Frankly & Boldly

"This is pre-eminently the time to speak the truth, the whole truth, frankly and boldly." Thus President Roosevelt two weeks ago opened his attack on financial panic. At one stroke he won back a good half of the public's lost confidence in the U. S. banking system.

A month ago equally frankly and boldly Corn Exchange Bank Trust Co., Manhattan, gave the public a complete account of its assets, not only a balance sheet but a full list of the bonds and stocks it owned. In the terrific week ending March 4 when the deposits of the New York Clearing House banks fell off 7%, Corn Exchange deposits increased 1.7%.

Despite these gleaming examples of the advantage of financial frankness, the New York Clearing House last week forcibly ejected reporters from its building, promised announcements which kept newshawks waiting all day outdoors in the rain, then announced that no announcements would be made. To get a few crumbs of information newshawks had to waylay bankers going & coming from Clearing House meetings. Little dared bankers say, for the right to issue statements belonged to the head of the Clearing House, tight-lipped Mortimer Norton Buckner.

Not only newshawks were irked. Some bankers too deplored the policy of keeping the public in doubt. So must have felt Winthrop Williams Aldrich, chairman of Chase National. Brother-in-law of John D. Rockefeller Jr., head of the world's largest bank, he called newshawks to his office and gave them his opinions on banking:

1) He heartily endorsed the action of National City Bank (announced just the previous day) in divorcing its security affiliate recently under fire before Senate investigators (TIME, March 6). He was '"forced to the conclusion that intimate connection between commercial banking and investment banking almost inevitably leads to abuses."

2) He announced that Chase had for some time been planning to divorce Chase Harris Forbes, its securities affiliate.

3) He declared that the Glass Bill, aimed at forced divorce of securities affiliates, did not go far enough. No corporation or partnership should be allowed to take deposits unless subjected to the same regulations and required to make the same financial statements as commercial banks. No corporation or partnership dealing in securities should be permitted to take deposits. No officer, or director, or any member of such a firm should be allowed to be an officer or director of a bank. Bank directorates should be small enough so that their members should actually know and be responsible for what goes on in banks.

4) Commercial banks should not underwrite any securities except those of the U. S., of States, counties, municipalities.

5.) All commercial banks should be members of the Federal Reserve.

Great was the disturbance in parts of Wall Street, great the joy of reformers, great the approval of many business men and bankers who felt it high time that a banker should frankly come forward, confess his sins and speak freely to restore public confidence in bankers. Not only has Chase a securities affiliate but it has investment bankers on its board (Frank Altschul of Lazard Freres; Frederic W. Allen of Lee, Higginson; Clarence Dillon of Dillon, Read; Charles Hayden of Hayden, Stone, etc., etc.). And it has one of the largest bank directorates in the country: 71 members. The sins of the Chase Bank were not necessarily on Mr. Aldrich's head, however. He could blame them if he chose on Albert H. Wiggin, vigorous chairman who resigned last January.

Blast. The bomb which on Sept. 16, 1920 pockmarked for all time the front of the House of Morgan, was--so many thought last week--far less damaging to the most powerful banking house in the country than the blast last week in the Chase Bank building. For not only would Mr. Aldrich have the House of Morgan give up the deposits, but also give up its representation on the boards of many great banks on which ten of its 20 members now have seats. The effect on Kuhn, Loeb & Co., Speyer & Co., and other banking houses would be similar.

Why, business men asked last week, did Mr. Aldrich step off the reservation? Was it banking inexperience? Winthrop Aldrich, yachtsman son of Nelson Wilmarth Aldrich, late Rhode Island Senator, was a lawyer until 1929 when he was made president of his brother-in-law's Equitable Trust Co. (merged a year later with Chase). Was it a war between the Rockefellers and Morgan? The Hearst Press, without a single new fact to base its theory on, and making such blunders as describing Mr. Aldrich as a Rockefeller son-in-law,* seized this lurid angle: "The House of Rockefeller would strip the House of Morgan of this tremendous power. ... It caught the Morgan camp wholly unawares and created something akin to consternation. . . . Even with the Rockefeller backing, it took courage to antagonize and defy the House of Morgan, starting a feud in which no quarter will be given nor asked."

Or was Mr. Aldrich merely acting as the vehicle of his brother'in-law's high-minded business code?/- In 1929, while John D. Jr. was in the Holy Land, Lawyer Aldrich managed the proxy battle that wrested control of Standard Oil of Indiana from Robert Wright Stewart in order to purify the oil business. Was John D. Jr. trying to do the same for banking? (The same day that Mr. Aldrich spoke, John D. Sr., so short of dimes that he had given a $1 tip to a caddy, declared, "I have every confidence in our bankers. . . .")

One reason for Mr. Aldrich's move was self-evident: the promised Senate investigation of the Chase Bank, no matter what it discloses, will now fall flat, for Mr. Aldrich has by his statement repudiated the policies of his predecessor, Albert Henry Wiggin. He can, unlike Charles Edwin Mitchell, declare himself in agreement with the critics of his bank. Moreover banking reform measures are now bound to be enacted, and little would be gained but public censure by opposing them. By speaking out Mr. Aldrich bettered his position, aligned himself with the prevailing banking spirit of the times.

Rebuttal. New York banks most closely associated with the House of Morgan are: First National, Guaranty Trust, Bankers Trust, New York Trust. Never during the Depression has there been the slightest doubt or whisper as to the liquidity, solvency and strength of these four banks. Had every bank in New York and the U. S.--or even a considerable fraction of them--been managed with equal sagacity, the United States would not have been treated to last week's holiday spectacle. That was the simplest answer to the Aldrich blast. It was made not by a Morgan Partner but in one laconic and ironic sentence from the lips of Guaranty Trust's President William Chapman Potter: "My conscience is easy."

Results. Little publicized but far reaching among Mr. Aldrich's proposals was his suggestion that all commercial banks should be made members of the Federal Reserve, for not only is such membership an expensive luxury for many a village bank, but bringing all banks into one fold would undoubtedly pave the way for one uniform banking system in place of the present 49 systems (one national, 48 state). This subject along with the vast problem of who shall sell the nation's securities is due to be aired when Congress comes to deal with the more than temporary phases of the banking situation.

* John D. Rockefeller Jr. married Winthrop Aldrich's sister, Abby.

/- At thoroughgoing modern evangelism John D. Rockefeller Jr. is no match for the Rev. Dr. Norman Vincent Peale of Marble Collegiate Reformed Church, Fifth Avenue, Manhattan, who last week sermonized: "It is not necessary to call the business leaders to Washington to tell Congress how to end the Depression. Let the bankers and speculators and great corporation heads who are guilty get down not before the Senate but before God and confess their sins, and the air will be cleared."

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