Once in Golconda "In this book, John Brooks-who was one of the most elegant of all business writers-perfectly catches the flavor of one of history's best-known financial dramas: the 1929 crash and its aftershocks. It's packed with parallels and parables for the modern reader." -From the Foreword by Richard Lambert Editor-in-Chief, The Financial Times Once in Golconda is a dramatic chronicle of the breathtaking rise, devastating fall, and painstaking rebirth of Wall Street in the years between the wars. Focusing on the lives and fortunes of some of the era's most memorable traders, bankers, boosters, and frauds, John Brooks brings to vivid life all the ruthlessness, greed, and reckless euphoria of the '20s bull market, the desperation of the days leading up to the crash of '29, and the bitterness of the years that followed. Praise for Once in Golconda "A fast-moving, sophisticated account.embracing the stock-market boom of the twenties, the crash of 1929, the Depression, and the coming of the New Deal. Its leitmotif is the truly tragic personal history of Richard Whitney, the aristocrat Morgan broker and head of the Stock Exchange, who ended up in Sing Sing." -Edmund Wilson, writing in the New Yorker "As Mr. Brooks tells this tale of dishonor, desperation, and the fall of the mighty, it takes on overtones of Greek tragedy, a king brought down by pride. Whitney's sordid history has been told before..But in Mr. Brooks's hands, the drama becomes freshly shocking." -Wall Street Journal "It's all there in Once in Golconda-the avarice of an era that favored the rich; and the later anguish of myriads of speculators doomed by a bloated market, easy credit, and their own cupidity and stupidity." -Saturday Review
About the Author
JOHN BROOKS was an award-winning New Yorker staff writer and author of several critically acclaimed explorations of business and Wall Street. Besides Once in Golconda, these include The Go-Go Years (Wiley), The Games Players, Business Adventures, and The Fate of the Edsel.
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Once in Golconda
A True Drama of Wall Street 1920â"1938
By John Brooks
OPEN ROAD INTEGRATED MEDIACopyright © 1999 John Brooks
All rights reserved.
Overtures: The Outrage
On Thursday, September 16, 1920, a few seconds after the Trinity Church bell had finished tolling noon, the pleasant fall air of downtown Manhattan (weather clear, temperature sixty-nine degrees, market up slightly) was rent by an enormous and devastating explosion. Emanating from a point on Wall Street a few yards east of the intersection of Wall and Broad, and directly between the marble edifice of J. P. Morgan & Company and the barred front of the brand-new United States Assay Office—that is to say, from the precise center, geographical as well as metaphorical, of financial America and even of the financial world—the explosion darkened the area for several minutes with a huge cloud of greenish smoke, set fire to awnings twelve stories above the street, broke virtually every window in the immediate vicinity and some as much as a half-mile away, and spattered a wide area with hundreds of small, shrapnel-like iron slugs that, on later examination, appeared to be fragments of cut-up window sash weights. It pock-marked the austere façade of the Morgan building, at 23 Wall Street, on the southeast corner of the intersection, and blew in all of its north windows, causing a hail of glass fragments to fall on persons on the banking floor below. It bent the heavy bars protecting the Assay Office, on the north side of Wall next to the Sub-Treasury; this building largely escaped interior damage precisely because it had been designed to be a fortress. It shook to the foundations, but by miracle or chance did not materially damage, Wall Street's own church, Trinity, which stood, flanked by its famous old graveyard containing the bones of Alexander Hamilton, only a short block from the point of explosion. The toppling of Trinity's Gothic Revival spire, had it occurred, would have symbolized the disruption of things as they were as much as the defacing of Morgan's itself.
At the New York Stock Exchange, on Broad Street near the southwest corner of the intersection with Wall, the blast sent hundreds of brokers and traders surging to the center of the trading floor in an effort to avoid glass falling from the room's huge windows; there, driven from Scylla to Charybdis, they were confronted with the prospect of mass extinction by the great glass dome overhead, which threatened to fall but didn't. At the Bankers Trust Company, on the northwest corner, broken glass flew like leaves in a gale, and one of the iron slugs whizzed through the office window of Seward Prosser, the bank's president, missing his head by a few inches.
Others were less fortunate than Prosser. Thirty persons were killed instantly or nearly so by the explosion, and injuries befell some three hundred more, of whom ten died later. But none of the dead were the kings and generals of finance, all of whose lives seemed to be as charmed with good fortune as Prosser's. J. P. Morgan, the most famous man in Wall Street and the public symbol of its power, was on holiday in an English country house; of the five of his partners who were in the building when it was hit, all escaped injury except Morgan's son Junius, who suffered a minor cut. Of the thirty who died at once, none were brokerage partners or senior bank executives, and only one was identified as a broker. Most of the others were Wall Street's attendants and privates, young or old—the stenographers, clerks, bookkeepers, messengers, and porters who with untimely appetite had stepped out of their buildings a minute or two before noon on their way to an early lunch. Three were women, four were teenage clerks or messengers, one was a young banker of twenty-five, another was a retired businessman of sixty-eight. The value of the securities lost in the confusion was negligible, and as to property damage, which amounted to two or three million dollars, the owners of the buildings or their insurance companies could easily enough absorb that. Whatever the meaning of the explosion, it left Wall Street's power unscathed.
Wall Street in 1920 had been the world's principal money center for just about six years. Its triumph had been accomplished under the most humiliating circumstances imaginable—that is, by default, and at a moment when it was flat on its back and gasping for breath. For a century before the First World War, the City of London had been the world's banker and had called the tune in the world's money matters; financing for large American enterprises had usually come in whole or in part from London or from continental Europe via London, and Wall Street, while significant enough domestically, had in international matters served chiefly as a mere broker between American enterprise and transatlantic capital. Then in August, 1914, in the first weeks of the war, Britain appalled the financial world by suspending gold payments against pounds sterling—an action which, in that heyday of the international gold standard, was as if the most feared, respected, and trusted player in a poker game had suddenly announced that he found it necessary to quit the game and refuse to redeem his markers. Along with the Exchequer's subsequent decision to forbid all British investments outside the Empire, the action meant, as the London Times admitted, "temporary abandonment of our historic claim as an international money centre," and made it inevitable that "much of the international business we have been accustomed to do should pass to ... the United States"—which nation, the Times declared grimly, "is capable of doing it."
If so, just barely. So great was British financial influence in the United States that London's abdication was as paralyzing to Wall Street as if the fighting had broken out in Philadelphia or Detroit. The day war began, stocks crashed sickeningly on the New York Stock Exchange; the following day the Exchange, which had never in its long history been closed for more than ten consecutive days, suspended trading for what was to be a period of nearly nine months. Moreover, there was near-panic in New York banking circles. United States businessmen in their international dealings were net debtors to the extent of more than three billion dollars, almost all of the creditors being from European countries that had become belligerents; these creditors now not only demanded their money but, in the time-honored tradition of creditors in wartime, demanded it in gold. Meanwhile, alarmed bank depositors at home made matters worse by rushing to withdraw their balances. In the first two weeks of the war enough money was taken out of New York banks to bring them to a condition almost as precarious as at the height of the great Panic of 1907. All that autumn, gold drained out of the Treasury, most of it to Canada for London's account, at a frightening rate. With domestic business in shock and foreign trade at a standstill because German destroyers were thought to be watching the ocean highways. Wall Street was almost a ghost town—its banks teetering, its Stock Exchange and brokerage offices closed, and only a handful of "outlaw brokers" defying the Exchange by informally maintaining an "outlaw" stock market outdoors on New Street, where they traded a few issues at panic prices. Thus, the new champion of world finance.
But Wall Street, thanks largely to the circumstance that it was the United States' role to finance and supply the war rather than be bankrupted or devastated by it, quickly grew into its new role. In November, 1914, the gold outflow slackened, in December it ceased, and in January, 1915, a reverse flow began. The Stock Exchange resumed normal operations that April. American loans to the Allies were increasing, and would soon amount to billions; the American export trade, consisting largely of war supplies, but also including huge amounts of food, feed, and cotton, was beginning an expansion that would continue until 1917 at a rate unparalleled in the commercial history of nations; and along with all that, European countries were sending their gold to New York for safekeeping even when they were not sending it in payment for guns. What began as a westward trickle of gold in early 1915 within a year or so became a torrent; for the single month of March, 1916, the United States imported almost as much gold as in any previous entire year. Overnight, as such things go, the world had taken its money out of one bank and put it into another—and not temporarily, since by the time Britain was finally able to resume gold payments in 1925, it was far too late to regain her status.
By 1920 Wall Street had the power to do London's old job, with plenty to spare. The United States, having financed a year and a half of participation in the war largely by selling bonds internally, had changed from a three-billion-dollar international debtor to a three-billion-dollar creditor. The Treasury was sitting on something like one-third of the world's monetary gold supply. The predicted postwar national depression had arrived, but was mild compared to the time of bankruptcies and bread lines that had been predicted. Wall Street even had an inadvertent benefit of the war in a horde of new customers—citizens whose purchases of Liberty Bonds seemed to have given them an enduring taste for investing. Wall Street was sitting pretty, but was still wholly lacking in the imperial self-assurance of its fallen predecessor.
Its lack of self-assurance was to be dramatically shown in its response to the event of noon, September 16.
The first local reactions, naturally enough, were individual rather than social or political. Survivors on the street first fled the scene in wild confusion, filling the air with their screams and stumbling over the bodies of the dead and injured; then, in a matter of minutes, their curiosity overcame their fear of a second explosion and they surged tidally back, joined by thousands of others pouring out of the surrounding buildings. Within five minutes there were ten thousand persons milling around the area. Underfoot, the injured cried out for self-protection if not for first aid. A badly hurt boy runner, as foolishly dutiful as Casabianca, pleaded for someone to take charge of the bundle of securities he was carrying so that he could die with his job performed—as he did. A clerk in Schulte's cigar store, at 36 Wall Street, reacting according to habit acquired when he had been in the Army in France, clapped his felt hat on his head in lieu of a steel helmet. The president of the Stock Exchange walked calmly but rapidly (running was forbidden on the Exchange floor) from where he was standing to the rostrum overlooking the floor and rang the gong there, suspending trading for the day within one minute after the explosion. The New York Curb Exchange, which at the time still operated outdoors on Broad Street a couple of hundred feet from the site of the explosion, needed no gong to announce its closing, since its place of business had suddenly been transformed into a mob scene and many of its brokers, stunned or injured, were fighting for their physical rather than their financial hides. Platoons of policemen and doctors from nearby hospitals struggled to get to the fallen victims; a few minutes later came federal troops from Governors Island, who soon succeeded in clearing the immediate area and roping it off.
The cavernous interior of J. P. Morgan & Company, the office most seriously affected, was a shambles of broken glass, knocked-over desks, scattered papers, and the twisted remains of some steel-wire screens that the firm had providentially installed over its windows not long before, and that undoubtedly prevented far worse carnage than actually took place. One Morgan employee was dead, another would die of his wounds the next day, and dozens more were seriously injured. Junius Morgan, sitting at his desk near the north windows on the ground floor, had been pitched forward by the blast and then nicked by falling glass. The press reported that his cut was on the hand, but this was probably an example of the kind of genteel euphemism characteristic of the press in 1920; his surviving former partners later insisted the cut was on the backside. In any case, he himself, after being treated at Broad Street Hospital, announced gallantly that he had "escaped injury." Another young Morgan man, William Ewing, was knocked unconscious, and awoke a few minutes later to find his head wedged into a wastebasket.
The firm's senior partner after J. P. Morgan himself, Henry P. Davison, happened to be out of the building at the time. The other four partners present were fortunate in their situation. They wereThomas W. Lamont, soon to succeed Davison as Morgan's right hand; Dwight W. Morrow, later to be Ambassador to Mexico and a leading national political figure; Elliott Bacon, member of another Morgan family powerful in national affairs; and Bacon's relative by marriage, George Whitney—a fast-rising young member of the firm, and the brother of another fast-rising young man of Wall Street, the bond broker Richard Whitney. These four were in conference in the elder Morgan's room on the building's second floor, directly on the corner of Broad and Wall; since the room's windows face west and it presents only a fortress-like, windowless wall to the north, they were safe. In view of the unexpectedness of the explosion they can hardly be accused of huddling like cowardly generals in a safe bunker during an attack; nonetheless, such may have been the assumption of an actual general who was among them—a visiting French military dignitary who was Morrow's guest, and who, as the echo of the blast died away, smoke billowed up outside, and glass could be heard tinkling down everywhere, inquired of the partners, "Does this happen often?"
All that afternoon, the police and the federal troops, assisted by some five hundred ex-service men who volunteered their efforts, worked at giving the wounded first aid and getting them into ambulances, and at controlling the crowd, which soon grew to something like forty thousand. Much of the crowd remained into the night—or perhaps it was renewed by new arrivals after the closing of offices uptown—to watch the work of cleaning up debris and boarding up broken windows being carried out in a blaze of arc lights. A grim, exultantly embattled spirit pervaded the leaders of New York finance that night, and was communicated to the mob in the street; the essence of the spirit was: "Back to work tomorrow. The Reds will be defied."
Few seem to have doubted for a moment that the explosion had been a bomb planted by radicals of one stripe or another, although in fact the evidence that was immediately available was equivocal. Witnesses to the events immediately preceding it could agree on hardly anything, but there did seem to be a consensus among them that at about 11:55 an old single-top wagon—red, yellow, or green in different versions—drawn by an even more antiquated dark bay horse, had proceeded along Wall Street and come to a stop in front of the Assay Office. Some went further and said that they had seen kegs or boxes, presumably containing dynamite, in the wagon, but none who immediately came forward could describe the driver or drivers, nor say what he or they had done after the wagon had stopped. Some of this evidence was corroborated by the remains found at the site—parts of a dismembered horse, including two hooves with shoes on them, and fragments of the axles and wheel hubs of the wagon. But none of this established or even suggested whether the blast had been a bomb or an accident. On one side of the question, a casualty said in his dying breaths that he had seen a wagon clearly labeled "Du Pont" overturn in the street; his testimony was supported after a fashion, although not a reassuring one, by others who said they had seen a wagon marked with the names of various other well-known manufacturers of explosives—Hercules Powder Company in one case, Dittmar Powder Company in another, Aetna Explosives Company in a third. Assuming that the wagon had belonged to some powder company, it was logical to suppose that the explosion had resulted from an accident to a shipment intended for a demolition project, of which there were several under way in the downtown area and one directly on the southwest corner of Broad and Wall, where the Stock Exchange was building an extension. Unfortunately for this thesis, though, all of the companies mentioned were able to show that they had had no horse-drawn wagons in the area that day, and Du Pont's spokesman went on to offer a possible basis for the witnesses' garbled testimony in the fact that a Du Pont motor truck, duly marked, and carrying not explosives but pigments, had passed a few blocks from Wall Street late that morning.
Excerpted from Once in Golconda by John Brooks. Copyright © 1999 John Brooks. Excerpted by permission of OPEN ROAD INTEGRATED MEDIA.
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Table of Contents
Overture: The Outrage.
The Almost Aristocracy.
So Near the Apes.
Things Fall Apart.
Enter the White Knight.
Gold Standard on the Booze.
Ordeal in Washington.
The White Knight Unhorsed.
Most Helpful Customer Reviews
I attempted to read this book when it came out in the early '70s, but I was only 15 at the time. I have to admit now it was over my head back then. With an adult perspective and a college education, though, I truly appreciate this financial classic by the late John Brooks. Brooks takes us back to the time of the roaring '20s boom and the '30s bust that followed. To a time when the New York Stock Exchange was private club and scounrels manipulated the market with impunity without the nuisance of an SEC. We may have Bernie Madoff, AIG and bank bailouts, but 75 years ago our grandparents had Richard Whitney, RCA and the bank holiday. Will GM go bankrupt in 2009? Possibly, but back then even though GM survived, its founder William C. "Billy" Durant did go bankrupt. His story is among many in Brooks's recounting of that long ago financial era. After reading this book, you'll come away with the feeling that the more things change the more they stay the same.