copper speculator named F. Augustus Heinze. Heinze controlled a chain of banks; it was rumored that these banks were involved in his personal collapse, and frightened depositors flocked to withdraw their funds. Their fear was contagious. Heinze’s banks were basically sound, but other institutions could not withstand the infection. By October 21 the Knickerbocker Trust Company, with deposits of $60,000,000, was in serious difficulty. Its president had been associated with the unfortunate Heinze, and its affairs were in bad shape. Lacking liquid funds, it could not meet the sudden demands of its frightened depositors without outside help. That afternoon its officers descended upon J. P. Morgan in search of assistance.

Morgan had spent the summer in Europe and the weeks immediately preceding the crisis at an Episcopal convention in Richmond, Virginia. Seventy years old and semiretired, he had not followed events closely. He was faced suddenly with the terrified clamor of hundreds of uncertain, befuddled financiers. Yet in a matter of hours he had a firm grasp of what was happening. Then, calmly but with iron determination, he took over.

Quietly he assembled a group of young banking experts who could examine the assets of doubtful institutions and find out whether or not they were worth helping. The Knickerbocker Trust, they said, was not sound; Morgan (although he owned stock in the company himself) coldly decided to let it go to the wall. By the afternoon of Tuesday, October 22, after doling out $8,000,000 to an unending line of creditors, the Knickerbocker closed its doors.

It was now clear that the financial world was “in for it.” For a decade previous to 1907 there had been a remarkable growth of a new kind of bank—the trust company. Ordinary banks were required by law to maintain large cash reserves, but trust companies were not. With only 2 or 3 per cent of their assets lying idle in the form of cash, trust companies could afford to pay high interest rates to depositors. Between 1898 and 1906 their business more than quadrupled. But all at once, with the collapse of the Knickerbocker Trust, the public became frightened. And it was all too obvious to the financiers that the trust companies, with their low reserves, would be hard pressed by even a moderate panic among their depositors. Still worse, there was no organization among them comparable to the Clearing House, which operated as a bulwark for hard-pressed banks.

The Knickerbocker Trust gave up the ghost at two o’clock on the twenty-second. At once Morgan decided to ask Secretary of the Treasury George Cortelyou to come to New York. While Cortelyou was en route, Morgan instructed his partner Perkins to try to get the presidents of the city’s trust companies to organize for their mutual defense, but Perkins discovered that none of them was willing to call a meeting, fearing that if he did his own institution would be suspected of weakness. Morgan and Perkins then conferred at length

with George F. Baker of the First National Bank and James Stillman of the National City Bank, and when Cortelyou arrived at about nine in the evening, their group was closeted with him for hours in his rooms at the Manhattan Hotel. Cortelyou agreed to deposit government cash in the New York banks, but the danger to the trust companies remained.

The most likely scene of future trouble seemed to be the Trust Company of America. This company, one ol the biggest in New York, held a large block of stock in the Knickerbocker Trust as collateral for loans, and rumors connected it with the Heinze copper speculations. That day the company had experienced heavy withdrawals, although not of panic proportions. As a result, Morgan’s committee had begun to look over its records to see if it was worth helping. But in the meantime, nothing further could be done. The conference broke up at two o’clock, Cortelyou and Perkins issuing “reassuring” statements to the newspapers.

These statements, however, did not have a reassuring effect. Evidently, in emphasizing the intention of Morgan to help deserving trust companies, Perkins gave too much stress to the Trust Company of America. Although he later denied referring specifically to that company, some newspapers quoted him as saying that it was “the chief sore point” in the crisis. Perhaps because of this statement, on the morning of the twenty-third long lines of depositors were waiting when the company opened its doors. President Oakleigh Thorne put on extra tellers in an effort to reduce the lines, but they seemed without end. Soon the main lobby was jammed with people, while hundreds more milled about in the street. Attendants struggled desperately to organize the mob; finally the police had to be called in. The huge pile of $11,000,000 in gold and banknotes that Thorne had collected to meet the rush dwindled rapidly. This was panic.

Meanwhile, Morgan’s team of investigators was rushing its evaluation of the company’s assets, while Perkins, with Morgan’s approval, shuttled through the financial district urging the presidents of other trust companies to attend a meeting that Morgan had called for twelve thirty in his office. So long as Morgan was willing to call the meeting, the presidents (now thoroughly frightened) were eager to attend.

By noon President Thorne was in desperate straits. He hurried up Wall Street to tell Morgan that he simply must have help. Morgan promised to do his best, but he was still depending on the other trust companies to save the Trust Company of America by raising a fund to tide it over the crisis. However, when the heads of the trust companies began to drift into his office, they were not in a co-operative mood. Their lack of organization was complete; many did not even know one another and had to be introduced. Morgan outlined the problem and suggested joint action, but when he finished his speech no one said a

word. He tried again, but the heads of the largest and most secure companies said flatly that the Trust Company of America’s problem was none of their business and that weak companies would only obtain their just deserts if the panic spread.

While these discussions were going on, Thorne was sending bulletin after bulletin to Morgan describing his dwindling cash reserves. One o’clock: $1,200,000. One twenty: $800,000. One forty-five: $500,000. Two fifteen: $180,000. Still the other companies would not help. Leaving them fruitlessly debating, Morgan went to another office and called for a report from his special crew of experts. These experts had not finished their complicated task, but when Morgan asked one of them whether the company was solvent he was told that it probably was. “This, then,” said Morgan decisively, “is the place to stop this trouble.” Baker and Stillman, who were at hand, agreed; together with Morgan they would supply the cash to keep the trust company going until closing time at three o’clock. Morgan ordered Perkins to the phone. If the company would send over half a million of its best securities as collateral, cash would be provided. This was done, and as Perkins said later, “we kept them open until three o’clock, with cash sent down every few minutes.”

Morgan had saved the Trust Company of America for the day; he still felt that the other trust companies must take up the burden on the morrow. But it was not until late in the evening that, under continued pressure from Morgan, they agreed to contribute to the support of the Trust Company of America. Even so, the key factor in their decisions was the willingness of Secretary Cortelyou to make federal funds available to the trust companies indirectly. At a time when the trust company presidents were deadlocked, Perkins had slipped away from the meeting and had gone to Cortelyou’s room at the Manhattan Hotel. Cortelyou had agreed to allow the banks (where he could legally deposit the government’s cash) to lend the money to the trust companies if they in turn would make it available to the beleaguered Trust Company of America. Thus a $10,000,000 fund was raised, seemingly enough to bolster the company against any trouble.

But the next day, October 24, brought only further crises. Morgan arrived at his office at about ten to find the building jammed with frightened bankers and brokers. The fact that the Trust Company of America was able to pay off its demand deposits had not ended the run; indeed, the panic now had struck at another institution, the Lincoln Trust Company. Still worse, the Stock Exchange itself was in serious trouble. In a matter of hours blue chip securities lost 8 to 10 per cent of their value. Money for loans had practically disappeared, and hundreds of brokers faced ruin. Speculators ready and willing to meet their obligations and take their losses, men possessed of ample (and solid) securities,

simply could not borrow money at any price. Morgan was besieged by men with tears in their eyes, others feeble and benumbed with terror, all faced by the dread specter of bankruptcy. Early in the afternoon the president of the Exchange, R. H. Thomas, squeezed his way into the House of Morgan with the dreadful news that the Exchange must close down if countless failures were to be avoided.

Morgan would not hear of this. The crucial moment for the Exchange would come at about twenty after two when it was customary to compare the day’s sales and adjust accounts. Morgan summoned the city’s leading bankers to a two o’clock meeting. When they arrived he told them that $25,000,000 must be raised in ten or twelve minutes. James Stillman promptly offered $5,000,000 of National City Bank cash, and others fell in line. By sixteen minutes past two the subscription had been filled. The word was announced to the waiting brokers, who cheered wildly and then rushed out to save themselves. When the market closed at three (after absorbing $18,000,000 of the $25,000,000 in half an hour) a mighty roar went up from the floor that Morgan heard in his office up the Street; upon inquiry he learned that the members of the Exchange had been cheering him as the savior of the situation.

Morgan, however, did not share in this feeling of relief. As he and his inner circle of advisers headed uptown to the Morgan Library for further conferences they were despondent. The runs on the trust companies had not slackened. The $10,000,000 trust company fund had almost evaporated. Millions of dollars of actual cash had been poured into the troubled situation by Cortelyou without producing any improvement whatsoever. During the evening Clark Williams, the state superintendent of banks, informed the group that Governor Charles Evans Hughes was considering a two-day bank holiday and wished to know what the bankers thought of the idea. Everyone but Morgan approved; he said that closing the banks would be disgraceful. But shortly after midnight word came that Hughes had decided that he lacked the authority to declare a bank holiday. At one o’clock the weary group broke up, feeling, as one of them remarked, “that we had about reached the end of our rope and no one having any idea what would happen the next morning.” To cap their troubles, the twenty-fifth was a Friday. The psychological effect that this fact might have on superstitious and already frightened investors added to the general gloom.

Dawn did nothing to revive their spirits. In the morning the Morgan offices were once more haunted by desperate men facing utter ruin. By noon the Stock Exchange was in trouble. Money was simply not to be had at any price, for the trust companies were calling their loans right and left in a desperate effort to re-trench. Morgan had served notice on “the big bear operators” that “if they attempted to break prices

and throw the market into a panic he would crush them.” Through Perkins he asked President Thomas to stop executing orders on margin and the brokers had responded “most splendidly,” but even so, by early afternoon the demands for money became critical.

Again Morgan called the bank presidents to a meeting, this time at the Clearing House. He asked them to raise another $15,000,000 but could get promises for only $13,000,000. Many felt that their reserves had already been depleted beyond the danger point. (Morgan was contemptuous of this attitude. When, earlier in the panic, one banker had protested that his reserve was already down to 26 per cent, Morgan had said with scorn: “You ought to be ashamed of yourself…. What is a reserve for if not to be used in times like these?”) But time was short; Morgan took what he could get.

Herbert L. Satterlee, Morgan’s son-in-law, has left us a graphic picture of Morgan, derby hat set solidly on his head, a cigar clamped between his teeth, his coat unbuttoned, sailing along Nassau Street from the Clearing House to his office. He walked fast, eyes straight ahead, mind engrossed in his problems. Those who recognized him stepped deferentially from his path; those who did not, according to Satterlee, “he brushed aside.” He neither dodged nor wove in and out through traffic nor slackened his stride. “He simply barged along … the embodiment of power and purpose.”

Once again the money was enough to save the Exchange, though by the barest of margins. The situation looked a little better that evening, but Morgan was in conference with financial leaders until after midnight and then with Stillman, Cortelyou, and Perkins at the Manhattan Hotel until the small hours of Saturday morning. It was decided (over Morgan’s strenuous objections) to issue Clearing House certificates in lieu of cash, for the huge sums that Cortelyou had been pouring into the banks were evaporating rapidly. Depositors were simply withdrawing their money and salting it away. Perkins checked with the leading banks of the city and discovered that nearly 2,000 new safe deposit boxes had been rented during the past week.

Psychological warfare was also employed. Cortelyou issued a strong and confident statement to the newspapers, and the bankers set up an information committee and undertook to reach religious leaders with an appeal for optimistic sermons. Saturday showed some improvement, and Cortelyou ostentatiously returned to Washington in order to create the impression that the crisis was over. Morgan also left the city for the weekend.

Sunday was calm and Monday also. There was another shortage of money on the Stock Exchange, but this time the desperate brokers were able to make individual arrangements with their banks and no heroic action was necessary. But the runs on the trust companies went on. No longer did the beleaguered companies try to stop the runs by paying rapidly; now they doled out cash as slowly as possible to conserve

their dwindling supplies. Slow payment, however it might conserve funds, did nothing to calm the fears of depositors. Each morning found the grim-faced crowds waiting, many clutching lunch boxes along with their passbooks, determined to remain as long as necessary to collect their money. By Tuesday, despite their appearance of serenity, the men in the inner circle that had gathered around Morgan were desperately worried. “Three o’clock never seemed so long in coming nor so welcome when it did come as on this day,” Perkins reported. On Wednesday the timid officers of the Lincoln Trust Company almost failed to open their doors. Only a tongue-lashing from the House of Morgan kept this company and the Trust Company of America going. On Thursday the State Superintendent of Banks, exasperated by the dilatory tactics of tellers at these institutions, informed them that they must begin to pay off depositors at a reasonable rate or he would close them both. All Thursday afternoon and well into the night the Morgan group discussed the problem. Disgust with the management of the two companies was patent. “The officers seemed hopelessly at sea; we couldn’t get them to get down to business and try to collect their loans or realize on their assets,” Perkins complained later. Yet they must be saved in spite of themselves. “It was not because we were particularly in love with these two trust companies,” he said. “Indeed, we hadn’t any use for their management and knew that they ought to be closed, but we fought to keep them open in order not to have runs on other concerns.”

The entire second week of the panic was made up of muted but deadly serious crises. Suddenly the city government found itself pressed for funds. At a time when money was almost impossible to borrow Morgan underwrote a $30,000,000 bond issue (his price was 6 per cent interest and the promise of fiscal reform by city officials) and saved New York from bankruptcy. The top-heavy credit structure of the nation’s banking system was increasingly complicating the New York situation, for banks all over the country were drawing upon assets deposited in New York institutions. By the end of that week the strain was beginning to tell on everyone. Morgan was an old man; he was plagued by a heavy cold; yet he was up late every night, making vital decisions and assuming immense responsibilities. His partner Perkins had not been to bed before two o’clock for fourteen consecutive nights. Twice within the week he had made secret night trips to Washington to see Secretary Cortelyou. On one of these he left New York in the evening, conferred with Cortelyou from midnight until three, then returned at once to New York, arriving at eight o’clock for a working “day” that extended until three in the morning.

Upon men so fatigued there fell, during the second weekend of the panic, a blow that threatened to wipe out all their past efforts. The

brokerage firm of Moore & Schley, it suddenly developed, was in desperate straits. Grant B. Schley, head of this company, belonged to a syndicate that controlled a small independent steel plant called the Tennessee Coal & Iron Company. Schley’s firm had put up the money for the purchase, receiving T. C. & I. stock as collateral. It had then deposited this stock in banks as collateral for time loans. Now these time loans were falling due, but Moore & Schley lacked the cash to meet them. Under normal circumstances there would have been no great tragedy in this for anyone but Moore & Schley; the banks would have simply sold the T. C. & I. stock. However, this stock, being owned by a small group, had not been actively traded on the Stock Exchange for some time. Its price had been held steady around 130, yet the market as a whole had declined precipitously in recent months. Should the banks attempt to dispose of the stock, it would probably have to fall at least fifty or sixty points before buyers could be found for it, wiping out Moore & Schley, of course, but also gravely embarrassing the banks and perhaps triggering a general collapse of the whole stock market.

When this situation was called to Morgan’s attention on Friday, November 1, he concluded at once that Moore & Schley must be saved; the problem was how to save them. The simplest way was to lend them money, but they needed about $25,000,000, and after two weeks of panic such a sum seemed impossible to raise. So another of the innumerable conferences of those desperate days was convened at the Morgan Library on Saturday morning. Lewis Cass Ledyard, lawyer for the T. C. & I. syndicate, presented this conference with a “brilliant” plan. Why not have the United States Steel Corporation purchase the Tennessee Coal & Iron Company? No money need be raised, for the steel company could simply exchange some of its own bonds (in which the public had confidence) for the T. C. & I. stock.

Morgan, who dominated U.S. Steel, quickly grasped the possibilities of this transaction. Here was a chance to add a valuable property to the steel trust and at the same time avert trouble on the stock market. Perhaps, if the deal could be combined with a final settlement of the trust company problem, the whole panic would be ended. He ordered a meeting of the finance committee of U.S. Steel for that very afternoon. At that meeting, however, he ran into unexpected opposition. Some of the members were afraid that the merger would provoke an antitrust suit. Henry C. Frick, a powerful member of the committee, argued vehemently against the idea on the ground that the Tennessee Company had extremely high costs of production and would not be a valuable addition to U.S. Steel. Morgan retaliated by saying that its coal and ore deposits alone were worth the cost. Finally, after

much debate, the committee voted to make two offers to Moore & Schley. They would buy the stock at ninety dollars a share or they would lend Moore & Schley $5,000,000. But both propositions were turned down by the brokers because neither would yield enough cash to save them, and the conference broke up.

In desperation Perkins sent a Morgan accountant to go over the books of the Tennessee Coal & Iron Company in hopes that he could make a more favorable report as to its condition. Perkins also persuaded Schley to send for the president of the company, who might be able to make a better case in argument with Frick. On Sunday afternoon the U.S. Steel finance committee met again in the Morgan Library. After much argument the T. C. & I. men were able to convince Frick that a new rail mill, just being completed, would enable them to produce more efficiently than in the past. Finally the finance committee voted to offer par for the T. C. & I. stock (paid for in U.S. Steel bonds valued at 84) provided that President Theodore Roosevelt would approve the merger, that the transaction would definitely save Moore & Schley, and that some other arrangement could be worked out to save the two struggling trust companies.

Frick and Judge E. H. Gary, chairman of the board of U.S. Steel, left at once for Washington to see Roosevelt. While they were en route attention reverted to the two trust companies. Expert investigators had by now prepared detailed reports on the value of their assets which showed that the Trust Company of America was completely sound and the Lincoln Trust no more than a million dollars short of being able to pay off all its depositors, but under panic conditions these assets could not be liquidated. All Sunday night the Library was buzzing with conferees; at three in the morning there were about 125 financiers in the building, while outside knots of reporters waited for word on the debates. But there was no statement forthcoming. Finally at five in the morning the conference broke up, the directors of the Lincoln Trust Company having decided not to open their doors that day.

Monday morning, November 4, was in many ways the most disheartening time of the whole crisis. Cables from London indicated that American securities were falling there in morning trading. Should Wall Street follow this trend, many brokers would be caught without funds to meet their margin requirements. The Lincoln Trust Company’s failure to open might produce a wave of further runs.

But when things looked blackest there was a turn for the better. Gary phoned from Washington that Roosevelt had approved the T. C. & I. merger; this news was allowed to leak and the market rallied. Representatives of Morgan and the leading bankers persuaded the State Superintendent of Banks to permit the Lincoln Trust to continue its slow payment policy, and

the directors voted to open up after all. However, final consummation of the steel merger depended upon a permanent solution of the trust company problem, and this had not yet been worked out.

In desperation Morgan appealed to John D. Rockefeller, the titan of the oil industry. George Perkins had come to Morgan with a bold plan. Suppose a fund of $40,000,000 could be pledged to support the two companies. This sum represented all their remaining deposits. Surely the runs would end when depositors learned that they could definitely get their money. If Rockefeller would pledge half of this sum, Morgan and the bankers would somehow find the rest.

The negotiations were conducted by Perkins. He called on John D. Rockefeller, Jr., and explained to him the status of the trust companies: how they had assets which in time could be liquidated and how, therefore, there would be little risk in the loan. “I told him that I believed his father had a very great opportunity to be of immense service to the business of the country and to win fame for himself in a most worthy cause,” Perkins recalled in describing the interview. “I explained … that … his father would be in the attitude of having protected over fifteen thousand depositors, which step, I felt sure, would bring him the commendation and good will of hundreds of thousands of people all over the United States. I pointed out to him how the President at Washington had commended Mr. Morgan … and others for what they had done, and how I believed such action on Mr. Rockefeller’s part would unquestionably make a favorable impression on the President and other governmental officials at Washington.” Perkins’s last point was, no doubt, particularly weighty with the Rockefellers because an antitrust suit against Standard Oil was then in the courts, on appeal from Judge Landis’ astronomical $29,000,000 fine, levied in August, 1907. The younger Rockefeller promised to take the matter up with his father, but after much debate their decision was negative. This effort, too, thus ended in nothing.

Tuesday, fortunately, was election day and a bank holiday, which gave the bankers a respite. During the day, Morgan, Stillman, and Perkins worked out a new scheme. With the help of the committee of trust company presidents they would undertake to raise $20,000,000 for the Trust Company of America and the Lincoln Trust. In turn, these companies would place 66 per cent of their stock in a voting trust consisting of the heads of some of the other companies to be named by Morgan. The leverage that would force all the trust companies to agree to these terms would be the T. C. & I. deal. Unless they agreed, the finance committee of U.S. Steel would not approve the merger and in the resulting chaos no trust company would be safe.

The grand climax came on Tuesday night in the Morgan Library. In one room were

the executives of the Trust Company of America, in another the executives of the Lincoln Trust Company. A third held the presidents of all the major trust companies, and a fourth the finance committee of U.S. Steel. Morgan men circulated from room to room, pressing for agreement. On into the night the negotiators debated, while outside the reporters waited impatiently for an announcement. At one point there was a great stir—a mysterious woman in black entered the Library and a rumor circulated that she was Hetty Green, the famous miser. It turned out, however, that she was only a lady who held an important mortgage on the chief office of the Trust Company of America. Finally, at three o’clock on Wednesday morning, the news broke. U.S. Steel had absorbed the Tennessee Coal & Iron Company; the trust companies would be supplied with ample cash and would be taken over by a committee under the universally respected Edward King, president of the Union Trust Company.

When trading began on Wednesday there were sharp advances on the stock market. The bonds of U.S. Steel fell slightly in active trading as they were sold to meet Moore & Schley’s obligations. (Business-stimulating cash came out of safe deposit boxes to pay for these securities, of course.) At the trust companies, the lines of waiting depositors moved briskly for the first time in two weeks. Observing reporters estimated that customers were being serviced at the rate of one every three minutes, whereas previously as few as three a day had actually received their money. Seven million dollars in gold had just arrived from Europe, and the Lusitania was expected momentarily with ten million more. BANKERS SAVE BIG TRUST COS. BY FLOOD OF CASH, the headlines proclaimed. MORGAN CLEARS UP THE WHOLE TRUST SITUATION. A tremendous change for the better had taken place; all talk of failure and collapse ceased as if by magic. The panic was over.

The Panic of 1907, although it was followed by a brief industrial depression, had many salutary results. More than anything else it was responsible for the creation of the Federal Reserve System and for the stiffening of regulations controlling trust companies. Centralized control of finance, long overdue in rapidly industrializing America, could be achieved only after the weaknesses of the old system had been so effectively demonstrated. In the crisis, Morgan, as Congressman Bartlett suggested in 1911, had indeed “controlled and dominated the situation.” But as Perkins said at that time, he did so not through his financial power, great as it admittedly was, but through the force of his personality, through his courage, determination, and skill. J. P. Morgan was no saint. He took his 6 per cent along the way. But while others cringed before the force of the storm, he braved its wildest winds and piloted the financial community to safe harbor.