Upon the testimony of Oakleigh Thorne, President of the Trust Company of America, and George W. Perkins of the firm of J.P. Morgan & Company, who is a member of the Finance Board of the United States Steel Corporation, before the Senate Committee on January 19, 1909,[123] it appears that a syndicate had been organized for the purpose of acquiring the stock of the Tennessee Coal and Iron Company. Mr. Oakleigh Thorne was a member of this syndicate, and the Trust Company of America, of which he was president, had loaned on November 1, 1907, $482,700 to this syndicate against the stock of the Tennessee Coal and Iron Company as collateral. It seems that the Trust Company called this loan and that although the stock of the Tennessee Coal and Iron Company was a dividend-paying stock and quoted at 119, the syndicate found it impossible to borrow money upon it. The only condition upon which they could borrow money was selling out to the Steel Trust.
The Steel Trust gave in exchange for the Tennessee Coal and Iron Company stock at 119 its own second mortgage bonds, quoted on the market at that time at 82, and as soon as this exchange was effected the syndicate was furnished with all the money it needed. Wall Street loaned to the syndicate against steel second mortgage bonds the amounts which had previously been refused upon the Tennessee Coal and Iron Company stock. In other words, the Wall Street Group by refusing to loan money to the syndicate against the Tennessee Coal and Iron Company stock, compelled the syndicate to sell this stock to the Steel Trust by agreeing to loan to the syndicate against Steel Trust second mortgage bonds at 82 what they refused to loan to the same syndicate on Tennessee Coal and Iron Company stock at 119.
The New York Times says on this subject:[124]
"What inquiring Senators want to know is, How was it possible for a small group of bankers to get together and, merely by agreement, force out one security by giving preference to another less valuable? This power is regarded as highly dangerous to all classes of securities, placing them entirely at the mercy of the Wall Street Group."
The power of the Wall Street Group to which the Times objects is in times of panic reinforced by no less a power than the United States Government. The United States differs from other countries in not having a government bank for receiving government deposits and distributing them in the ordinary course of banking business. The result is that the receipts of the government accumulate in the United States Treasury, and this tends to increase stringency in periods of panic. It has become, therefore, a rule of the government to step in on such occasions and deposit with its national banks a sufficient amount to relieve stringency. It will be readily seen that this intervention of the Secretary of the Treasury, while indispensable to the public welfare, constitutes a great resource to the Wall Street Group. For the Group can, by withholding cash at periods of stringency, practically compel the government to come to the relief of the market when, for purposes of its own the Group decides to withhold funds. And as the Group includes the best-informed persons regarding the finances of the country, it is to the Group that the Secretary of the Treasury naturally goes for advice on these occasions. The Wall Street Group therefore occupies a position which permits it to call upon the government for funds when it desires to hoard its own funds for its own purposes.
Thus we find Secretary Cortelyou in daily conference with the Wall Street Group at this period; and after the Knickerbocker Trust Company closed its doors on the 22d of October and receivers had been appointed for the three Westinghouse firms on the 23d, Secretary Cortelyou deposited $25,000,000 in the New York banks indicated by the Group. This was just sufficient to prevent ruin but not sufficient to relieve stringency. On November 4th, Judge Gary and Mr. Frick went to see the President and explained to him that the purchase of the Tennessee Coal and Iron Company stock by the Steel Trust was necessary "in order to stop the panic."[125] The President on the same day wrote a letter to the Attorney-General, subsequently communicated to the Senate, in which he explained that in view of the fact that such a purchase would tend "to stop the panic" and that it would not give the Steel Trust more than 60 per cent. of the Steel industry, he did "not feel it a public duty to interpose any objection."
The purchase of the Tennessee Coal and Iron Company having been effected, the United States Government was once more called upon by the Group and on November 17, the President and Secretary Cortelyou announced the issue of 2 per cent Panama bonds for an amount of $50,000,000, and 3 per cent on certificate indebtedness to an amount of $100,000,000. By this time, however, the Group had decided that there was no necessity to maintain panic conditions, and the issue of these bonds was arrested, so that only one-half of the Panama bonds and only $15,000,000 of the Treasury certificates were allotted.
It has been intimated that the Wall Street Group during the whole of this panic was in possession of funds which it purposely withheld. This intimation seems justified by the events which immediately followed the purchase of the Tennessee Coal and Iron stock by the Steel Trust. In November newspapers informed us that our bankers were engaged in "buying gold" in Europe, and during November no less than $63,000,000 were imported and in December a further $44,000,000 were imported; together—over $100,000,000. It is a somewhat singular thing that the public does not seem to have asked for information as to what was meant by this singular expression "buying gold."
The machinery through which gold was brought over to America in November and December was the following: Our farmers had already produced crops and sold them to Europe; the 1907 cotton crop began to move in August—a large part of it was in Europe before the panic. Our wheat crop, though late, was already partly in Europe and on its way there. Those who had produced and sold these crops had drawn against their shipments. These drafts are called "cotton bills"—"wheat bills." Certain bankers with connections abroad make it their special business to buy these bills and present them for payment in Europe at a minute profit called "exchange." But these bankers could not, during the panic, borrow money as usual to buy these bills; and they did not dare to use the money of their depositors for this purpose when they were under imminent danger of a run. So these bills became a drug on the market; they could be got for four cents in the pound cheaper than in average years; and at this price, and at an exceptional profit, the Wall Street Group went into the market and bought them up, presented them for payment and got all the money from Europe that was wanted. This is the process that was called "buying gold." But who had gold with which to buy these bills? Who had been hoarding gold?
What do these facts disclose? They disclose that at the time when the Wall Street Group refused help to the Knickerbocker Trust it had at its disposal the gold in the United States Treasury—did not Cortelyou actually put this gold at its disposal?—the credit of the United States Government—did not Cortelyou at its bidding issue all the bonds he was told to issue?—and enough money of its own at the proper moment to purchase cotton and wheat bills at panic prices, so that every ship that in November and December sailed from Europe to New York came laden with gold?