Jekyll_text

496 THE CREATURE FROM JEKYLL ISLAND
THE GREAT DUCK DINNER 497
of their blood is
to let it collapse. He held that even a panic was not
altogether a bad thing. He said: "It will purge the rottenness out of the
system. High costs of living and high living will come down. People
will work harder, live a moral life. Values will be adjusted, and
enterprising people will pick up the wrecks from less competent
people."
If this had been the mindset between Mellon and Norman and
the Federal Reserve Board, the purpose of their meetings would
have been to make sure that, when the implosion happened, the
central banks could coordinate their policies. Rather than be
overwhelmed by it, they should direct it as best they can and turn it
ultimately to their advantage. Perhaps we shall never know if that
scenario is accurate, but the events that followed strongly support
such a view.
ADVANCE WARNING FOR MEMBERS ONLY
Immediately after the meetings, the monetary scientists began
to issue warnings to their colleagues in the financial fraternity to get
out of the market. On February 6, the Federal Reserve issued an
advisory to its
member banks to liquidate their holdings in the
stock market. The following month, Paul Warburg gave the same
advice in the annual report to the stockholders of his International
Acceptance Bank. He explained the reason for that advice:
If the orgies of unrestrained speculation are permitted to spread,
the ultimate collapse is certain not only to affect the speculators
themselves, but to bring about a general depression involving the
entire country.
Paul Warburg was a partner with Kuhn, Loeb & Co. which
maintained a list of preferred customers. These were fellow bankers,
wealthy industrialists, prominent politicians, and high officials
in foreign governments. A similar list was maintained at J.P.
Morgan Co. It was customary to give these men advance notice on
important stock issues and an opportunity to purchase them at two
to fifteen points below their price to the public. That was one of the
means by which investment bankers maintained influence over the
1. Quoted by Burton Hersh, The Melton Family: A Fortune in History (New York:
William Morrow and Co., 1978), p. 290.
2. This advice was reprinted in the Commercial ai\d Financial Chronicle, March 9,
1929, p. 1444.
affairs of the world. The men on these lists
were notified of the
coming crash.
John D. Rockefeller, J.P. Morgan, Joseph P. Kennedy, Bernard
Baruch, Henry Morganthau, Douglas Dillon—the biographies of all
the Wall Street giants at that time boast that these men were "wise"
enough to get out of the stock market just before the Crash. And it
is true. Virtually all of the inner club was rescued. There is no
record of any member of the interlocking directorate between the
Federal Reserve, the major New York banks, and their prime
customers having been caught by surprise. Wisdom, apparently,
was greatly affected by whose list one was on.
A MESSAGE OF COMFORT TO THE PUBLIC
it
While the crew was abandoning ship, the passengers were told
was a lovely cruise. President Coolidge and Treasury Secretary
Mellon had been vociferous in their public utterances that the
economy was in better shape than ever. From his socialist perch in
London, John Maynard Keynes exclaimed that the management of
the dollar by the Federal Reserve Board was a "triumph" of man
over money. And, from the plush offices of his New York Federal
Reserve Bank, Benjamin Strong boasted:
The very existence of the Federal Reserve System is a safeguard
against anything like a calamity growing out of money rates.... In
former days the psychology was different, because the facts of the
banking situation were different. Mob panic, and consequently mob
disaster, is less likely to arise.
The public was comforted, and the balloon continued to
expand. It was now time to sharpen the pin. On April 19, the Fed
held an emergency meeting under cloak of great secrecy. The
following day, the New York Times reported as follows:
RESERVE COUNCIL CONFERS IN HASTE
Atmosphere of Mystery Is Thrown
about Its Meeting in Washington
An atmosphere of deep mystery was thrown about the
proceedings both by the board and the council. No advance
announcement had been made that an extraordinary session
of the council was contemplated, and the fact that the
members were in the city became known only when
I. Quoted by Greider, p. 298.