1929: Inside the Greatest Crash in Wall Street History--and How It Shattered a Nation - 15

As the month of May began, John Raskob finally moved into his new office on the thirteenth floor at 230 Park Avenue, where he shared 3,600 square feet of walnut-paneled space with his friend and mentor Pierre S. du Pont, the former chairman of General Motors. On his wall in a frame, Raskob displayed his words to live by: “ Go ahead and do things, the bigger the better…”

His dinner with the Democratic Party’s elite had gone so well that he was already looking for space in Washington for his anti-Hoover headquarters. He had also already managed to knock $750,000 off the party’s debt load—he now had “just” $800,000 to go. And he tapped Jouett Shouse, a former congressman from Kansas, as chairman of the executive committee of the Democratic Party. The only thing he hadn’t managed to do yet was find his publicity assassin—that was still a work in progress.

The news headlines had blared that Raskob was on his way out as the DNC chairman. (“Smith and Raskob Out,” the Daily Press wrote.) On the contrary: He was decidedly in.

On this particular morning, however, Raskob wasn’t concerned with the accuracy of the stories about his political plans. He was focused on a New York Evening Post article that had just broken the news of his newest business venture, which he hadn’t yet expected to share publicly: a grand vision to democratize the stock market by allowing anyone to invest in a basket of stocks.

Much to Raskob’s annoyance, the Post got parts of the story wrong, but what really frustrated him was that the story had gotten into the papers at all. He had postponed launching the company, Equities Security Company, in part because he was so preoccupied with organizing the offices of the Democratic National Committee. But the more important reason for the delay was because he was worried that the market was starting to look frothy. The Dow had jumped nearly 9 percent since early April and had closed the prior day at 326.16. Launching a new company at the height of the market, he knew, was a recipe for trouble.

Still, the Post got enough of the story right that Raskob decided he needed to say something publicly, if only to put a marker down and correct any misperceptions about what he was planning. Plus, it might quiet—or at least divert attention away from—all the gossip in Washington about his political efforts.

Raskob called the business editors of several newspapers, who quickly sent over reporters to hear what he had to say—and get a glimpse of his new office for the first time.

The reporters marched through the polished brass doors of the lobby, where the ceiling was punctuated by gleaming bronze fixtures, reflecting the light from ornate chandeliers that hung like jeweled crowns. Every surface glistened, as if the entire building were dipped in gold.

When the crowd of journalists was assembled in his office, he unveiled what he had been talking to associates and peers about for months: “I have found that the greatest pleasure in the business game is to help others make money,” he said. “Today the working man, the fellow who, say, has saved several hundred dollars and would like to invest it, cannot do so with safety, or with the chance of making a worthwhile profit. That is the man I would like to help…to really participate in the huge profits of American industrial progress.”

Raskob said that the company he envisioned would allow ordinary Americans to buy a group of stocks, chosen for them by an investment professional, and, uniquely, use debt to boost returns. He also planned to offer an installment plan to make it affordable for his customers. It would be no different than using an installment loan to buy a car.

“ Say a wage earner had saved $200 and wished to invest it in stock in the proposed corporation for the purpose of profit. Well, he would be allowed to buy $500 worth of stock for his $200. Through a subsidiary finance company, or discount company, the $200 investor would be granted a loan of $300, the subsidiary company accepting his stock as collateral. Then by payments of $25 a month or so the investor would pay his loan.”

The plan, he touted, would enable anyone with a few dollars to spare to participate in the greatest wealth-creating machine the world had ever seen.

“I didn’t see why the working men and women of our country should not be let in on the tremendous profits which are being made in America today. I have seen a number of fortunes made by careful investment, but as a rule not by the little fellows so to speak.”

Raskob, who made his name, in part, by helping invent installment payment plans for General Motors under Durant and later as the firm’s leader, considered the use of debt to create wealth and prosperity to be a powerful force for societal good.

“ It has been my observation that one of the great developers of character and of humanity is the fact of being in debt,” he told the reporters. “The man who is putting aside something, perhaps to meet an installment payment, is happier and better off than the man who spends his all as he goes.”

Raskob understood that debt posed risks and that Wall Street had more than its fair share of shady lenders and scam artists. But to his way of thinking, his new professional approach would effectively put them out of business.

“Now,” Raskob continued, “ all the man with, say, $200 to $500 to invest can do today is to buy Liberty bonds or to turn his money over to some gyp concern for investment in wildcat oil and other promotion schemes. I don’t mean to say all of the present investment trusts are tricky, but there is no question that a number of them are, especially those which handle the money of the small wage earner who has no special knowledge of stocks.”

The pressing question was the timing of Raskob’s new venture. When would it be launched? He wasn’t sure, he replied. “ I have heard some opinions,” he said, “that the present time is not opportune for investment because the general level of prices is too high and perhaps it’s true that some stock may be selling at 20 percent less in another year; but, in my judgment, many stocks are not too high even at their present level.”

Though Raskob couldn’t come right out and admit that the market was overheated—he had far too much exposure to express anything other than bullish sentiments—he clearly had concerns about where prices were heading. And he wasn’t the only one.

“ Who in hell is Charley Michelson?”

Raskob was in the middle of a conversation with Shouse, his new political hire in Washington, as they were setting up the office there.

Raskob was used to knowing the answer to just about anything—and to knowing just about everyone. But the name Charley Michelson didn’t mean a thing to him.

They were discussing Raskob’s idea for planting negative stories about Hoover—to start a smear campaign against the president of the United States. Michelson, said Shouse, was just the man to do it.

Michelson was a journalist celebrated for his sharp, “bitter, slam-bang, aggressive” approach. His pen was a scalpel—precise, devastating, and impossible to ignore. He had a gift for crafting compelling narratives—whether grounded in fact or not—and his crushing turns of phrase were the envy of every hard-charging reporter in Washington.

Shouse hired Michelson and gave him the title of “publicity director,” and Raskob paid Michelson’s salary out of his own pocket. Michelson, then the Washington bureau chief of The New York World , had spent the prime of his career, which coincided with the greatest economic boom the world had ever seen, scratching by on a journalist’s paltry earnings. So when Raskob offered him an annual salary of $25,000—or about ten times what he was accustomed to making in a year—taking the position wasn’t a hard choice.

Michelson had a wiry frame and a restless mind that seemed to be constantly crafting the next biting phrase. He had the look of a man who had seen it all and wasn’t impressed. More often than not, he had a cigarette dangling from his lips. And importantly, like Raskob, he had a healthy distaste for Hoover.

He had made his mark writing stories about highwaymen and train robbers, Indian wars and lost gold mines. One of his first journalism jobs was covering crime for the San Francisco Examiner , which had just been taken over by William Randolph Hearst. Hearst assigned Michelson and a colleague the job of capturing a grizzly bear. Other assignments included interviewing stagecoach robber Black Bart and covering the Spanish–American War in Havana, where Michelson encountered a young British writer named Winston Churchill. Michelson then had the unfortunate luck to be captured by the Spanish, who imprisoned him in Morro Castle, the fortress that guarded Havana’s harbor.

Once released, Michelson, along with the artist Frederic Remington and another reporter, tried to reenter Cuba in 1897. When Remington wired Hearst that he didn’t think there was going to be a war involving the United States after all, Hearst famously cabled back, “Go ahead, you furnish the pictures and I’ll furnish the war.”

Michelson worked for the Examiner until 1918, splitting with Hearst over the newspaper magnate’s antiwar, anti-Wilson stance. After a brief but lucrative job writing a screenplay for a film called The Little Girl Next Door , he became the main political writer at The New York World ’s Washington bureau. With his Hollywood payday—about $20,000—Michelson bought a house in Georgetown that his friends dubbed the “Whiteslave Villa.”

The cutthroat, take-no-prisoners style of Hearst publications left a permanent mark on Michelson’s heart and on his prose. As director of the DNC’s new publicity machine, Michelson knew exactly how to hook reporters into amplifying his scathing criticisms of Hoover.

Raskob had delegated the hiring of Michelson to Shouse, keeping himself at arm’s length from its execution. After a brief introductory meeting with Michelson—a formality, really— Raskob stepped aside. If things got messy, he could claim he had merely funded the effort, not orchestrated it. Michelson, for his part, didn’t require direction. He understood the mission, and he attacked it with conviction.

As Scribner’s Magazine later wrote, Michelson “went to it like a fireman to a fire, only his idea was not to extinguish the flames but to build them.”