Once in Golconda: A True Drama of Wall Street 1920-1938

301 Pages·1999·1.71 MB·English

by  John Brooks

Once in Golconda
A True Drama of Wall Street 1920–1938
John Brooks
Contents
Foreword
1. Overture: The Outrage
2. Ticker Tyranny
3. The Almost Aristocracy
4. So Near the Apes
5. Things Fall Apart
6. Enter the White Knight
7. Gold Standard on the Booze
8. Ordeal in Washington
9. The White Knight Unhorsed
10. Rising Action
11. Catastrophe
12. Denouement
Acknowledgments
Sources
Index
Foreword
“Golconda, now a ruin, was a city in Southeastern India where, according to
legend, everyone who passed through got rich.” Its riches faded, its fine
buildings collapsed, and its glories disappeared, never to return.
That tends to be the way with legendary sources of unimaginable wealth.
They flourish for a time, and then they go forever. There’s one exception. It’s
called Wall Street, a name that strictly speaking applies only to a narrow gully in
the south of Manhattan, but that can be taken as a proxy for Tokyo, London, and
other financial markets everywhere.
Unlike Golconda, Wall Street can come back from the dead. Although slumps
follow booms, the grass never quite gets to grow over its pavements. It’s a
concrete tribute to the human spirit–to ingenuity, to dynamism, to creativity, and,
from time to time, to the willing suspension of disbelief. In the high wild times
that occur every generation or so, when everyone makes money and it seems like
a crime not to be rich, investors forget the lessons that their predecessors learned
so painfully. They know, with absolute certainty, that this time it is going to be
different.
In this book, John Brooks–who was one of the most elegant of all business
writers–perfectly catches the flavor of one of history’s best-known financial
dramas: the 1929 crash and its aftershocks. It’s packed with parallels and
parables for the modern reader.
The great bull market of the 1920s was built on the growth of a completely
new industry, based in Detroit as opposed to the Silicon Valley. It created a breed
of business heroes, who passed easily from the top of big investment banks into
the upper ranks of government. The most successful investments were to be
found in a relatively small number of big companies. And it promised a new
economic paradigm.
As President Coolidge explained at the end of 1927, America was “entering
upon a new era of prosperity.” Speculation became respectable, and Wall
Streeters generated the kind of glamour that goes with being an insider on the
subject that everyone wants to talk about. In the perceptive words of an English
journalist who arrived on the scene just before everything went wrong, “If the
attitude of Americans to the stock market proved anything, it proved that they
believed in miracles. That if you try hard enough, you can make wonderful
things happen.” Then came the crash of 1929. Share prices recovered a bit the
following year, before reaching a point that they were not to see again for nearly
a quarter of a century.
The central character in Brooks’s story is Richard H. Whitney, who starts out
at the top of the Wall Street establishment and ends up in Sing Sing. His story is
an extreme example of another recurring feature of financial cycles: Bull
markets create heroes and have a wonderful way of covering up mistakes, and
worse.
Heroes can all too often come to believe that the rules don’t apply to them,
especially if they live and work in a narrow community securely cordoned off
from the little people. That’s when the temptations start.
Richard Whitney didn’t start out to be a criminal–the very notion of robbing a
bank would have horrified this lofty and fastidious figure. Instead, he bent the
rules, little by little, in the fond belief that the rising tide of the stock market
would put everything right. When it didn’t, he bent the rules some more. Even
when he was exposed, his friends were unwilling to admit the truth.
In the words of a top man at J. P. Morgan, “It never occurred to me that
Richard Whitney was a thief. What occurred to me was that he had gotten into a
terrible jam.”
I first read Once in Golconda back in the 1970s, during those long dull years
when the Dow was strugglng to break decisively through the 1,000 mark and
when Wall Street was a place where you went to get your bonds underwritten. It
seemed at the time like a wonderful fairy story, peopled by characters out of
Scott Fitzgerald. Brooks’s stories–the bomb outrage of 1920, the marvelous story
of the bear raid on the Stutz Motor Car Company of America–stayed in my
memory.
But I regarded those tales as artifacts from a distant age, with as much
relevance to anything that was ever likely to happen again as the story of
Golconda.
Rereading it in 1999, though, I’m not so sure.
RICHARD LAMBERT
The Financial Times
ONCE IN GOLCONDA
Golconda, now a ruin, was a city in southeastern India where, according to
legend, everyone who passed through got rich. A similar legend attached to Wall
Street between the wars.
Chapter One
Overtures: The Outrage
I
On Thursday, September 16, 1920, a few seconds after the Trinity Church bell
had finished tolling noon, the pleasant fall air of downtown Manhattan (weather
clear, temperature sixty-nine degrees, market up slightly) was rent by an
enormous and devastating explosion. Emanating from a point on Wall Street a
few yards east of the intersection of Wall and Broad, and directly between the
marble edifice of J. P. Morgan & Company and the barred front of the brand-new
United States Assay Office–that is to say, from the precise center, geographical
as well as metaphorical, of financial America and even of the financial world–
the explosion darkened the area for several minutes with a huge cloud of
greenish smoke, set fire to awnings twelve stories above the street, broke
virtually every window in the immediate vicinity and some as much as a half-
mile away, and spattered a wide area with hundreds of small, shrapnel-like iron
slugs that, on later examination, appeared to be fragments of cut-up window sash
weights. It pock-marked the austere façade of the Morgan building, at 23 Wall
Street, on the southeast corner of the intersection, and blew in all of its north
windows, causing a hail of glass fragments to fall on persons on the banking
floor below. It bent the heavy bars protecting the Assay Office, on the north side
of Wall next to the Sub-Treasury; this building largely escaped interior damage
precisely because it had been designed to be a fortress. It shook to the
foundations, but by miracle or chance did not materially damage, Wall Street’s
own church, Trinity, which stood, flanked by its famous old graveyard
containing the bones of Alexander Hamilton, only a short block from the point
of explosion. The toppling of Trinity’s Gothic Revival spire, had it occurred,
would have symbolized the disruption of things as they were as much as the
defacing of Morgan’s itself.
At the New York Stock Exchange, on Broad Street near the southwest corner
of the intersection with Wall, the blast sent hundreds of brokers and traders
surging to the center of the trading floor in an effort to avoid glass falling from
the room’s huge windows; there, driven from Scylla to Charybdis, they were
confronted with the prospect of mass extinction by the great glass dome
overhead, which threatened to fall but didn’t. At the Bankers Trust Company, on
the northwest corner, broken glass flew like leaves in a gale, and one of the iron
slugs whizzed through the office window of Seward Prosser, the bank’s
president, missing his head by a few inches.
Others were less fortunate than Prosser. Thirty persons were killed instantly or
nearly so by the explosion, and injuries befell some three hundred more, of
whom ten died later. But none of the dead were the kings and generals of
finance, all of whose lives seemed to be as charmed with good fortune as
Prosser’s. J. P. Morgan, the most famous man in Wall Street and the public
symbol of its power, was on holiday in an English country house; of the five of
his partners who were in the building when it was hit, all escaped injury except
Morgan’s son Junius, who suffered a minor cut. Of the thirty who died at once,
none were brokerage partners or senior bank executives, and only one was
identified as a broker. Most of the others were Wall Street’s attendants and
privates, young or old–the stenographers, clerks, bookkeepers, messengers, and
porters who with untimely appetite had stepped out of their buildings a minute or
two before noon on their way to an early lunch. Three were women, four were
teenage clerks or messengers, one was a young banker of twenty-five, another
was a retired businessman of sixty-eight. The value of the securities lost in the
confusion was negligible, and as to property damage, which amounted to two or
three million dollars, the owners of the buildings or their insurance companies
could easily enough absorb that. Whatever the meaning of the explosion, it left
Wall Street’s power unscathed.