Radiating from these principal groups and closely affiliated with them are smaller but important banking houses, such as Kissel Kinnicut & Co., White. Weld & Co., and Harvey Fisk & Sons, who receive large and lucrative patronage from the dominating groups and are used by the latter as jobbers or distributors of securities the issuing of which they control, but which for reasons of their own they prefer not to have issued or distributed under their own names. Messrs. Lee, Higginson & Co., besides being partners with the inner group, are also frequently utilised in this service because of their facilities as distributors of securities.
Beyond these inner groups and subgroups are banks and bankers throughout the country who co-operate with them in underwriting or guaranteeing the sale of securities offered to the public and who also act as distributors of such securities. It was impossible to learn the identity of these corporations, owing to the unwillingness of the members of the inner group to disclose the names of their underwriters, but sufficient appears to justify the statement that there are at least hundreds of them and that they extend into many of the cities throughout this and foreign countries.
The patronage thus proceeding from the inner group and its subgroups is of great value to these banks and bankers, who are thus tied by self-interest to the great issuing houses and may be regarded as a part of this vast financial organisation. Such patronage yields no inconsiderable part of the income of these banks and bankers and without much risk on account of the facilities of the principal groups for placing issues of securities through their domination of great banks and trust companies and their other domestic affiliations and their foreign connections. The underwriting commissions on issues made by this inner group are usually easily earned and do not ordinarily involve the underwriters in the purchase of the underwritten securities. Their interest in the transaction is generally adjusted, unless they choose to purchase part of the securities, by the payment to them of a commission. There are, however, occasions on which this is not the case. The underwriters are then required to take the securities. Bankers and brokers are so anxious to be permitted to participate in these transactions under the lead of the inner group that as a rule they join when invited to do so, regardless of their approval of the particular business, lest by refusing they should thereafter cease to be invited.
It can hardly be expected that the banks, trust companies, and other institutions that are thus seeking participations from this inner group would be likely to engage in business of a character that would be displeasing to the latter or that would interfere with their plans or prestige. And so the protection that can be offered by the members of this inner group constitutes the safest refuge of our great industrial combinations and railroad systems against future competition. The powerful grip of these gentlemen is upon the throttle that controls the wheels of credit and upon their signal those wheels will turn or stop.
In the case of the pending New York subway financing of $170,000,000 of bonds by Messrs. Morgan & Co. and their associates, Mr. Davison estimated that there were from 100 to 125 such underwriters who were apparently glad to agree that Messrs. Morgan & Co., the First National Bank, and the National City Bank should receive 3 per cent.—equal to $5,100,000—for forming this syndicate, thus relieving themselves from all liability, whilst the underwriters assumed the risk of what the bonds would realise and of being required to take their share of the unsold portion. This transaction furnishes a fair illustration of the basis on which this inner group is able to capitalise its financial power.
It may be that this recently concentrated money power so far has not been abused otherwise than in the possible exaction of excessive profits through absence of competition. Whilst no evidence of abuse has come to the attention of the committee from impartial sources, neither has there been adequate proof or opportunity for proof on the subject. Here again the data have not been available.
Sufficient has, however, been developed to demonstrate that neither potentially competing banking institutions nor competing railroad or industrial corporations should be subject to a common source of private control.
Your committee is convinced that however well founded may be the assurances of good intentions by those now holding the places of power which have been thus created, the situation is fraught with too great peril to our institutions to be tolerated.
The Borrower and the Money Trust
[228]Some trusts are denounced because of their attitude toward their employés. Many trusts are efficient or inefficient because of the way their millions of labourers work. But let us be fair to Big Business. Why not examine its one branch where labour is almost absent, where there is no brawn and all brain?