Another group in the financial oligarchy was Kuhn, Loeb & Company, originally clothing manufacturers in Cincinnati, then note-brokers and finally bankers. Their great feat was taking over from the U. S. Government Receivers the Union Pacific Railroad and reorganizing it. They then made their famous alliance with E. H. Harriman and established themselves in the first rank of American financiers, through the success of this joint financing of the Union Pacific Railroad, one of the most profitable of all the feats of financial legerdemain ever accomplished.
The trust companies entered the ranks of the financial oligarchs by virtue of a peculiar provision of the banking laws which permitted them to accept deposits and grant the checking privilege against them which was enjoyed by the banks without being required to maintain the cash reserve against deposits which was exacted of the banks. By paying interest on daily balances they attracted the best—the non-borrowing accounts.
Under this anomaly of the law, the trust companies rose rapidly to financial eminence. Their progress was bitterly contested by the banks, but under the leadership of Frederic P. Olcott, the trust companies became so powerful that they were taken into the oligarchy before the laws were finally revised, placing them on a parity with the banks. Olcott, as president of the Central Trust Company, had a hand in nearly every one of the reorganizations of the railroads, a process through which almost every railroad in the country was carried during the period from 1878 to 1890. This experience had made Olcott an expert in every detail of railroad finance, and his rugged honesty, his utter fearlessness, his profane disregard of any man’s importance, no matter how much it might have awed others, had placed him at the front as a power to be reckoned with under all conditions.
So much for the bankers. The insurance companies were the other great powers in the financial oligarchy. Hyde of the Equitable, McCurdy of the Mutual, McCall of the New York Life—each of these men controlled the lending of hundreds of millions of dollars of money taken in as premiums. Before the eyes of each was laid the dazzling opportunity of using this power to further speculative financing of industry with the prospect of enormous profits. Some succumbed to these temptations, and used some of this money, which was entrusted to them for the most sacred of all financial purposes—the payments of death benefits to the families of policy holders—as if they had been their own funds to be risked in private speculation.
The case of Hyde is doubly appropriate for mention here, because he was a representative sinner in these corrupt practices, and because it was my fate to cross destinies at three critical moments in the life of his son and heir, and to be, at one of these crises, the Nemesis for his undoing.
Henry B. Hyde had organized the Equitable Life Insurance Company years before as a private stock company, capitalized at $100,000, of which he retained ownership of slightly more than $50,000 worth of the stock. The Equitable had prospered until it was one of the five great insurance companies. Its assets had risen to over $500,000,000, its surplus to an enormous sum. It was a moot question as to whether the stockholders or the policy holders owned the surplus. Though the stock was restricted to a 7 per cent. dividend, nevertheless its price had risen to $3,000 a share, which showed the value that experts placed upon opportunities for profit—whether legitimate or otherwise—that accrued to the possessor of the majority of the stock—and the control of the company. The insurance investigation conducted by Mr. Hughes showed the various methods by which the men in control of this and other insurance companies had abused this power and had personally enriched themselves.
When Henry B. Hyde died, he left to his son, James Hazen Hyde, his controlling interest in the Equitable. It would be hard to over-state the dazzling opportunity that now lay within reach of this boy of 24. If fate had given him the vision of Stillman, or the wisdom and over-mastering will of Morgan, or the rugged force of Olcott, young Hyde might easily have become dictator of financial America. The method of quick profits from the use of other people’s money had been demonstrated for him by his father, and young Hyde himself was clever enough to perceive the opening that lay in acquiring control of the majority stock in banks and trust companies. He had the vision which I have described above, of the possibility of controlling the banking system of America by the use of one single fortune.
Destiny, however, had another fate in store. Fortune had indeed given Hyde the means and the vision to attain preëminence. But her hand withheld one essential gift—the gift of character. Reared to the unrestrained enjoyment of pleasure, Hyde had never been disciplined, and so had never had occasion to learn those amenities which, even in the most powerful characters, temper the masterful assertion of authority. With the pettish temper of a child, Hyde could not brook opposition; his theory of action was the crude one of “rule or ruin.” Where tact would have propitiated an antagonist, he tried giving orders. In rapid succession, he antagonized the most powerful men in America—men who had earned their spurs on the field of financial battle before he was born, and who were not of a temper to brook the insolence of a youngster merely because he had inherited a fortune. Their deep resentment long boiled below the surface, and it was only when Hyde tried to wrest from the presidency and transfer to the vice-presidency, which he was then occupying, the main executive powers of the company that the opposition to him became organized. President Alexander retained Bainbridge Colby, who was then in partnership with his son, and also Frank Platt. The latter by using the agents of the United States Express Company, of which his father was president, secured the proxies of over 90,000 policy holders. They then tried to secure prominent and trusted men who would act as a committee for the policy holders to force an investigation of the management of the company. This task they found more difficult. Several times they thought they had their committee completed when Hyde and his associates exerted such pressure that these men withdrew their consent to serve. Finally, a group of them put this situation up to me. They pointed out that I owed a duty to the public to clear up this lamentable misuse of the public’s funds.
I debated long whether I had a right to do this service. For myself, personally, I had no fear of Hyde, but as president of a trust company, I had the interests of my stockholders and depositors to consider. To resolve my perplexities, I brought the matter up at a board meeting. I wanted to accept, but I felt it my duty to explain the situation to my directors, and I told them that if they felt I was jeopardizing their interests, I would resign from the Trust Company, and serve on the committee. Olcott resolved the question. With characteristic honesty and force, he said: “If you feel that way, stay and serve, and let whoever deserves, be hurt.”
I informed the attorneys of the committee of my inclination, but told them I would not serve until they had submitted to me the evidence they possessed. It was an interesting evening that Frank Platt and Bainbridge Colby spent in my library. They brought a satchel full of documents, and in a short time convinced me that their case against Hyde was complete. They were very anxious to have me pledge myself to stay to the end, which was to be the displacement of Hyde, and I exacted from them a similar promise, so that we came to an understanding that this was to be a fight to the finish.