1929: Inside the Greatest Crash in Wall Street History--and How It Shattered a Nation - 6

Later that same afternoon of Saturday, February 16, 1929, the phone rang in William Crapo Durant’s hotel suite in Flint, Michigan. He was staying where he always did when he was back in town, in the eight-story Neo-Georgian building that proudly spelled out its name in gold letters: The Durant.

The front desk put through the call: Charles Mitchell on the line.

It was a cold day in Flint, half a foot of fresh snow on the ground. Durant, a tiny man with a pronounced chin that gave him a hard, determined look, was a titan of the burgeoning automobile industry. But these days, his preoccupation, like everyone else’s, was the stock market. He had become perhaps the nation’s most famous speculator, taking such astounding risks during his career that one friend said of him, “ You know, W.C. is never happy unless he is hanging to a windowsill by his fingertips.” So far, he hadn’t fallen off; on the contrary, he had become one of the richest men in America, with a fortune estimated to be at least $100 million.

Durant was surprised to hear from the president of National City Bank on a weekend. The two men were not friends exactly—more like business acquaintances. They got along because they each understood the upside of doing so.

Mitchell, calling from one of the three telephones that sat atop his desk in his office in New York, was agitated, and he knew Durant likely would be, too. Both men had been intently watching the market wobble for the past several weeks and pointed the blame at the same culprit—the Federal Reserve.

The Dow had fallen another 3.5 percent in the past two days, closing at 295.85, down from 306.49.

Mitchell told Durant they needed to do something about the Fed—and quickly. Mitchell described his failed attempts to bring the board around to his way of thinking. Washington and its economists have no idea how the markets work. Their ignorance is going to cause a crash.

Durant had spent the past decade very publicly criticizing the Federal Reserve, concerned that it was constantly trying to manipulate the economy. In his view, it often hindered growth by keeping interest rates too high. “The Federal Reserve Bank at this critical time should encourage, rather than discourage, the extension of credit and should reduce its discount rate to 3 percent. Quick, decisive, courageous action on the part of the Federal Reserve Bank would, in my opinion, very materially improve the situation, would hearten our businessmen and set in motion the wheels of commerce and industry,” he said as far back as 1921. He had made dozens of similar statements since then.

Mitchell was hoping that Durant might have some ideas about how to shift the dynamic in Washington. Usually, Mitchell could call in favors from across Wall Street, as well as marshal support from editors and pundits at the major New York dailies. But he didn’t have much clout in Washington because, up until this point, it had never been necessary.

The two last presidents, Warren G. Harding and Calvin Coolidge, had largely left American business alone. Coolidge in particular saw his job as little more than cutting taxes and spending—and vetoing legislation. He had spent his six years in the White House quietly reading papers at his desk, smoking cigars, making his own sandwiches, and telling people no before they’d even managed to articulate a question. He believed in a government that did as little as absolutely possible, and Wall Street revered him for it. People called his hands-off approach and the resulting boom in stock prices “ the Coolidge market,” though not everybody meant it as a compliment. To some it represented an abdication of authority and responsibility, but these critics were in the minority.

With Herbert Hoover’s presidential inauguration taking place on March 4, just weeks away, the Street was on edge. Nobody knew quite what to expect of the new president. Though Hoover had genuine business credentials—before serving as secretary of commerce in the Harding and Coolidge administrations, he had amassed a respectable fortune of his own in gold, zinc, and silver mines—Mitchell did not regard him as particularly knowledgeable about the emerging forms of American enterprise.

Before calling Durant, he had tried Andrew Mellon, Coolidge’s treasury secretary, who was expected to be reappointed to the job by Hoover. Mellon was receptive to Mitchell’s concern, but he demurred from doing anything before Hoover assumed the presidency.

Mitchell had caught Durant in a melancholy mood and his concerns instantly got Durant’s mind racing.

How could he change the Federal Reserve’s perspective? How could he sell them on a different path? Who did he know? What could he say?

When Durant was twenty-four, he started a company in Flint, Michigan, called Durant-Dort Carriage Company, which built spring-suspension road carts. The year was 1886, and the young entrepreneur had a rare gift for understanding the power of consumer behavior and the importance of having a product people instinctively wanted. “ Look for a self-seller,” he liked to say. “If you cannot find one, make one.”

At the turn of the century, investors were throwing money at hundreds of new automobile ventures, desperate to own a piece of the future. Along with Detroit, Flint was one of the hotbeds. Durant wasn’t initially sold on the future of the industry. He thought cars were noisy, unreliable, and dangerous, but people couldn’t stop buying them. In 1904, Durant acquired a failing brand called Buick and transformed it. But he didn’t want to just make cars. He wanted to build an empire.

Durant had a deliberate style, a powerful blend of perceptiveness and persuasion. “ I cannot hope to find words to express the charm of the man,” Walter Chrysler said of Durant.

Highly unusual for ascendant businessmen, he was also a keen observer of other people’s actions and motives, a listener. “Assume that the man you are talking to knows as much or more than you do,” he said. “Do not talk too much. Give the customer time to think. In other words, let the customer sell himself.”

Durant snapped up dozens of brands and assembled them into a single entity called General Motors. With a deputy named John Raskob, he also created the General Motors Assistance Corporation to supply credit to customers and enable them to spread out their payments. Credit, he realized, would be key to fantastic growth in the car industry. By 1919, GM was a colossus, employing more than eighty-six thousand workers and selling 1.5 million cars a year.

Despite his tremendous success, Durant’s career was never a straight line up. In 1910, after wildly overspending on too many acquisitions, he was pushed out of GM. Almost immediately, he plotted a comeback. He started a rival company with Louis-Joseph Chevrolet, a race car driver. His new endeavor became an overnight sensation and Durant, who was desperate to get back to the top of the industry, finagled a merger with GM, reclaiming the CEO job in 1916. Four years later, he was pushed out again.

In 1921, Durant turned sixty. He was mostly done with the car business, and he started applying the full force of his being to the stock market. He loved the action and worked tirelessly, becoming spectacularly rich. He bought a magnificent seaside villa in Deal, New Jersey, called Raymere, which had thirty-seven rooms and fourteen baths. Flemish tapestries, priceless porcelain, treasures of European and Asian culture, and art objects adorned every inch of the premises. The household required at least ten servants, and another eight or nine to maintain the elaborate grounds. “ I had never experienced luxury to compare with Billy Durant’s house,” his friend Chrysler said.

In New York, Durant and his wife, Catherine, rented an apartment on the ninth floor of 907 Fifth Avenue, with a forty-seven-foot-long gallery, a breakfast conservatory, four bedrooms, and a large living room. Durant loved to bestow on “Muddie,” as he called Catherine, gems and pearls from Cartier, Tiffany, and Black, Starr & Frost.

By 1929, Durant was spending most working days in a modest suite of rooms near Columbus Circle in Manhattan, standing at his desk from the opening bell at 10 a.m. to the closing at 3 p.m., carefully following the rise and fall of prices on a ticker tape. A fleet of assistants carried out his orders to buy and sell using twenty-six telephones on a vertical rack that looked like a “banana stand,” each one linked directly to a broker’s office. He organized so-called pools with other wealthy industrialists, including the legendary Fisher brothers, who made their fortune by building bodies for GM cars. Like a financial Pied Piper, Durant took great satisfaction in luring small-time speculators into the swirl of his elaborate market schemes.

Durant’s favorite gambit was to quietly run up the price of a stock, creating an overvaluation that attracted short sellers, and then turn up the heat by buying every share the short sellers dumped on the market. The stock would move higher and higher, “squeezing” the original shorts, who had to frantically cover the shortfall, while new ones jumped in, betting that stock would eventually have to obey the laws of gravity. But as an oft-repeated quote attributed to John Maynard Keynes (which was likely apocryphal) described, “Markets can stay irrational longer than you can stay solvent,” particularly when that irrationality is the handiwork of a super-skilled, deep-pocketed stock manipulator.

Durant was also on the cutting edge of what had become a fad among insiders on Wall Street in the mid-1920s, the “stock pool.” It typically worked like this: A group of investors would combine their resources to covertly buy up shares in a given company. They would do this over a period of weeks, careful not to draw too much attention to their activities. Then, with the aid of a market insider—often the very man on the floor who specialized in trading that company—they would commence a series of trades with themselves to artificially lift the price of the stock. Gullible investors would notice the upward momentum of the shares and jump in on the trade. They were not necessarily ignorant or dumb. They might know, or guess, that an investment pool was manipulating the price. But if they got the timing right, even a total outsider could capture a bit of the upside before the pool “pulled the plug” and dumped its shares back on the market.

Though investment pools were patently underhanded and deceptive, they weren’t illegal, and the biggest names and institutions on Wall Street, including National City and J.P. Morgan, all participated in them. This was the privilege of power. The lure of easy profits was simply too great. It was just a question of how much they could get away with.

If the markets were a battle of wits among investors, pools were considered just another way to outsmart other clever—and not-so-clever—investors.

Like many pool investors, Durant never viewed himself as a villain. Durant played the game to win, and if others lost money, he did not consider himself responsible for their naïveté. Through his network of allies and co-conspirators, Durant was estimated to control more than $1 billion in buying power; some placed the figure at four times that amount. He was regarded with awe, a swashbuckler who turned paper into gold.

Like Mitchell, Durant was frustrated with the state of the market. Call money—that is, the money banks loaned to one another overnight that could be “called” back at a moment’s notice—had jumped 3.5 percent in the last two days. It now stood at an almost untenable 10 percent and stocks had started to stagger in response.

That afternoon, when Mitchell got Durant on the phone, he made an emphatic case for how they needed to respond. Someone had to warn Hoover that “the Fed’s killing the goose which laid the golden egg,” Mitchell said.

Could Durant do it? Did he have the access?

Durant had been invited to Hoover’s inauguration in Washington, which was taking place in just over two weeks. He still wasn’t sure whether he would be going, but he had confidence that he had a path to the president.

“I’ll do what I can,” he assured Mitchell. “I’m sure there’s a way we can get to Hoover.”