Nomi’s Note: Today, I’m sharing an excerpt from my 2014 book, All the Presidents’ Bankers: The Hidden Alliances That Drive American Power.
The book tells the story of the hidden alliances between Wall Street and the White House. These alliances have driven American power over the last century.
There are several chapters that provide my original archival research on the 1920s and what bankers were doing that led to the Crash of 1929 and the subsequent Great Depression.
For any historians out there, I wholeheartedly recommend that book. I traveled to presidential libraries throughout our country to conduct original research into documents from decades past. I had the best personal experience writing it.
Yesterday, I shared a section called “Earlier Signs of Impending Problems.” If you missed it, read it here.
There’s another great section in the book that follows on from that, called “Wiggin, Acquirer and Deceiver.” Al Wiggin was the Chairman of Chase (now JPMorgan Chase) at the time of the Crash of 1929.
That’s the excerpt I’m sharing with you today. Read on…
[The excerpt below was adapted from All the Presidents’ Bankers: The Hidden Alliances That Drive American Power. Copyright © 2014 by Nomi Prins with permission from Bold Type Books, formerly Nation Books, an imprint of Perseus Books.]
The top bankers found ways to make their personal losses work for them.
One strategy was tax evasion (even in the Mellon era of lax tax policy, evasion was a useful ploy). Wiggin made the most money from this maneuver.
His secret was the creation of shell companies; he established six private corporations, three in the United States and three in Canada (which would be discovered during the Pecora hearings) to hide his wealth before the Crash.
During the bull market, he had organized investment pools that bet on shares of Chase Securities and Chase National Bank to inflate their values. He also cut some of his friends in on the action, and made sure that everyone borrowed from Chase to pay for their holdings.
His family extracted $8 million of loans from Chase, even though they could have afforded to buy stock without the loans. They used those loans to purchase more stock to inflate its values further.
Wiggin knew he was covered no matter what happened. Shortly before the Crash, he shorted shares in his own bank by borrowing shares from various brokers at prices he anticipated would fall, at which time he would buy the shares in the market at lower prices and return them to the brokers, making money on the difference.
When the Dow stood at 359 on September 23, 1929 (the market had topped out twenty days earlier at 381), he placed what would be a hugely profitable bet that Chase’s stock would fall.
He might have united with the rest of the Big Six to save the markets after the meeting with Lamont, but his short would net him a tidy fortune.
Before shorting those shares, Wiggin executed another profitable and shady strategy, using his bank’s funds to plump the shares up. He placed $200 million of his depositors’ money into trusts that speculated in Chase stock, thus participating in the very pool operations that artificially boosted its price during the run-up to the Crash.
He pocketed $10.4 million from these trades, including $4 million from shorting the shares he drove up (after he drove them up) during the two-week period preceding the Crash.
His justification for selling his own shares while Chase Securities was pushing customers to buy them was that the price was “ridiculously high.”
He had, in effect, bet against all the other Chase shareholders who had trusted in his hype about the firm.
As the decade counted down its final minutes, the New Year’s Eve parties held in the midst of the glittering business and banker community flowed with prohibited elixirs, lavish gaiety, and sumptuous feasts.
In the Grill Room at the Roosevelt Hotel in New York City, known as “the Grand Dame of Madison Avenue,” the wealthy clanked their champagne flutes at midnight to the strains of Guy Lombardo’s first live rendition of “Auld Lang Syne” (which became an annual tradition).
The ditty blared on radios across the land. Relief mixed with exhaustion and a tepid, manufactured optimism punctuated the close of the 1920s.
On December 5, 1929, speaking at a Chamber of Commerce conference, President Hoover had said, “The cure for such storms is action; the cure for unemployment is to find jobs.”
A defiant President Hoover, a non-introspective Treasury Secretary Mellon, and the Big Six allowed themselves to imagine they had dodged a bullet.
But the worst was yet to come. The country would plunge into a Great Depression, a third of the nation’s banks would close, and unemployment would rise to capture one of every four employable citizens.
[Adapted from All the Presidents’ Bankers: The Hidden Alliances That Drive American Power. Copyright © 2014 by Nomi Prins with permission from Bold Type Books, formerly Nation Books, an imprint of Perseus Books.]
Nomi’s Note: Nomi here again. If you were intrigued by today’s excerpt, read more of the story here. That excerpt takes us back to the 1930s, when President Herbert Hoover tried to battle the Great Depression of 1929 and revitalize the economy.