1929: Inside the Greatest Crash in Wall Street History--and How It Shattered a Nation - 4

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 the 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 high-stakes 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 counsel-investigator. 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 hard-rushing 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.

What the Van Sweringens had built in Alleghany was less an exception than a preview of the latest Wall Street craze: the investment trust. By the mid-1920s, promoters had discovered that the magic of leverage could be packaged and repackaged. A trust would raise money from the public, buy a basket of stocks and bonds, and finance itself with new layers of preferred shares and debt. Then a new trust might be launched to buy shares of the first—piling still more leverage atop what was already there. On the surface it looked like diversification; in reality it was leverage amplified. To ordinary investors it seemed a safe way to let professionals manage their money, but the real draw was the names behind them—Morgan, Goldman, and the other grandees of finance. Investors weren’t buying companies so much as they were buying reputations. And for a time, that faith was enough: The most fashionable trusts doubled or tripled in price, often trading at extraordinary premiums above the worth of the assets inside.

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 associates 10,000 shares at cost to us, namely, $20. The counter market is quoted at $35.

Please wire promptly your wishes. I am sailing for Paris tonight.

With best regards,

TOM

Aboard the Aquitania Lamont awaited replies to his offer. After years of traveling by luxury ocean liner, he felt comfortably at home on the 3,230-passenger ship, with its vast lounging rooms and promenades, with showcases of jewelry and fine china, and a main staircase with a fine wrought-iron balustrade copied from a French château. At 11 a.m. waiters served consommé. Afternoon tea could be enjoyed in the English-style garden lounge, and exercise could be taken in the gymnasium and a seven-and-a-half-foot-deep swimming pool.

The spacious first-class dining room, decorated in Louis XVI style, served not only caviar and other delicacies but the finest wines and spirits—a luxury not permitted on American-based liners during Prohibition. Daily social events included deck tennis and shuffleboard, Ping-Pong, dancing, and a costume ball.

Lamont had one other audacious piece of business to conduct on the ship. He’d been privately scheming for months to bring about what he considered a transformative merger between International Telephone & Telegraph (ITT), RCA, and Western Union, a potentially monumental achievement that would create a worldwide telecommunication network—and a massive monopoly that was likely illegal under an antitrust law passed in 1927. That didn’t deter him.

Lamont represented ITT as a client. And it just so happened that Lamont now found himself on a boat for over a week alongside his new colleagues-in-arms representing the United States: Owen Young, the president of General Electric, the parent of RCA, and RCA’s leader, David Sarnoff. Both companies were also clients of the House of Morgan.

“ Long talks with Young about Radio Corp. merging with Western Union,” he wrote in his diary on the third day aboard. Young, he wrote, proposed creating one investment trust to put the deal together. Lamont was optimistic he could pull off the audacious deal.

Lamont, who had a touch of seasickness by the second day of the trip, locked himself in his room to write two lengthy cables to his office back in New York about the deal. He wasn’t concerned about missing too much going on aboveboard while he was working, because as he lamented in his diary, it was “ not very cold, but no sunshine. Mist and a heavy rolling sea.”

After eight days at sea the Aquitania docked in Cherbourg on February 8. The Lamonts awoke at 6:15 a.m. and hurried onshore. “ Had quiet and fairly restful trip—a little reading, dancing, bridge, irregular, but a good deal of sleep,” Lamont recorded in his diary.

The American delegation boarded a special train and arrived in Paris by 3 p.m. on February 8, where a horde of newspaper reporters descended.

“ Had a wonderfully fine crossing,” Morgan told them. “I enjoyed it. No, I cannot say how long the conference will last.” Young, Lamont, and Jack Morgan posed for a few pictures.

“ Plenty of hard work this time,” Young observed. “Of course, I feel optimistic but can say nothing now until the conference gets started.”

Lamont smiled.