal. Raskob was not a man accustomed to losing, and his friend’s defeat stung. If Raskob had his way, the Democratic Party would become a well-financed engine of opposition, and a Democrat would be in the White House by 1932.

He was also entertaining a darker idea—one he hadn’t yet decided whether to pursue. With enough discretion and the right operative, he believed he could quietly orchestrate a covert campaign in the press to undermine Hoover’s image—a calculated drip of unfavorable coverage, seeded by intermediaries in sympathetic newsrooms across the country. All he lacked was the right man to carry it out.

Of all the larger-than-life figures who dominated the 1920s, few were as imposing, as dominant, as seemingly omnipresent, as Raskob. There were times when it seemed as though he were everywhere, doing everything: sitting on corporate boards, diving into politics, gleefully participating in the stock pools organized by Wall Street insiders, tossing off highly quotable thoughts on every subject imaginable, running an important Catholic organization—and raising thirteen children (although his wife did most of that). There was simply no one else like him in America: an entrepreneur–philosopher–financier–political operator who felt like he could do anything he wanted.

With his deep-set, perpetually alert eyes, Raskob was described as “ the organizing genius of this country” by the monthly magazine The World’s Work . “He has effected the greatest combination of interests—potentially and actually—the world has ever seen…He is simply a man with an extraordinarily keen business sense, a vivid but not at all a fantastic imagination, and a power of translating imagination into figures and then convincing others that the dream can be made to come true.”

Known to friends as Johnny, Raskob never went to college. The son of a cigar maker in upstate New York, he started his career as a $5-a-week stenographer. In 1901, he was hired by the DuPont corporation as Pierre du Pont’s personal secretary and by 1914 had become the company’s treasurer. He grew so close to the du Ponts he was practically a member of the family and, with their backing, led a daring takeover of General Motors that gave DuPont a controlling interest.

Then, like so many others, he took his wealth and threw it into the stock market, where he amassed even more money than he had earned in the corporate world. Just the month before, he had made a quick $291,710.86 as a lucky invitee to participate in Meehan’s pool for RCA shares. Raskob loved playing the market. Even though he sat on the General Motors board, he routinely flipped shares of GM, buying them up only to turn around and bet they’d go down. “ I was raised in a country where a mortgage on your home was considered a disgrace,” he liked to say—a nod to just how dramatically he, and the nation, had evolved in their comfort with debt and financial risk.

He wasn’t as rich as John D. Rockefeller or Henry Ford (who was christened “ our second billionaire” in a magazine article just that month), but he often made more headlines.

Still just fifty years old in 1929, he was one of those people who seemed to glide through life.

That was what made Raskob’s decision to dive into politics such an aberration. Had Smith won, Raskob likely would have been the treasury secretary. Prior to the election, he had insisted with his typical bravado, “I have never been connected with an enterprise that was a failure, and I am not going to this time.”

Instead, Smith’s defeat was the first major public setback of Raskob’s life, and he intended to rebound from it with a vengeance.

In the political world, he was disliked—“ an awful crank to deal with…fussy…and hard to get along with” was how Frances Perkins, Franklin Delano Roosevelt’s future secretary of labor, put it. There was even a word for it: Raskobism.

In the business realm, it had always been the opposite: Raskob was a self-made hero of American business.

When he took the job as du Pont’s personal secretary, he entered the orbit of one of America’s most powerful industrial dynasties and quickly climbed the ladder of success, watching (and learning) as the family company—whose original business was gunpowder—built itself into a powerhouse by swallowing up smaller competitors. By the 1920s, he had eclipsed the du Ponts as an influential business leader, someone whose words could move markets. In March 1928, about to sail for Europe, he told a journalist that General Motors stock should be selling at “fifteen times its earnings.” The price promptly shot up. Two million shares traded hands in two hours, adding over $47 million in value of outstanding GM shares.

Money alone, however, never quite satisfied him. He craved power, recognition, validation, and respect. Politics was an obvious way to get all those things, and Raskob saw his chance to play kingmaker in the presidential candidacy of the popular New York governor Al Smith.

The two men had become friends by chance in 1926, both devout Catholics and advocates of repealing Prohibition, which had been in effect since 1920 and had largely succeeded only in driving drinking underground. Raskob and Smith believed Prohibition was an issue that could swing the White House back to the Democrats after eight years of Republican domination. But they also knew Smith couldn’t win without the support of the business community, which favored the socially awkward Hoover over the genial, smooth-talking Smith. “ Business, big or little, has nothing to fear from Governor Smith,” Raskob told reporters after the stock market briefly wobbled in 1928. Stocks perked up the next day, a flurry dubbed the “Smith market.”

Smith’s professional handlers had their doubts about Raskob. For starters, he wasn’t even a Democrat. But Raskob understood how to leverage friendship and establish loyalty: In March 1928, he gave the governor a gift of one thousand shares of RCA stock worth more than $100,000, just before it soared into the stratosphere. Feeling indebted to Raskob, Smith defied his advisors and asked him to serve as his campaign chairman and head of the Democratic National Committee (DNC). “There’s nothing I’d rather do,” Raskob responded.

A few days after their conversation, tragedy struck. On July 5, 1928, Raskob’s second oldest child, William, was killed in an automobile accident while returning home from Yale University. But Raskob refused to let it slow him down. Immediately after the funeral, Raskob went back to New York, where he was formally elected to his new role.

Raskob’s appointment made headlines around the country, mostly in negative ways. Carter Glass condemned Smith’s choice of the New York financier as reflecting “not only…distaste, but an actual contempt for the South.” Franklin Delano Roosevelt, who would fill Smith’s seat as governor of New York, called the choice of Raskob a “grave mistake” that would “permanently drive away a host of people in the South and West and rural East who are not particularly favorable to Smith, but up to today have been seeping back into the party.”

Raskob also made a critical blunder that gave his critics additional ammunition. He neglected to inform GM’s upper management of his new role before it became public and faced anger from the company’s management and board about embroiling GM in politics. It had been his plan to install the DNC headquarters in the GM building at 1775 Broadway, so he could continue his work for the company. Alfred Sloan, the image-conscious president of GM and a staunch Hoover supporter, was furious with Raskob. Raskob argued that his involvement could only help GM and pointed out that many of GM’s leaders had held political leadership roles. His close colleague Pierre du Pont, whom he had pushed to get involved with GM and was a board member, stood by him, though others aligned with Sloan.

After a week of turmoil, Sloan took the issue to the GM board for a vote, and although Raskob was allowed to stay on the board, he was ousted from his role as GM finance chairman. He wrote Sloan a letter of “voluntary resignation,” explaining that his duties as national chairman would require all his time and that he didn’t want the public to assume that GM was taking a role in national politics. The victorious Sloan accepted his resignation “with regret.” Without a salary, Raskob quickly sold about $20 million in GM stock to finance his lifestyle and foray into politics.

Tapping into his extensive network, Raskob worked miracles raising money for Smith’s underfunded campaign, pressuring well-heeled friends to donate or make loans to the campaign, and contributing at least $230,000 himself. But his inexperience in politics was exposed at his first formal press conference, as he was besieged by aggressive reporters with questions on farm policy and other pressing issues. For years, the press had been happy to run with whatever Raskob told them, about markets or companies or anything else. But it was different now. Under direct fire from the press for the first time, Raskob faltered. “ It is a cardinal rule of campaign management to let the candidate speak for himself,” The New York Times lectured him, “and this the Democratic National Chairman seems unable to do.” For a man accustomed to flattery from the press, the criticism stung.

Raskob and Smith believed opposing Prohibition would help them win. That was true in big cities like New York and Chicago, but in rural areas and much of the South, many voters still strongly supported the ban on alcohol. In September, Raskob predicted to Time that Smith would win 347 electoral votes, far more than the 266 needed to be elected president. He later upped his forecast to an even more improbable 402 electoral votes.

But once again Raskob’s political instincts proved to be a poor cousin to his business acumen, as he grossly underestimated the public’s desire for continuity in Washington, especially with the economy so strong. Smith took just 41 percent of the popular vote, failing to carry even his home state of New York. Prohibition, it turned out, hadn’t been a key issue after all. While Raskob was convinced that the Republicans had relied on anti-Catholic bigotry to win, intimating that Smith would be subservient to the Vatican, he played the gentleman in public, graciously accepting defeat.

“ In accordance with democratic principles,” Raskob said, “we cheerfully accept the will of the majority.”

Privately, he immediately set about plotting against Hoover.

At a January meeting in Albany, Raskob spent two hours in conference with Franklin Delano Roosevelt, the newly elected governor of New York, who had received thousands of letters and cables from Democratic county chairmen insisting that Smith had been “cheated out of the Presidency” due to religious bigotry. They wanted Raskob—whom they identified with Republicans and Wall Street—out as chairman of the DNC.

Ahead of the planned dinner, Raskob worked from his apartment at Carlton House as he waited for an office he had leased at 230 Park Avenue—a much-praised new block-wide office building that sat right in the middle of Park Avenue at Forty-Fifth Street and had massive archways allowing vehicular traffic to flow directly through the structure—to be completed. He had two Cadillacs and a chauffeur, but he enjoyed walking, and the new office would be only a couple of minutes by foot from his apartment.

Raskob contemplated the big idea he was going to present to his dinner guests: He wanted to professionalize the party and use the same methods that had brought him so much success in the world of business into politics, rather than the ineffectual, ad hoc style that had long characterized whatever party was out of power. He intended to raise money all year round, not just during campaign season, so “the party can carry on in a strong and militant manner.” And there was one other item on his agenda: “We ought to have an active headquarters in Washington,” rather than New York.

All in all, he didn’t think these ideas would be terribly hard to sell them on. The trickier topic was going to be money. The party’s finances were in disarray, $ 1.3 million in debt—in no small part due to the many millions spent on Smith’s campaign. Its primary creditor was County Trust Company, which was run by Raskob’s friend James J. Riordan. Raskob had been a prolific money-raiser, easily procuring funds from the likes of Herbert H. Lehman, scion of the Lehman Brothers family, and even Arthur H. Sulzberger, the assistant to the general manager of The New York Times .

But now he was going to ask those benefactors who had guaranteed the loans to help him pay them back. And he knew they were not inclined to do so. Many of them had already told him he would be better off starting a new fundraising campaign rather than pressure the guarantors to pay up. They were well aware that Raskob had the means to pay off the loans out of his own pocket. To Raskob, however, it was a matter of principle.

“ When the underwriters were asked to affix their signatures, no one ever thought it would be settled in this manner. At least I didn’t,” his friend Bernard Baruch wrote him when Raskob asked him to pay up. Baruch was convinced Raskob was going to lose friends if he continued to press donors. “The fact that under this plan I would contribute $50,000 is not the thing which impels me most to thus frankly write you and ask you to turn aside from something that will hurt you and hurt the Party,” Baruch added.

To Raskob, these excuses were just that. Sure, he could cover the loan all by himself. But he felt the guarantors, many of whom were his close friends and had made huge profits together on stock pools, had a responsibility to make good on their pledges. Besides, with the surging stock market making them all richer with every passing day, everybody could easily afford it.

If he could just get the debt paid off, Raskob was determined he could stay atop the DNC, move it to Washington, and redefine its role as a ruthless fighting machine.