WHY THE BANKS BECAME INVESTMENT BANKERS
These large profits from promotions, underwritings and security purchases led to a revolutionary change in the conduct of our leading banking institutions. It was obvious that control by the investment bankers of the deposits in banks and trust companies was an essential element in their securing these huge profits. And the bank officers naturally asked, “Why then should not the banks and trust companies share in so profitable a field? Why should not they themselves become investment bankers too, with all the new functions incident to ‘Big Business’?” To do so would involve a departure from the legitimate sphere of the banking business, which is the making of temporary loans to business concerns. But the temptation was irresistible. The invasion of the investment banker into the banks’ field of operation was followed by a counter invasion by the banks into the realm of the investment banker. Most prominent among the banks were the National City and the First National of New York. But theirs was not a hostile invasion. The contending forces met as allies, joined forces to control the business of the country, and to “divide the spoils.” The alliance was cemented by voting trusts, by interlocking directorates and by joint ownerships. There resulted the fullest “coöperation”; and ever more railroads, public service corporations, and industrial concerns were brought into complete subjection.
CHAPTER II
HOW THE COMBINERS COMBINE
Among the allies, two New York banks—the National City and the First National—stand preëminent. They constitute, with the Morgan firm, the inner group of the Money Trust. Each of the two banks, like J. P. Morgan & Co., has huge resources. Each of the two banks, like the firm of J. P. Morgan & Co., has been dominated by a genius in combination. In the National City it is James Stillman; in the First National, George F. Baker. Each of these gentlemen was formerly President, and is now Chairman of the Board of Directors. The resources of the National City Bank (including its Siamese-twin security company) are about $300,000,000; those of the First National Bank (including its Siamese-twin security company) are about $200,000,000. The resources of the Morgan firm have not been disclosed. But it appears that they have available for their operations, also, huge deposits from their subjects; deposits reported as $162,500,000.
The private fortunes of the chief actors in the combination have not been ascertained. But sporadic evidence indicates how great are the possibilities of accumulation when one has the use of “other people’s money.” Mr. Morgan’s wealth became proverbial. Of Mr. Stillman’s many investments, only one was specifically referred to, as he was in Europe during the investigation, and did not testify. But that one is significant. His 47,498 shares in the National City Bank are worth about $18,000,000. Mr. Jacob H. Schiff aptly described this as “a very nice investment.”
Of Mr. Baker’s investments we know more, as he testified on many subjects. His 20,000 shares in the First National Bank are worth at least $20,000,000. His stocks in six other New York banks and trust companies are together worth about $3,000,000. The scale of his investment in railroads may be inferred from his former holdings in the Central Railroad of New Jersey. He was its largest stockholder—so large that with a few friends he held a majority of the $27,436,800 par value of outstanding stock, which the Reading bought at $160 a share. He is a director in 28 other railroad companies; and presumably a stockholder in, at least, as many. The full extent of his fortune was not inquired into, for that was not an issue in the investigation. But it is not surprising that Mr. Baker saw little need of new laws. When asked:
“You think everything is all right as it is in this world, do you not?”
He answered:
“Pretty nearly.”