Wealth on Trial

"Now. Mr. Sinclair, about your Teapot Dome lease, will you please tell the commmittee"

"I decline to answer on advice of coun-sel."

Nine years have passed since Montana's grim-jawed Senator "Tom" Walsh, before a breathless audience that packed the big marble caucus room of the Senate Office Building, hammered out the questions & answers which sent Harry Sinclair to jail for contempt, put Albert Bacon Fall behind bars as a bribe-taker. Nine years have made the Oil Scandal investigation ancient political history. But its drama, its sensationalism, its clash and color of personalities were recalled by Washington observers who searched for something with which to compare the Senate's investigation of the House of Morgan.

The Morgan hearings were held in the same caucus room, with its enormous cut-glass chandeliers, its baronial doors, its high windows overlooking a courtyard fountain. But now thick carpets covered the stone floor. On rows and rows of folding chairs sat the same sort of sightseers who had plowed their way in past bucking policemen. But now a loud speaker system helped them hear better. At the same long committee table sat elderly Senators, poking and prodding with questions to make the day's headlines. But now not one of them knew which way the evidence would turn next. Gathered decorously in the background was the little knot of witnesses waiting their turn on the stand. But now there was no stubborn defiance of the Senate, no refusal to testify.

A decade ago the Senate Public Lands Committee was hunting official corruption. Scandal was in the air and Senator Walsh was out to prove by concrete facts an ugly hook-up between the oil business and the U. S. Government. Last week the Senate Banking & Currency Committee had no such tangible mission. It was probing the whole intricate subject of private banking, with the House of Morgan as Exhibit A. Against that firm was no specific charge of wrongdoing. Official corruption was not even hinted. Unquestioned was the personal honesty of its 20 partners. Yet the House of Morgan and all it stood for in U. S. economic life were as definitely on trial before the committee and the country* though defendants in a court of law.

Sideshow. Still spotlighted throughout the investigation's second week was big-bodied John Pierpont Morgan, though he was not again called to the witness stand. Hour after hour he sat to one side in a spindly little chair watching the proceedings. Clustered about him were his partners. Not a day passed but the country was told the pattern of his suit, the color of his tie. When the afternoon session was over Mr. Morgan would return to the Carlton Hotel, opposite the White House, where he and his friends were paying $2,000 per day for five floors. &3134; There he would dress, dine quietly, go early to bed. He made no off-stage appearances about Washington in the evening. In the committee room Senators found him an easy, pleasant gentleman who could give them cigars without mak-ing them feel under obligation to him. His partners' testimony he followed as closely as if he were hearing things about his own business for the first time. From Senatorial wisecracks he often got large belly laughs, with his narrow blue eyes wrinkling up out of sight under bushy grey brows. With newsmen he gossiped good-naturedly, told them about his bloodstone watch charm, joked about his own importance but firmly refused to break his life-long rule against interviews.

One day while the committee was holding an executive session in another room, a female midget, Lya Graf of Ringling Bros. Circus, wriggled through the waiting crowd and headed straight for Banker Morgan. Leading the 21-in., 22-lb. creature in her gaudy blue satin dress was Charles Leef, assistant to famed Press-agent Dexter Fellows. "Gangway!" Leef cried. "The smallest lady in the world wants to meet the richest man in the world." Before Banker Morgan knew it, Leef had plunked Lya Graf down on his lap. Newscameras went into frantic action. The spectators roared with amazed amusement. Banker Morgan grinned diffidently as he went through the act.

Morgan: Why, I've got a grandson bigger than you.

Midget: But I'm older.

Morgan: How old are you?

Midget: Twenty.

Pressagent: She's 32. Midget: I'm only 20.

Morgan: Well, you certainly don't look it. Where do you live?

Midget: In a tent. sir.

Lya Graf slid off the banker's knee. Pressagent Leef plunked her back again as the photographers yammered for more. "Lya, take off your hat," he commanded. She did not want to. Mr. Morgan backed her up: "No, don't take it off. I think it's pretty."

Her little voice shrilling with delight, the midget was finally escorted back to her own circus and the Senate's great side-show went on. Banker Morgan's partners stared in astonishment at their friend who up to last fortnight would only rarely suffer himself to be photographed. When Senator Fletcher, committee chairman, heard what had happened, he denounced it as a ''damned outrage," ordered the Morgan-midget films suppressed, telegraphed newspapers not to use them. When few obeyed, he barred cameramen from the committee room. The week prior Senator Glass, denouncing the committee's helter-skelter procedure, had declared: "We're having a circus here and the only things lacking are peanuts and colored lemonade." When told of Lya Graf, the peppery little Virginian sniffed a contemptuous "I-told-you-so."

Showman. The real showman of the Morgan investigation, however, was not a circus pressagent. nor a Senator but the kinky-haired, olive-skinned, jut-jawed lawyer from Manhattan named Ferdinand ("Pick") Pecora. Because Senator Fletcher, who at 74 looks like a wealthy Yankee visitor to his own Florida, is not another "Tom"' Walsh with the mental capacity to prosecute his own investigations, Lawyer Pecora was hired last January as the committee's counsel at $255 per month. He had spent weeks ransacking the records of the House of Morgan for material for this trial of a lifetime. In his first fortnight's performance he proved himself a worthy match for white-haired John William Davis, patrician counsel for Banker Morgan.

Ferdinand Pecora was born in Nicosia, Sicily 51 years ago. His grandfather trooped with Garibaldi. His father, a cobbler, took him to the U. S. when he was 5. He attended public school, started to study for the Episcopal ministry, turned aside to the law. In 1912 he campaigned for Theodore Roosevelt. In 1916 he voted for Wilson. Two years later Tammany gave him a job as deputy assistant district attorney. Until 1930 when he retired, his brains really ran that office where he was the principal courtroom prosecutor. He put more than a hundred "bucket shops" out of business and thereby learned the shady side of the brokerage business. He sent State Superintendent of Banks Frank Warder to Sing Sing for taking bribes in the City Trust Co. scandal. He convicted Anti-Saloon Leaguer William H. Anderson of forgery. He prosecuted bail bond racketeers, crooked milk inspectors, big-time thugs--with 80% convictions. He was in charge of the District Attorney's office in 1923 when Anna Marie ("Dot King") Keenan, Broadway "sweetie," was murdered. For days he withheld from the Press the name of John Kearsley Mitchell, "Dot King's" benefactor, son-in-law of Morgan Partner Edward Townsend Stotes-bury, to save Mitchells family from "needless humiliation and suffering.'"

Mr. Pecora left the District Attorney's office to return to private practice with only $525 in the world. Married, father of one son, he lives on Riverside Drive, likes to play pinocle, does his best work late at night, takes regular sun-lamp treatments. As a prosecutor, he has a remarkable memory for oral evidence. Yet he can be blandly forgetful when out to trip a witness. Persistent, he will ask a witness the same question in 20 different forms until he gets an answer. Because he dogged Mr. Morgan about his income taxes until that witness had to admit that he knew nothing about them, Senator Glass complained bitterly that Counsel Pecora was "badgering" Banker Morgan. Pecora's court manner is quiet, almost casual. Just when a witness least expects it, Lawyer Pecora will drop him into a trap. No loud bulldozer, he can be crisply sarcastic. Last week when one witness grew over-obvious about the 1929 stock crash, he cut him short with: "I've heard of that, too." He was recommended to the committee as a prosecutor who would not "play up publicity." But black and blaring were the headlines he created by his practice of eliciting just enough evidence to put the ugliest possible face on a given set of facts. Thus, once he had brought out the information that Banker Morgan & Partners paid no 1931 and 1932 income tax, he was ready to drop the subject. The firm's witnesses had almost to fight their way to the stand to get published, many editions later, the explanation of why no tax was paid, and how they had paid large taxes in previous years.

Twenty years ago another Manhattan lawyer faced another Morgan at another Congressional show not unlike last week's. Then it was Samuel Untermyer (75 last week) v. John Pierpont Morgan Sr. Minnesota's Representative Charles Augustus Lindbergh, whose son later married the daughter of a Morgan partner, had called for an inquiry into the "Money Trust." Chairman Arsene Pujo of the House Banking & Currency Committee set the stage. The first day the elder Morgan spent 17 minutes on the witness stand and was so upset by Inquisitor Untermyer that he could not name his ten partners. The second and last day he was again master of himself, barking out his answers, defending his deals with Financiers Baker. Rockefeller, Gary and Vanderlip, praising Character as the only basis for credit, revealing little or nothing about the House of Morgan. The "Money Trust" investigation got little from him. No important legislation was forthcoming.*

A Roland for an Untermyer, or a Walsh or a Davis, Inquisitor Pecora did a much better job of establishing substantial information about private banking on which to base legislation. With time to search and prepare, he never dropped a question until he got his answer. Yet it was not Banker Morgan who supplied him with most of his facts but Partner George Whitney, tall, handsome, slick-haired brother of President Richard Whitney of the New York Stock Exchange. Mr. Whitney (known on Wall Street as "Icicle") gave the committee the impression that he knew more about the House of Morgan than anyone else.

Principal Developments of last week:

1) Morgan partners paid a total income tax of $51.538.074 during 1917-29.

2) New lists of Morgan "friends" who were cut into stock deals below the market included the names of New Jersey's Senator Kean, Massachusetts' Lieutenant Governor Gaspar Bacon, Edgar Rickard, business associate of Herbert Hoover, Arkansas' Harvey Couch, now on R. F. C., Connecticut's G. O. P. Boss John Henry Roraback. The only "friend" revealed as having turned down a Morgan offer on ethical grounds was Board Chairman Edward Grant Buckland of New York, New Haven & Hartford R. R. Partner Whitney made a spirited defense of his firm's practice on the ground that its beneficiaries were willing and financially able to risk possible losses, did not have to borrow to buy, were not likely to dump their holdings for a quick profit and thus unsettle the market.

3) United Corp., the huge Morgan-Bonbright utility holding company, gave the House of Morgan large influence in the power field but by no means control. Partner Whitney: "It has not always been J. P. Morgan & Co.'s policies that have been adopted by a long shot. I don't mean that there was a knock-down and drag-out fight but we often defer to the operating heads in matters of policy."

4) The partnership papers of the House of Morgan, so arcane that even Lawyer Davis had never seen them, disclosed that Partner Morgan was the firm's supreme arbiter, that one partner could veto any proposal, that half of each partner's profits were plowed back into the company, that the name of Morgan must vanish 15 years after the last Morgan leaves the firm. Though the committee withheld the partners' shares in profits, it was generally understood that Partner Morgan got 25 %.

5) Chairman Fletcher would be unable to open a $100,000 deposit account with Morgan & Co. unless properly introduced.

6) On Oct. 24, 1929 the House of Morgan headed a bankers' pool (Partner Whitney, who said he was "gun shy" of the word "pool." preferred to call it a "suspense account") to cushion the crashing stockmarket. It had resources of $250,000,000 of which it spent $137,752,705 in making a market for 37 key stocks. By 1930 the pool had turned a paper loss of $40,000,000 into a cash profit of $1,067,355. Morgan & Co. charged no commission for its services.

7) When Counsel Pecora called Junior Partner Thomas Stillwell Lament to the stand and began to quiz him on personal year-end stock sales, presumably for tax deduction purposes, Lawyer Davis came to his feet in protest, forced the question of personal stock transactions into executive session.

8) Senator Glass and Counsel Pecora shook hands for photographers as they made up their quarrel as to committee procedure. Senator Glass won his point of demanding advance information on what Inquisitor Pecora was trying to extract from witnesses, and why.

9) The Brothers Van Sweringen, clients of the House of Morgan, began building up their railroad empire in 1916 on a loan, borrowing from a Cleveland bank $2,000,000 to make a cash payment to the New York Central for the Nickel Plate. According to Inquisitor Pecora, they got control "without putting up a 5-c- piece."

Issues. Throughout the land last week Banker Morgan and his partners were being judged less on the facts than on the headlines distilled by Inquisitor Pecora. What were the real issues?

When Theodore Roosevelt started "trust-busting," the ordinary citizen could readily visualize a series of industrial evils that finally hit his own pocketbook. Small companies combined into big ones; big ones combined into monopolies; monopolies fixed higher prices; the ordinary citizen paid more for his food. clothes, transportation. On such a clear-cut issue T. R. easily rallied the nation.

But the private banking issue was less demonstrable. Insinuating though he was, Inquisitor Pecora had yet to prove that it had anything to do with the Cost of Living.

Under contemplation, broadly speaking, were the social uses of wealth. In a Democracy was it right for one man. one firm to have the incalculable economic influence implied in the 167 directorates held by Morgan partners? Was it in the public interest that railroads, public utilities, food companies, manufacturing concerns supplying millions of people with

daily necessities, should take orders, in whole or in part, from No. 23 Wall St.? These were questions of policy, not of fact, which the country rather than the Senate committee would have to answer. Though they obviously cannot have it both ways, radicals and half-baked liberals talk in one breath about bankers' "plots" to run the country ruthlessly, and in the next breath they denounce capitalism because it lacks a plan --a "plot" -- for running the country at all. But a bankers' "plot" to run the country--or the lack of it-- is a very difficult thing to prove, even for a Senate committee aided by a Pecora. Unlike the industrial monopolies of 1907, financial power in 1933 is not a thing to be established by yes & no testimony. The social implications of such prestige as is bound up in a House of Morgan cannot readily be reduced to a dollars & cents basis for the ordinary citizen to see and understand its effect on him. So far in the Morgan investigation the individual could find whatever he was looking for to prove this or that economic preconception but the country at large was still too close to the facts to weigh the larger questions of the policy. The tax escape issue petered out when a flaw in the law was popularly understood. The bankers' "friends" being let in on the ground floor of public stock flotations ("Just want you to know we were thinking of you") became the first clear ground for a public stand, and even here the ground was limited. Familiar enough with stockmarket tips, the average citizen could not, except in envy, condemn private individuals who enjoyed the friendship of the House of Morgan. But he could view with alarm the presence in public office of Morgan favorites. When Pennsylvania's Governor Pinchot found State Supreme Court Justices William I. Schaffer and John W. Kephart on the Morgan list, he first demanded their resignations to save the bother of impeachments. In Massachusetts onetime Governor Fuller announced he would run against Lieutenant Governor Bacon for the Governorship because Mr. Bacon was a Morgan insider.

Edgar Rickard thought it was "outrageous" to link the names of Hoover and Morgan just because he (Rickard) was on the firm's list. Morgan "friends" were in the Senate (California's McAdoo, New Jersey's Kean), in the Hoover Cabinet (Secretary of the Navy Adams), in the Roosevelt Cabinet (Secretary of the Treasury Woodin), on the Supreme Court (Owen J. Roberts). The Republican party (Treasurer Nutt, New York National Committeeman Hilles) and the Democratic (onetime Chairman Raskob) were both involved. Declared the cautious Kansas City Times: "Those favored by Morgan were placed under obligation to him. Some of them were in positions that made the acceptance of such obligation a matter of loose ethics, to say the least." Without effort the Hearst Press pointed to the Morgan list as proof of the existence of a SECRET SUPER GOVERNMENT. Baltimore Sun's Cartoonist Duffy drew a picture of a small Uncle Sam sitting on a giant Morgan's lap and captioned: "A Midget Gets a Thrill."

*Until that investigation became a front-page sensation it was conducted in a smaller committee room. *Private banking is but one field of the Senators' investigation, now more than a year old. The full purpose of the inquiry is to get at the roots of the 1929 crash and devise legislation to prevent its recurrence. Under scrutiny are the many fields of commercial and investment banking, stock exchange operations, security salesmanship. Slated next for examination by Lawyer Pecora and the Senators are Kuhn, Loeb; Dillon, Read. Most prominent victim to date is Charles Edwin Mitchell, now on trial for trying to escape income taxes as a result of testimony he gave the Senate last winter. Under President Hoover the Senate's inquiry was given a twist against Wall Street "bears" whom he imagined were thwarting his recovery program, beating the market down to discredit him. Under President Roosevelt the Committee is out to hunt bad bankers. Ironic was the implication of big Demo-crats along with big Republicans.

/-The Senate allowed Mr. Morgan and other witnesses $3 per day and railroad fare. *Erroneous is the widespread belief that the Federal Reserve Act grew out of the Pujo in-vestigation.

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