Light's Golden Jubilee had been celebrated in various ways since June, but October 21, 1929, was the 50th anniversary of Thomas Edison's invention of the incandescent lamp, and to mark the occasion Henry Ford had arranged a gala in Dearborn, Mich., a city near Detroit. Five hundred people had been invited to see the new president, Herbert C. Hoover, dedicate the Edison Institute, a technical school. . . . . . that Ford has founded and financed. The guests would be shown Greenfield Village, an adjunct of the institute that was also to be opened formally. The village consisted of historic and representative buildings and furnishings that Ford had been collecting over the years, including the little red schoolhouse in which he had been a pupil. They had been arranged into a village square to recreate the American past. Ford, out of his huge collection of Americana, had also put together a museum, which the president would dedicate.
Electrical interests, led by General Electric, had created the Jubilee to promote the electrical industry, while using Edison as partron saint, and it had been a success all over the country and the world. Edison's picture was seen everywhere. Parades were held in his name under special golden globes placed over street light. But Ford, concerned that his old friend Edison would be exploited, had snatched control of the Jubilee finale from GE.
As they gathered at Dearborn, the United States was riding through an uprecedented boom that had begun in 1926. And although the stock market since September had been behaving erratically, the same thing had happened on several other occasions during the boom, and most people thought of it as little more than a temporary bit of bad weather.
Through the Jubilee, national business leaders and editorial writers proclaimed Edison as the genius who had provided the underpinning of the modern age and had created American prosperity. "The distinctive production methods that have made the United States what it is are the direct result of Mr. Edison's inventions and discoveries," Ford said. "We are ahead of all other countries simply and solely because we have Mr. Edison."
Electrical power had set off an upward spiral that had eliminated business downturns forever. In mid-October, just days before the Dearborn gathering, the purchasing agent for GE's Edison Lamp Works in New Jersey introduced Yale economist Irving Fisher at a New York gathering. Fisher told the group that stock prices had reached "what looks like a permanently high plateau. The Jubilee was, more than any other event of the year, the distillation of the spirit of 1929.
The 500 hundred guests themselves were meant to have a dazzling effect, to convey the importance of the occasion. The guests shared a vision of America as torchbearer of an advancing civilization and believed that progress was hereafter to be measured on an American scale.
Ford's dinner was a self-portrait of the American free enterprise system by its own commanders. It had collected the talent that had gone into its making and now was celebrating a business society that claimed to put service above mere acquisition. The clues to understanding 1929 could be seen and heard that evening in the hall.
They gathered to honor a single person -- a man already passed into myth as a go-getter, a rugged individualist, a practical scientist -- but their meeting implied a national celebration. They converged at Dearborn at the zenith of remarkable historical development -- the cometlike ascent of the United States from a struggling nation riddled by civil war to the leading world power. This transformation had taken place in a single lifetime -- the lifetime, as it happened, of Thomas Edison. And the electrical network that he had created had made that world primacy possible. On that evening of October 21, there was no reason to believe that the future would be anything other than a continuation of the golden present. Together these men held the direction of the economy in their grasp -- or so it seemed.
The guests included Owen Young and Gerard Swope, board chairman and president of GE; Charles Schwab, the chairman of the board of Bethlehem Steel; Julius Rosenwald, the head of Sears, Roebuck; Otto Kahn, the nation's foremost patron of the arts; John D. Rockefeller Jr., heir to an oil fortune; humorist and movie star Will Rogers; Jane Addams, leader of the settlement house movement and founder of Hull House; Will Hays, president of the Motion Picture Producers and Distributors Association; Orville Wright; surviving member of the brother team that invented the airplane; and Marie Curie, twice a Nobel Prize-winning scientist.
Also among the guests was a man who by 1929 stood first in electrical energy. Samuel Insull had made his electrical stocks into high-flying rivals to RCA and General Motors. In the Midwest, Insull was Mr. Big Business. At 69, he was ruler of a huge public utility empire stretching through 32 states from Lake Michigan to Texas. It included 300 steam plants and 200 hydroelectric plants and comprised one-eighth of all the electrical power in the United States.
Most electrical utilities were regulated by 1929. Public commissions, supposedly, set the limits of their profits. As their business expanded and their efficiency increased, they were not supposed to reap larger profits, but to pass the savings along to customers through lower rates.
The stocks, therefore, should not have increased sharply in value. Yet around the nation, the holding companies specializing in electrical utility stocks had become the cutting edge of the frenetic financial news of 1929. Several holding companies would compete to buy up a small power plant in Georgia, and in the process drive up the plant's value. The securities were in such demand that they were being rationed; speculators waited in line to drive the value farther up. Promotional activity fanned the boom. Light's Golden Jubilee had stimulated major increases in the electrical industry's national and local advertising. RCA pushed radios, GE pushed appliances, Westinghouse tripled its advertising budget for the year. The Duke power companies advised northern firms in advertisements to foresake the land of labor unions and come south to the land of cheap white labor; Commonwealth Edison, one of Insull's companies, advertised the attractions of Chicago in national magazines.
Insull rode the crest. The Lincoln Printing Company, which he owned, was doing a good business with job orders to print more stocks of his own holding companies. The presses hummed, the stock rolled out into the hands of salesmen, who sold it door-to-door.
His holding companies worth $100 million a few months earlier, were now worth four times that amount; apparently so, since they had sold $400 million worth of stock. Even the knowledge that it was watered failed to hurt sales.
"Watering the stock" is a phrase that came from a cattleman who used to bring his livestock down from Upstate New York to sell to New York City. Just before he was to meet the metropolitan purchasing agents who were to weigh the cattle, he would lead them to the trough and let them drink their fill. He called this "watering the stock." Later he became a speculator and manipulator of railroad stocks. When he discovered how much money could be raised by printing extra stock and selling it, he was aware of the analogy to his old trade, and he called this also "watering the stock."
Nobody seemed to care that Insull had sold four times as much stock as his companies were worth. In his competent hands, it was assumed, they would eventually be worth that much anyway, so Insull was just selling in anticipation of coming certainties.
He kept himself posted on the hourly changes, the ruddy pink flesh of his British cheeks flushed with the news of his advances. They were not occurring entirely spontaneously. Insull had people on the floor of the Chicago Stock Exchange whose sole purpose was to "maintain the market" by timely buying and selling. He and his family had thus been able to accomplish a formidable killing on Insull Utility Investments, driving up the prices when they were virtually the only ones with stock to sell. Insull had become more of a stock speculator by mid 1929 than he was a utility president. He was grabbing opportunities and that was what the market was all about.
Banks called him and asked him please to borrow their money, for Chicago had lurched into go-getter banking. "Say, I just want you to know," the new president of the Continental Bank told Samuel Insull Jr. at a party, "That if you fellows ever want to borrow more than the legal limit, all you have to do is organize a new corporation and we'll be happy to lend you another $21 million dollars."
But the flurry of paperprinting and stock-watering created problems. Stock watering makes it more difficult to pay dividends. To come up with the profits, Insull used some creative accounting techniques, chiefly the parrot-bird-cage approach.
It worked this way: A woman owned a parrot and her husband owned a birdcage. One day they struck a profitable deal. He sold her the birdcage for $150 more than he had paid for it, and she sold him the parrot for $150 more than she had paid for it. Together the family made $300.
One day in 1929 one of Insull's biggest holding companies, Middle West Utilities, sold securities to National Electric Power, another of his companies, for $3 million more than he had paid for them. At the same time National Electric Power sold stocks to Middle West Utilities for $3 million more than it had paid for them. Both companies made $3 million. Since Middle West was a holding company that owned National Electric Power, it siphoned the $3 million from its offshoot. Thus Middle West gained $6 million in assets on securities that it still owned.
The summer of 1929 was filled with paper profits for Samuel Insull. Middle West Utilities rose from $169 a share to $529. Commonwealth Edison of Chicago rose from $202 to $450. Most vital to Insull was the fortune of his new superholding company that he had created in January. He and his family owned all the shares of the high-powered company, Insull Utility Investments, when it was created. They had purchased them for $7.54 a share. By the end of July each share was worth $126; by August each was worth $150.
In January he had estimated his worth at $5 million; by the end of the summer Insull was worth $150 million. It was as though he had discovered a way of printing money.
But Insull's huge system of holding companies had lost contact with reality. For three years he had been expanding, buying paper and textile mills, real estate development companies and shoe factories. He paid almost any price for them. "What in hell would you do," responded the president of one electric power and light company, when asked why he had sold to Insull, "if someone came along and offered you three times as much as your company was ever worth?" Buying at a high price or at any price increased the value of the property and made larger profits possible, since the amount of profit allowed was based on the value of the assets. Owning anything was an advantage to Insull now. It gave Insull's companies, as it gave so many others during the great boom of 1929, an opportunity to issue more stock.
Juggling all those properties had creted a precarious financial operation of pyramids. Insull Utility Investments was the apex. One of the companies it owned, Middle West Utilities, was itself a large holding company. Holding companies were controlling holding companies which in turn controlled lesser holding companies that controlled still smaller holding companies.
But by mid-year Insull had decided that even Insull Utility Investments was not a safe enough device. He was preparing to create a co-equal superholding company called Corporation Securities Company of Chicago. This new company and Insull Utility Investments would, in part, own each other. They would buy each other with each other's money. Once again stocks would come raining out of the Lincoln Printing Company and investment bankers would grow fatter selling the paper to the public.
Despite the almost incomprehensible scheme of two superholding companies clutching each other, the public never doubted Insull. He was the backbone of Big Business in the farming states. It was worth money to be seen talking to him outside a bank. People invested their life savings in his enterprises. He was chairman of 65 boards of directors and president of 11 companies.
But what the public considered financial wizardry was principally a maze to keep out Cleveland industrialist Cyrus S. Eaton, who had begun a raid on Insull's property, and J.P. Morgan, who was beginning to consolidate a public utility empire. Insull was caught in a dilemma. He needed more money to fight off his rivals, but when he issued more stock to get the money, he made himself more vulnerable to raiding because more stocks were on the arket. Even the fantastic rise in the prices of his own stock was a curse -- for he had to pay the same prices as everyone else when he bought them back. It would cost several fortunes to get them out of the hands of Eaton -- who, like Insull, was one of Ford's dinner guests at Dearborn.
GE board chairman Young and others that night paid elaborate tribute to Edison and told the story of his fabulous and unqualified success. The subject of failure was averted -- and understandably so, for the men who praised Edison controlled the industry that had been wrestled from his hands. Even his name had been torn from the firm of Edison General Electric.
Insull knew the story better than anyone else in the hall. For 18 years he had been secretary to Edison -- beginning as a skinny, pop-eyed Briton with a Cockney accent so thick that the half-deaf Edison could barely understand. He had watched the older J. P. Morgan swoop at the right moment to take Edison's control of the electrical industry away. Insull had remained for a short time with the new company, which had shortened its name to General Electric. When he left, the new top people gave him a silver punch bowl and fulsome praise at a large farewell dinner at Delmonico's. When the time came for him to respond, he had arisen, and in an address stripped of all graciousness, he promised that he would make his Chicago central electric station bigger than GE. His hyperthyroid eyes glowed and his upper lip, under his moustache, was curled in a sneer. He vowed to himself that nothing would ever take his world away from him, that nobody would do to him what had been done to Edison.
But those kinds of stories were not recounted at the Jubilee finale. The 500 guests left on a note of triumph. The illusions had been perpetuated at Dearborn -- but in a few more days the stock market would end them forever.
Something new came to America that fall: the dramatic radio program. NBC picked up a Chicago show called Amos 'n' Andy and began to broadcast it over the network in August of 1929. Late in October, nine days after the Jubilee dinner, the story concerned Lightning, an out-of-work young black who asked Andy for a job with the taxi company.
"Well, Lightning," Andy said, "course I would like to give you a job but de bizness repression is on right now."
"What is dat you say, Mr. Andy?"
"Is you been keeping yo' eye on de stock market?"
"Nosah, I ain't never seed it."
"Well, de stock market crashed."
"Anybody get hurt?"
Even after the crash the private Insull boom had continued. The Insull companies seemed immune to the problems that had flattened the rest of the economy. But behind the apparent prosperity lay desperation.
The Insulls overvalued their companies, and when they announced a stock sale they included the expected proceeds from the sale itself as money on hand. They pushed out dividends as bait, announcing far in advance that Insull companies would pay a hefty dividend for the year. Although the two superholding companies were losing money, the reports for two years were juggled to show profits. Frantic activity was maintained in the sale of stocks, including a merry-go-round of sales from one Insull agent to another to keep up a semblance of heavy trading.
By late 1931 the second superholding company, Corporation Securities Company, was insolvent, yet Insull continued to take money out of it and sell shares in it. The "service charges" that the Insull holding companies charged their operating companies increased as more case became imperative.
Late in 1931 the sliding became rough. When the huge Corporation Securities Company went into bankruptcy, its assets amounted to only $60,000. Notes were called, extensions were asked, more borrowing was attempted. The Insull companies, all 75 of them, had become tangled. Money was shifted around from one company to another in a desperate attempt to stop an avalanche. Mistakes were made and the record became disorganized and disorderly. The government called it a swindle. They said the Insulls had sold $49 million in stocks merely to pay off loans, buy other stocks and pay fees. Franklin Roosevelt, the Democratic candidate for president in 1932, made a symbol of "the Ishmaels and the Insulls, whose hand is against every man's." Candidates and editorial writers used Insull throughout the campaign to personalize the business duplicity that had brought on the crash and the depression.
Insull made a long fight of it. For a year and a half he warded off attempts to extradite him. Meanwhile, other indictments as well as civil suits piled up in the United States. On being indicted, Insull had holed up in Greece, but the Greek government had notified Insull that he would have to leave when his residency permit ran out at the end of 1933. After a delay on grounds of ill health, Insull slipped away on March 15, 1934, on a tramp steamer, his hair and moustache dyed and his eyebrows pencilled. On March 22 the U.S. Congress adopted a bill authorizing the arrest of Insull in any country in which it had extraterritorial rights by treaty. When the tramp steamer landed at Istanbul for provisions, the Turkish authorities took him forcibly from the vessel, detained him in a proceeding apparently devoid of any legality, and he was sent back to the U.S. in American custody.
When he arrived in Chicago he ran a gantlet of scores of reporters and photographers and about 3,000 people who lined both sides of his path from Union Station. The national sensation of his return in the midst of the depression brought some out to boo and curse him, while others cheered the man who had been such a hero.
In October he went on trial in federal court for using the mails to defraud. He said he had left the country because he was broken in health and had been through a great ordeal when his two superholding companies went into receivership. He said he decided not to return when indicted because he believed the trial would be political. When he told his life story on the stand, the weary but defiant 74-year-old man brought out the handkerchiefs, especially among his associates.
In the summations Insull's lawyers pictured "Old Man Depression" as the culprit and pointed out that Insull had not billed stockholders for his own gain but had been wiped out with them. "The thing on trial here is a period in American finance," one orated. "Crazy? Certainly. Wild? Yes. That was the free public market that the prosecution loves so well. They say we lost for the public $140 million in this scheme. I don't know how many millions were lost, but it was a great many. Who got it?"
The jury found Insull and his co-defendants not guilty. He won acquittals in other criminal trials that followed as well.
A charcter witness showed up at Insull's trial: his old friend Cyrus Eaton. The Cleveland financier described Insull as a fine businessman and said Insull stocks were of high value at one time: he had bought a lot of them, he said.
He did not add, however, that when he sold them to protect himself from a raid from another quarter, he had sent the Insull to tottering. h
In 1930 he offered to sell all his Insull stocks back to Insull, but the price he named was millions of dollars above the market value. When Insull said it was to high, Eaton threatened to dump them, probably in New York among Insull's enemies. Insull managed to bring the price down, but he spent $56 million dollars to get them back.
Having the money from Insull in hand, Eaton had the funds to fight off successfully the raiders who were moving against his holding. But Insull found his finances strained to the breaking point in buying off Eaton. When the Chicago banks failed to come through with promised loans, Insull was desperate. He went to the hated New York banks and so went into debt to the people that he was no longer able to avoid. Morgan had waited patiently, biding his time, until he had the leverage he wanted.
Morgan still had his homes in France, England, Manhattan and Glen Cove, his hunting lodge in Scotland, his private railway car, and when the depression began he launched his new yacht. In October of 1929 it had still been under construction at the Bath Iron Works in Maine. The $4 million yacht, the most costly ever built, was launched early the following year. It sat low in the water and had an unprecedented amount of deck space. Most of the woodwork, beams and deck were teak. It included two separate living quarters for Morgan, many other staterooms, a laundry, and a lounging room with an open fireplace. It had a crew of 58. A turbine and generator provided light -- enough current to furnish electric light for a city of 15,000. It was equipped with refrigeration for Morgan's gourmet tastes in oysters, lobsters and wines. It included an elevator and a thermostat system that maintained a constant temperature.
Neither the crash nor the resulting depression had cramped his style in the least. Business had of course decreased, but Morgan compensated for that by paying no income taxes in 1930 or 1931.
Morgan had moved against Insull to secure financial control of the electric companies at precisely the proper moment, when Insull was most vulnerable. His instinct in such matters was unerring. The House of Morgan had spread rumors that Insull was in difficulties and let it be known that Morgan had taken umbrage. "They were out to do me up, were the reports," Insull testified during the mail-fraud trial, "and these things weren't doing the market any good. These false reports gained tremendous circulation and it was necessary to support the market in our stocks." By supporting the market, Insull meant various manipulations were used to keep his stock prices up.
In lending money to Insull the New York banks insisted upon the best collateral, and such was their power that with only a $20 million loan they managed to shut Insull down. They called the loans at the unerringly proper moment and, under Morgan's leadership, they lined up for the receiverships and refinancings; the money made on shipwrecked companies was usually the easiest money of all.
And so, in one of those twists of history, the powerful Samuel Insull had ended up in the grip of J. P. Morgan, the son of the J. P. Morgan who had taken Thomas Edison's companies. Some said Insull's fall was the result of the depression, but there were more and more people in America in the 1930s who felt that Insull, and others like him, were its cause.