By the time Kidder, Peabody moved into its new offices, the firm was one of a half-dozen top private banking partnerships in the United States, with a capital of some $6.8 million and assets of nearly twice as much. Experienced in financing the needs of large borrowers, both public and private, the firm's services were eagerly solicited by big business and government dependent upon raising capital from the public. Despite its acknowledged expertise as an investment banking house, Kidder, Peabody continued to provide a variety of domestic and foreign banking services, much as it had done in the beginning. It served as a bank of deposit for corporations, governments, and a few wealthy individuals. After 1907 one of its largest depositors was the Italian government; this account alone amounted to some $10 million or more. The firm also continued to deal extensively in foreign exchange, and its letter of credit business placed Kidder, Peabody among the nation's most prominent foreign bankers. None of these activities, important as they were, brought to Kidder, Peabody the wide public attention generated by its securities operations and close connections with some of the country's largest financial institutions-the great life insurance and trust companies-that the contemporary press liked to call the reservoirs of the people's money.
The assistance of these financial giants was vital in effecting a successful flotation of new security issues, and Kidder, Peabody, like the other major investment banking houses, sought and maintained close ties with moneyed institutions in Boston, New York, and elsewhere. Nearly all of the firm's partners were directors, trustees, or officers of several large institutional investors. Magoun was on the board of the Equitable Life Assurance Society and the Union Trust Company; Endicott's affiliations included five Massachusetts trust companies, as well as the Employers' Group Association and the Employers Liability & Assurance Corporation; and Webster was a director of the Boston Safe Deposit & Trust Company. Other partners held similar positions with comparable institutions. Furthermore, the firm itself invested in the stock of banks and trust companies.
Since investment bankers often needed short-term loans to carry securities during a flotation, they also tried to maintain close ties with commercial banks. Webster and Winsor were directors of the National Shawmut Bank and Winsor also was a board member of the First National Bank of Boston, while Endicott was a vice president and director of Boston's National Bank of Commerce. The firm also held stock in all three institutions, among the largest and most important banks in Boston.
Affiliations and interlocks among the partners of the major investment houses and the nation's key moneyed institutions spread the influence of these firms far beyond the narrow confines of the financial districts in which they were located. This, together with the alleged power they exercised over the great railroad, industrial, and utility corporations, gave rise to public suspicion and charges that the country was being controlled by a small, all-powerful group of financiers.
Criticism of the moneyed interests, especially of eastern bankers, has been a constant in American history, going back to the earliest days of the republic. From the time of Alexander Hamilton's fight to get Congress to charter the first Bank of the United States on down through the recent past, many Americans-farmers, workers, small business people, and a myriad of reformers-blamed the moneyed power for most of the country's problems, both real and fancied. Early in the twentieth century some people, frightened by the rise of giant enterprise and the methods bankers used to launch and finance them, looked to the government to moderate the trauma of industrialization and correct the sordid and depressing conditions of urban life that accompanied the vast economic changes of the post-Civil War decades. No small part of the evidence muckrakers and progressive reformers used to castigate the forces of wealth and privilege came from the findings of the Industrial Commission, which Congress had authorized to investigate the great trusts, mergers, and consolidations that disturbed so many Americans at the end-of-the-century. Even before the Commission published its Final Report in 1902, critics of big business and high finance had warned against the powerful Wall Street moneyed interests they believed were gaining control of the economy. Others soon joined the attack, and a great reform impulse designed to save the people from the "interests" swept the country.
Public demand for reform and protective legislation was fed by a series of brief but severe stock market crises. The first of these, in May 1901, was precipitated by a major battle for control of the Northern Pacific Railroad. Two years later the so called trust panic was attributed to speculative orgy and the loss of confidence that accompanied the offering of a large volume of new, slow-selling securities. Neither of these crises created the degree of public fear and indignation that followed the more severe and widespread panic set off by the suspension of the Knickerbocker Trust Company in October 1907. J.P. Morgan's intervention, which proved so effective in preventing the panic from turning into a major financial disaster, also helped confirm the fears of all those who believed that a few powerful Atlantic Coast financiers, led by "Old Jupiter," controlled the nation's economic life and destiny.
This view was strengthened still further by the disclosures of several government investigations. The New York legislature's probe into the affairs of the life insurance companies doing business in the state, which included some of the largest and most important companies in the nation, disclosed a close and mutually advantageous community of interests between these concerns and the country's leading investment houses. Although the investigating committee's chief counsel, Charles Evans Hughes, then a forty-three-year-old corporation lawyer, found no fraud or other irregularities, the mere existence of such relationships disturbed him and many other people concerned with the ethics of partners in investment houses selling securities they sponsored to companies of which they were officials.
How could such individuals, many people asked, serve the best interests of both parties? The bankers who testified before the committee insisted no such conflict existed. Hughes, the legislature, and much of the public thought otherwise. In April 1906 the New York legislature enacted a series of comprehensive reform statutes that destroyed the many close ties that had developed between the life insurance companies and the investment banking community.
Neither this investigation nor a subsequent one conducted by New York State into speculation in the securities and commodities markets attracted the widespread attention that accompanied the probe presided over by the Louisiana Democrat, Arsene Pujo. Unlike the other investigations, which were not primarily concerned with investment banking practices, the Pujo inquiry was directed specifically at the way in which the nation's principal bankers conducted their affairs and the consequences their policies and actions had upon the country's largest businesses. The purpose of the probe which the Banking and Currency Committee of the House of Representatives authorized on April 25, 1912, was to investigate "the concentration of money and credit in the United States." The hearings climaxed more than a decade of protest against high finance, and when they came to a close at the end of February 1913, most of the country's leading bankers had been called to testify. The Committee's findings, made popular by Louis D. Brandeis in Other People's Money and How the Bankers Use It (1914), became an accepted part of American folklore, influencing all subsequent Wall Street probes.
As members of one of America's most prominent private banking houses, Kidder, Peabody's partners were called to testify at most of these investigations as well as at others, such as the Interstate Commerce Commission's probe into the reorganization of the New York, New Haven & Hartford Railroad.
In none of these inquiries was the firm's name featured, so, prominently as it was at the Pujo hearings. Kidder, Peabody, asserted Samuel Untermyer, the subcommittee's chief counsel, was one of the half-dozen "most active agents in forwarding and bringing about the concentration of control of money and credit." The others singled out for this dubious distinction were three private and two commercial banks, all but one headquartered in New York City.
Untermyer and the subcommittee documented their charges with evidence provided by the bankers themselves. Kidder, Peabody responded to the subcommittee's request for information reluctantly, "in order not to unnecessarily delay the Committee," but the partners wanted "it clearly understood that we do not admit the right of the Committee to require the production from us of any of the information desired, and we reserve the right if we are so advised to refuse to produce before the Committee any or all of the information asked for until the Courts have decided that the Committee have the right to require its production." The subcommittee's right to secure the information never was challenged, and Kidder, Peabody supplied Untermyer with forty pages of detailed data dealing with the firm's securities transactions for interstate corporations during the years 1907 through 1912, together with its investments and corporate affiliations and those of individual partners.
The evidence collected was impressive. Between 1907 and 1912 Kidder, Peabody purchased, underwrote, and distributed, sometimes alone but more often with other bankers, the securities of some 100 interstate corporations valued at more than $1.1 billion. Kidder, Peabody's five Boston partners held nine directorships in six Massachusetts banks and trust companies, and the firm itself owned stock in five of these institutions, with the largest holdings in two of the three most important Boston banks, the National Shawmut Bank ($679,200 par value) and the Old Colony Trust Co. ($358,700 par value). On the basis of these findings, the subcommittee concluded that Kidder, Peabody wielded a dominant influence over New England's principal financial institutions.
Similarly close ties were disclosed between Kidder, Peabody and some of the largest railroad, industrial, mining, and utility corporations. The firm served as "bankers, fiscal agents, or as depositary of the funds" of eight interstate corporations, and its partners held a dozen directorships in eight nonfinancial corporations including American Telephone & Telegraph Co., United States Steel, and Western Union Telegraph Co.
There was nothing illegal in these relationships. Nor did the subcommittee uncover any evidence to show that Kidder, Peabody or any of the other major banking houses investigated had misused or abused their affiliations with the corporations they served. On the contrary, the subcommittee's Report acknowledged the vital service these bankers had provided American business. "Without the aid of their invaluable enterprise and initiative and their credit and financial power the many requirements of our vast ventures could not have been financed in the past, and much less so in the future." But the fact that financial concentration existed and that a relatively few investment houses sponsored most of the security offerings of the largest corporations aroused widespread fear of a dangerous money power directed by a few powerful financiers or, as the Report labeled them, a "handful of self-constituted trustees of the national prosperity."
Alarmed by the extent of the public criticism leveled against them, disturbed by threats of federal regulation, and concerned with improving their own image, representatives of almost 200 banking houses met at the old Waldorf Astoria Hotel in New York City early in August 1912 and organized the Investment Bankers Association. Plans for such an organization had been in the making since 1910, a year before the Kansas legislature enacted the first comprehensive law regulating the sale of securities within its borders. Other states soon followed Kansas' lead, and the era of expanded state regulation of the securities business, the so-called Blue Sky movement, had become a reality. Kidder, Peabody was one of the new trade association's 347 charter members, as were all the other firms that Pujo's subcommittee had singled out as belonging to the "inner group" of financiers accused of dominating the country's economic life.
Pujo's disclosures, whatever their merits, underscored the significant position Kidder, Peabody had come to occupy in the nation's financial and business system since its founding a half century earlier. During that fifty-year period the firm, which started as a regional house serving mostly the investment needs of Boston's wealthy citizens and corporations that looked to State Street for new capital, transformed itself into a national and international banking partnership. The firm continued to remain a potent force in New England finance, but as American business turned more and more to Wall Street rather than State Street for its financial requirements, Kidder, Peabody originated fewer new issues of interstate corporations domiciled outside of its region and participated more frequently than previously in underwriting and distributing syndicates led by New York City bankers. The firm's transition into a national underwriter and distributor rather than an originator of the securities of the great interstate corporations reflected, of course, the vast post-Civil War changes in the nation's economic life and the financial institutions that served it. Kidder, Peabody's adjustment to these changes was delayed and complicated by the outbreak of World War I.
