T.R. vs. J.P.

It would be called the Bankers’ Panic, the Roosevelt Panic, or simply the Panic of 1907. A hundred years ago this month was the culmination of a financial crisis that swept through the stock market, spurred far-reaching changes in the U.S. economy, and put a stark light on the differing philosophies and personalities of the country’s two most powerful men: President Theodore Roosevelt, and financier John Pierpont Morgan.

The two men were never exactly friends, never entirely enemies. J.P. had been a friend of Roosevelt’s revered father, but also had been an owner of Northern Securities, a railroad-controlling financial institution that was dissolved after T.R., early in his first term, filed an antitrust suit against it. Roosevelt’s fulminations against concentrations of economic power disturbed, or at least irritated, J.P., who nonetheless reluctantly supported T.R’s 1904 election campaign when it became clear the popular president was going to win.

The president had turned aside the financier’s effort to negotiate a private resolution to the Northern Securities matter, later remarking that “Mr. Morgan could not help regarding me as a big rival operator who either intended to ruin all his interests or could be induced to come to an agreement to ruin none.”

Morgan has gone down in history as saying “I owe the public nothing,” although biographer Jean Strouse has raised doubts about whether he actually said this. In any event, the financier had little sympathy for the expanded government role Roosevelt was trying to bring to the economy. Business, Morgan thought, should be big. Similar to his friends named Rockefeller and Carnegie, J.P. believed it was more efficient to combine businesses than to have them compete. And he had grown vastly rich overseeing the mergers that led to such massive companies as General Electric and U.S. Steel.

The stock market boomed midway through Roosevelt’s presidency, the Dow pushing above the 100 level early in 1906. In December of that year the president acclaimed the nation’s “literally unprecedented prosperity,” adding that “reckless speculation and disregard of legitimate business methods on the part of the business world” could pose a threat to these good times. By this point, the economy was slowing, credit was tightening, and investors were worrying about matters ranging from T.R.’s own trustbusting to the big insurance payouts for the 1906 San Francisco Earthquake.

On March 13, 1907, the Dow started heading downward in a serious way, dropping nearly 4 percent from 86.53 to 83.12. The next day was worse, the index falling another 8.29 percent to 76.23. The market remained weak through the summer, slipping gradually downward. It seemed, however, that the worst might be over. Some thought what was unfolding was similar to a slump that had occurred in 1903, known as the Rich Man’s Panic, which by its very name suggested it hadn’t done all that much damage.

Roosevelt, meanwhile, ratcheted up his rhetorical pressure against business titans who resisted his regulatory efforts, lambasting them in an August speech as “certain malefactors of great wealth.” Although the president didn’t mention Morgan by name, it was hard to believe he didn’t have the bulbous-nosed banker in mind as one of those “malefactors.”

In October, the market began crumbling again. Prompting the panic this time was a failed attempt to gain control of United Copper Company by speculators led by F. Augustus Heinze, a Brooklyn native who had made a fortune in Montana copper before returning to New York as head of Mercantile National Bank. United Copper’s share price plunged, losing three quarters of its value on October 16, while newspaper reports revealed that various financial institutions stood to lose money on Heinze’s speculations, including Knickerbocker Trust, previously seen as a paragon of stability.

Runs on banks promptly followed, and on Wall Street, a general rout ensued. Call rates soared to over 100 percent as troubled lenders called in their margin loans. The Dow slid below the 60 line and continued to drop. The market was back at levels not seen since the autumn of 1904.

Roosevelt was hunting in Louisiana’s canebrakes as the crisis broke. He showed little initial interest in the financial tumult, telling reporters instead about the animals he had bagged, which included “three bears, six deer, one wild turkey, 12 squirrels, one duck, one opossum, and one wildcat.” With the news from Wall Street getting worse, he headed back to Washington, trying not to look too rushed to avoid exacerbating the panic.

Morgan, too, was away from his desk at the outset of the crisis. Aged 70 and semi-retired, he was attending an Episcopal Church convention in Richmond, Va., listening as a lay delegate to debates about prayer books and such, when increasingly desperate telegrams began flowing in from the J.P. Morgan bank’s headquarters at 23 Wall Street. Before long, he called for his private railroad car. “They are in trouble in New York,” he told his friend Bishop William Lawrence. “They do not know what to do, and I don’t know what to do, but I am going back.”

Yet whatever doubts he had seemed to dissolve quickly. Back in New York, Morgan moved decisively. In a whirlwind of activity, conducted largely from the well-appointed library of his Madison Avenue home, J.P. assembled teams of analysts and money men to figure out which financial institutions could be saved and to channel funds to them for the stability of financial markets and the national economy.

J.P. was acting like a central bank, an institution nonexistent in the United States at this time. And the U.S. government was playing a distinctly secondary role. While Roosevelt tried to keep up with the fast-changing situation, his treasury secretary, George Cortelyou, went to New York at Morgan’s request to work by the financier’s side. The U.S. government did provide public funds to back up the money Morgan’s men were throwing around. But it was J.P. who was calling the shots, at one point locking the doors of his library and pocketing the key until the bankers therein reached an agreement.

As depositors lined up at Knickerbocker Trust headquarters on 34th Street and Fifth Avenue, future site of the Empire State Building, J.P. had the trust’s books audited by young bankers including Benjamin Strong, future governor of the New York Federal Reserve. After they gave him their grim report, J.P. decided Knickerbocker was hopeless and allowed it to fail. Several weeks later, the trust’s president, Charles T. Barney, denied a meeting with J.P., would commit suicide.

But J.P. held the line elsewhere, bolstering financial institutions with the pooled money under his control. After getting a favorable report from Strong about the beleaguered Trust Company of America, he authorized a $3 million infusion for that institution, declaring it was “the place to stop the trouble.”

Then, on October 24, J.P. rescued the stock market. That day, the president of the New York Stock Exchange, the intriguingly named Ransom H. Thomas, rushed over to Morgan’s Wall Street office to tell him that some 50 brokerage firms were about to collapse, unless massive rescue funds could somehow be provided. Thomas began talking about shutting the Exchange.