Richard Whitney’s finest hour came on October 29, 1929, still remembered as Black Thursday. Avalanches of stocks were being dumped in a frenzy of desperation, regardless of price. The ticker was running hours late. Many on the floor of the exchange and legions outside of it did not know if they were solvent or bankrupt. In the midst of this inferno of misery there appeared on the trading floor Richard Whitney, acting president of the exchange and preferred floor broker of J.P. Morgan & Company, a large, patrician figure, impeccably turned out.
Strolling with confident, statuesque dignity from one trading post to another, Whitney entered a series of massive orders for leading stocks at prices substantially above the latest quotations. He was acting for a group of banks worried that complete collapse was imminent. By the time he had completed his rounds, he had injected a quarter of a billion dollars of support for the harried market. There was a sharp rally at this sign of confidence: RICHARD WHITNEY HALTS stock PANIC read a headline on the following day.
Dick Whitney was a golden boy. One good thing had led to the next: his respectable Boston family entered him in Groton School in the days of Rector Endicott Peabody, whose benign but stern Christian eye followed young Dick with approval as he became captain of the baseball team, acting captain of the football team, and a school prefect. Proceeding as a matter of course to Harvard, he rowed on the varsity crew and was elected to the Porcellian Club (from Latin porcellus, little pig: it was originally intended that members, in addition to being socially satisfactory, be fond of pork). We hear less of academic distinctions, but in those days they were considered secondary, perhaps even slightly grubby.
In 1912 Richard, newly graduated, bought a seat on the New York Stock Exchange, and in 1916 formed his own firm. Thanks to his reassuring credentials and, no doubt, his self-assured, genial charm, Richard Whitney & Co. became principal brokers for J.P. Morgan & Company. It did no harm that Richard was the brother of a Morgan partner, George, and that his uncle had also been a partner. Having a “seat” on the exchange (actually, having the right to stand there) amounted in those days to joining quite a good club or guild more than actually having a job. Your father got you your seat, and after that, thanks to the fixed commission system and the impossibility of buying and selling stocks except through the exchange, you automatically had a handsome living. The people you dealt with, mostly topped off with straw boater hats with club bands in summer or respectable bowlers in winter, were congenial chaps, and the hours were short enough so that after the close you could easily get to the first tee at Piping Rock in time for a round of golf before sundown. A broker who lived on Long Island might pad down of a morning clad in slippers and dressing gown to his launch: on board, one had breakfast and, assisted by one’s valet, changed into business clothes and read the Journal before disembarking at the foot of Wall Street. Those who lived out the other way, in New Jersey, if they preferred not to be driven to and fro by their chauffeur, could be wafted through the countryside in a special club car with wicker furniture and assiduous stewards: quite painless. Things were civilized . .. not like what’s happened since.
Whitney, now a heavy-set man of medium height, belonged to the Jersey contingent. He raised Ayrshire cattle on his several hundred acres and kept a stable of horses, which he rarely rode, although his wife did—sidesaddle. He was a popular fixture in the upper crust: a respected member of the Links, a steward of the Jockey Club. He ran the annual Essex Fox Hounds meet from a tower in the grandstand on the Schley estate, and was head of the 8:08 a.m. club car.
World War I was quite painless. Richard was not asked to submit to the noise, smells, and second-class associations of existence in the trenches. In September 1917 he received a suitable position in the Food Administration in Washington, and in June of the following year was shipped off, not to the front, but back to New Jersey. After a few months he reappeared on Wall Street.
Handling Morgan’s transactions on the floor of the exchange, along with such outside customers as his prosperous neighbors in the country, made for a fine business when the market was active—on the way down as well as up. But that was just income. So to build some real capital, Richard plunged heavily in two commercial fertilizer ventures in Florida: one based on mineral colloids, the other on humus. From 1923 to 1931 he sunk more and more money in them—eventually, a total of $1.5 million. He also acquired a house in town, at 115 East 73rd Street, for $100,000, bought another seat on the exchange for $500,000, and maintained a nice lady friend, discreetly offstage in Baltimore.
All very fine. But there was a problem: he didn’t actually possess the necessary funds. To invest in the two sure things in Florida and cover general outlays, Richard had to hit up his brother George—who was coining money as a Morgan partner—for about $1 million in loans, plus an additional quarter of a million from his obliging friend Schley.
Richard Whitney’s moment of glory in the tabloids had come on Black Thursday, 1929. The next year he was elected president of the Stock Exchange for the first of four one-year terms, just in time to march straight into the Depression and to fight a losing battle with the government against the whole principle of regulating the securities business. Those were the days of widespread manipulation, insider “pools,” inadequate disclosure of the facts about new issues of securities, banks acting as stock underwriters (a practice that led to not a few bankruptcies and loss of the depositors’ money), and undisclosed conflicts of interest. There was virtually no control over the adequacy of a broker’s capital to meet his obligations. Still, there was a strong code of professional honor and responsibility, and if something went wrong, a gentleman felt obliged to put it right.
Whitney was called before the Senate Banking Committee in 1933 and 1934, in the depths of the Depression. The exchange lay in the doldrums. Brokerage houses were collapsing right and left; even his own was only marginally profitable. But not only did he reject utterly the thought that anything whatever about the Stock Exchange required change, but he moved over to the attack, exhorting Washington to straighten things out down there by balancing the budget and reducing disability payments to former government employees.
Notwithstanding his strenuous advice, the Glass-Steagall Act became law in 1933, requiring the separation of investment firms from commercial banks. Then came legislation requiring much fuller disclosure of the risk factors in new securities issues. The next year a new Senate investigation even started poking into a pool managed by the House of Morgan itself. What cheek! Whitney was asked to distribute an embarrassing questionnaire to Stock Exchange members. When he stalled, he was accosted right in his office by representatives of the Senate committee. “You gentlemen are making a great mistake,’ he declaimed earnestly: “The Exchange is a perfect institution.” Unconvinced, the government responded by creating the Securities and Exchange Commission.
Whitney kept up his splendid way of life during all this. He liked to assemble ten or fifteen of his younger friends for dinner at the Links, and then, preceded by a police escort with sirens wailing, be driven up to the Polo Grounds to see the heavyweight fights—from ringside, of course. Afterward, back to the club for champagne: all smiles, all charm.
In 1935 he was passed over for reelection as president of the exchange, but as a consolation was made a trustee of the Gratuity Fund, which provided pensions for the widows and children of defunct members.
In the meanwhile Whitney’s Florida fertilizer propositions had gone sour. Fortunately, though, a new source of profit appeared.
Prohibition was a failure. People were drinking more than ever. Almost worse, to stay in business the rumrunners and gangsters who supplied the speakeasies had to fork over huge bribes to the police and City Hall, which fostered corruption. So Repeal became inevitable. During Prohibition Whitney himself had grown fond of a local clandestine applejack called Jersey Lightning. Why not get ready to go into the business when the time came? Jersey Lightning enjoyed the useful merit, compared to bourbon and Scotch, of being ready to drink not in a number of years but a matter of months. This meant that when Repeal did arrive one could be in operation in no time. And of course less capital had to be tied up in inventory. Whitney and another member of his firm organized a venture called Distilled Liquors Corp., in which they subscribed to more than a million dollars’ worth of stock at $ 15 a share. The company bought up a number of old distilleries in New Jersey and New York. Splendid! But how was he to finance his share of the purchase? He couldn’t go back to the Morgan bank, since he had borrowed half a million there in 1931 to pay off an earlier bank loan that had come due. His long-suffering brother George, the Morgan partner, had subsequently been obliged to take over this loan. So instead, Whitney borrowed the money from four Wall Street friends.
Early in 1934, Prohibition having finally been buried, the boom in liquor stocks did indeed materialize. Distilled Liquors roared up to $45 a share. But he didn’t sell. He was sure this was only the beginning. Alas, the stock never reached that level again. Jersey Lightning somehow failed to take off. Others had foreseen Repeal. Warehouses in Canada and Scotland were brimming with whiskey and gin to be rushed to parched American customers. The price of drinks declined by half. So to support the price of Distilled Liquors stock and to keep the company going, Whitney had to invest more and more heavily, with money borrowed from Stock Exchange friends. His stature on Wall Street rendered it almost a favor for one of the lesser members to be allowed to provide an accommodation to this splendid, genial figure. For a long time Whitney could quite routinely ask other members for the loan of a hundred thousand, although after some years the honor began to pall.
His brother George, who was later made president of the Morgan Bank, became agitated by what he was hearing. Finally he demanded a list of Richard’s assets and liabilities, and in due course loaned him $650,(XX) to clean everything up. But there were items omitted from the inventory. Whitney had been taking money from his own firm’s account; when that ran dry he dipped into the customers’ accounts, and after that into the Stock Exchange Gratuity Fund itself. In October 1937 it was discovered that Whitney, as broker and trustee of the fund, had six months previously failed to deliver $625,000 worth of bonds that he had bought for it.
The chief officer of the fund instructed Whitney to make delivery forthwith, plus over $200,000 in cash. Whitney replied that this would take a day, as he was shorthanded. But he didn’t have the bonds at all; they were in fact held by a bank as collateral for a loan. So the next day Richard appeared yet again in George’s office, pleading for help. Poor George, horrified, borrowed the entire sum from his partner Thomas Lamont, explaining that Richard was in a “jam.” Whitney was thus able to make good to the Gratuity Fund. George, in despair, now demanded that Richard get out of business altogether: sell his stock in Distilled Liquors and find someone who would take over Richard Whitney & Co.
But Whitney was riding a tiger. Distilled Liquors Corp. was dying and needed more and more money to survive. Whitney kept up a “float” of a couple of million dollars between late 1937 and early 1938 through 111 different small transactions, borrowing, repaying, and borrowing again. This usually involved his now customary technique of approaching acquaintances or even strangers on the floor of the exchange and asking in his friendly, self-assured way for $100,000. There was a memorable encounter when he tried to extract a quarter of a million from a piratical old short-sale artist, “Sell ’em Ben” Smith, who sardonically inquired what assets the loan was based on. “On my face,” Whitney replied. “You’re putting a pretty high value on your face,” snarled “Sell ’em Ben,” turning away.
Everything exploded in February. An S.E.C. questionnaire, of just the type that Whitney had so vehemently resisted several years earlier, revealed that his firm had insufficient capital. This triggered an audit. His incursions into the customers’ accounts were soon revealed. In March he was hauled down to the Elizabeth Street Police Station and indicted by District Attorney Thomas E. Dewey, soon to be a presidential candidate. A few days later the attorney general of the state accused him of misappropriating funds from the New York Yacht Club, of which he was treasurer. (The Commodore, Whitney’s friend Winthrop Aldrich, asked in Newport if he was shocked at the loss of the club’s endowment, replied, “I’m disconcerted.”) Whitney’s firm had already been suspended from the exchange; now the former president and spokesman was personally expelled. Bankruptcy and criminal charges0 followed. He was $6 million in the hole. The partners lost everything, or almost: you were entitled in those days to keep two suits. The customers lost whatever they had confided to the firm (although at least one of them got some money back from the exchange itself on the grounds that it had exercised inadequate supervision). The firm’s young floor partner Edwin Morgan (no kin to J.P.) never forgave George Whitney for not telling him what was going on. By 1937 it was too late, but a few years earlier they could have moved to save the situation.
A whole generation was staggered by Whitney’s fall. Most of his friends could scarcely believe it was possible. The grief and disappointment was like that caused to the next generation by the discover)’ that Alger Hiss was a Russian spy.
At Sing Sing Dick soon became as confident, successful, and popular as ever. He was said to be the only inmate ever called Mr. by fellow prisoners and wardens alike. He was given a soft job in the library. It didn’t take him long to be elected captain of the baseball team. By and by Rector Peabody, his old mentor at Groton, paid a call to urge him to profit from this period of immobilization to reflect on the past and learn from his experiences.
“And is there anything that you need, dear boy?” inquired the saint solicitously, thinking, no doubt, of Pilgrim’s Progress or a hymnal.
Whitney reflected. “Why, yes, sir,” he replied. “Do you think you could get me a left-handed baseball mitt?”