Sometimes heroes are not all they are cracked up to be. Consider the case of Richard Whitney, whom Time magazine labeled “Hero Whitney” for his actions on October 24, 1929, the Black Thursday that marked the beginning of the Great Crash.
On that day, Whitney, principal of his own brokerage firm and acting president of the New York Stock Exchange, walked onto the exchange floor, went to the post where U.S. Steel was traded and in a loud, confident voice placed a large order at $205, some $15 above its offer price. The square-jawed, striding broker then bought up shares of AT&T, Anaconda Copper, General Electric and other blue chips.
Whitney was acting at the behest of a consortium of banks headed by J.P Morgan & Co. The goal was to allay the panic that had broken out in the market, and for a little while it worked. But a few days later, the Crash resumed in earnest, on Black Monday. Unlike in the Panic of 1907, when J.P. Morgan himself had rallied a recovery, the financiers this time around didn’t have enough cash or clout to prevent a collapse.
But that barely begins to explain why Whitney is remembered by history as less than heroic. His reputation retained a shine through most of the 1930s. For that decade’s first half, he was formal president of the exchange (no longer just acting, as on Black Thursday, when the president was away) and as such was a leading voice of Wall Street. He was a resolute (arrogant, some said) opponent of the New Dealers’ push for a regulated stock market. The exchange, he assured lawmakers, was built on integrity.
The trouble is that he didn’t have much of that himself. Whitney was a crook. He was from a patrician background and kept up an expensive lifestyle, but behind the fa?ade he was increasingly mired in debt and had taken to embezzling from organizations where he held positions of trust, including the New York Yacht Club, the Harvard Club and the exchange’s own pension fund. In April 1938, shortly after his malfeasance was revealed, Whitney was sent up the river to New York state’s Sing Sing prison.
Amid today’s headlines, with their torrent of financial scandals, Whitney’s story takes on a dreary familiarity. However, what’s noteworthy in the history of financial misbehavior is not just that there has been plenty of it. It’s also that there has been a great deal of decent, and sometimes excellent, behavior in the financial community that gets overshadowed by the shenanigans of the miscreants who show up in the news wearing handcuffs or electronic ankle-bracelets after they’ve been caught out in their swindles.
When financial people engage in misconduct, they violate the trust of clients and call forth the wrath (or the opportunism) of regulators. But importantly, they also betray their colleagues in the financial industry, splattering mud on standards that many in the industry have upheld. In the case of Whitney, his misbehavior did serious damage to the image of Wall Street at a pivotal moment in American politics. And it reflected a callous disregard for the emphasis on integrity in finance that had been voiced a couple of decades earlier, with memorable eloquence, by none other than J.P. Morgan.
Flashback to 1912
John Pierpont Morgan Sr. was 75 years old when he testified before a congressional committee in December 1912. As it turned out, J.P. had only a few months to live. The Pujo committee (named after Democratic Congressman Ars?ne Pujo of Louisiana) was investigating the powers that be on Wall Street, and J.P. was a prime target.
During the hearings, committee lawyer Samuel Untermyer asked Morgan how banks decide to whom to lend, suggesting it was all about money. J.P. replied that much lending takes place “because people believe in the man.”
Untermyer was skeptical: “And it is regardless of whether he has any financial backing at all, is it?”
Morgan: “It is very often.”
Untermyer: “And he might not be worth anything?”
Morgan: “He might not have anything. I have known a man to come into my office, and I have given him a check for a million dollars when I knew that he had not a cent in the world.”
When Untermyer probed that credit is based primarily on money and property, the banker replied: “No sir, the first thing is character.”
The attorney countered that a man with a lot of government or railroad bonds would get credit because of those holdings, and not because of “his face or his character.” But J.P. insisted that “he gets it on his character.”
Untermyer interjected some lawyerly sarcasm: “I see. Then he might as well take the bonds home, had he not?”