A RETROSPECT AND A MORAL
The crime of Amalgamated and its immediate consequences are before my
readers. I have fulfilled the promise made in my foreword to expose to
the people of America the manner in which they have been plundered and
the methods by which the "System" habitually cheats them out of their
savings. Robbery conducted on so gigantic a scale as I have pictured
must necessarily simulate the natural processes of finance, and to
understand the deep devices of the schemers requires a knowledge of
banking and commercial practices which the average man has no chance to
attain. If I had begun my story by stating exactly what constituted the
crime of Amalgamated, my readers would not have grasped its heinousness.
In the chapters that I have devoted to leading up to it they have been
educated in the piratical practices of finance and financiers, and have
acquired familiarity with the jugglery of corporations and the
multiplication and division of stock certificates through which most of
the great American fortunes have been created.
Depending still on the ignorance of its blinded dupes, the "System"
again raises its brazen face from among the poison rushes of Wall Street
and hisses, "Listen to what he calls a great crime--a simple business
transaction. It is no crime, but a common practice of modern finance and
by no means unusual or extraordinary."
No crime to take by a trick from thousands of the people thirty-six
millions of the results of our great country's prosperity? Think of what
this vast sum represents--the revenues of a year's work of 36,000 men
earning each $1,000. Think of it, ye millions who dig and delve and bear
heavy burdens that your mothers, wives, and children may in exchange
have a bite to eat and a couch to sleep upon!
The crime of Amalgamated, as I have explained it, constitutes a specific
breach of the banking laws of the State and nation. But the legal
aspects of the offence are trivial in comparison with the great moral
crime which was consummated by Henry H. Rogers and James Stillman, in
the National City Bank on that night in May, 1899. Through false
representations and specious pledges and the credit of the names of
"Standard Oil" and the National City Bank, thousands of people were
beguiled into investing their savings in this Amalgamated Copper
Company. Because of the promise of great gains other thousands mortgaged
their homes, appropriated their wives' savings, even their employers'
funds, and embarked in this fair-seeming enterprise. The greatest bank
in America aided and abetted the conspiracy by the loan of its funds to
lure the victims deeper into the toils. All in, the trap is sprung; the
thousands are despoiled of their savings by familiar devices of finance,
and throughout the land is spread a wave of misery, madness, and
despair.
The crime of Amalgamated, a critical correspondent writes me, is purely
a Wall Street offence, important to bankers and capitalists but of no
consequence to the working men, the farmers, or the toiling millions who
have no savings to invest in stocks. "Of what concern is it to us," says
this writer, "how one section of the rich robs another of its
hoardings?"
Poor fool! A few men cannot deprive even a few thousands of so great a
sum as $36,000,000 without working untold injury upon the entire body of
the people. Such a stupendous sum looted from the coffers of the many
and piled in the vaults of three or four men unbalances the whole
economic structure of the nation. The consequences of that act do not
end in the series of defalcations and bankruptcies, imprisonments and
suicides, in the ruined homes and wrecked careers that follow in its
immediate wake. In the grip of these plunderers intrenched in the
stronghold of finance each of these filched millions becomes a new
weapon of oppression. Because of the crime of Amalgamated every pound
of food that goes to sustain life in the American people, every shingle
on every roof that shelters the American people, every mile of
transportation for man or freight in America; in fact, every necessity
and every luxury of the American people has had added to its cost some
fractional increase, representing in the aggregate tens and tens of
millions annually, which, flowing into the coffers of the "System,"
strengthen and extend its stupendous grip on the property of the nation.
Our country for a generation has been prosperous beyond the dreams of
man, yet what have the masses of our people to show for it? A better, a
higher, and a MORE EXPENSIVE standard of living--that is all. That this
prosperity which is our national boast will last forever is incredible.
Sooner or later will come one of the times when Nature frowns and sends
her floods, her droughts, and her epidemics of disease. Is the American
people prepared by its long-sustained prosperity to bridge over that
period of want and suffering?
The truth is that the mass of our population has not sufficient surplus
laid by to last over thirty days of such a calamitous interval. All the
unearned increment of national prosperity the "System" has captured and
capitalized. Not only have the people been deprived of the profits of
their labor, but this capitalized prosperity is the stern instrument by
which new burdens are laid on their shoulders and new tithes are exacted
from their wages. But for the plundering "System" the great mass of our
people would be able to sit in their tents in the shade of their
husbanded harvests and laugh to scorn the frowns of fortune. Now, I say,
God help the nation when Nature, tired from her great work, rests, and
the people, too, are compelled to rest--for then will come an awful
awakening. When the millions face famine and realize for the first time
that their gigantic storehouses, filled to bursting with the surplus of
the past, are the property of the few who cannot even count the
contents, much less use them--when they realize that these hoarded
treasures are as far beyond their starved reach as are the violets and
daisies beyond the picking of the galley-slave, then they will
appreciate how much deeper and more damnable are the crimes of the
"System," such crimes as Amalgamated and its like, than even such
national tragedies as the assassinations of Lincoln, Garfield, and
McKinley, at each of which all the people held aloft their hands in
horror.
Why is it that the millions of intelligent, able-bodied Americans, who
could crush the tribe of Rockefeller as elephants crush snakes, rise
with each sun and dig and delve and suffer that a Rogers may wallow in
wealth and an Armour gain a greater income than the Rothschilds? Why are
they so easily hoodwinked into imagining that the elaborate reports
detailing the immense and growing wealth of the country represent their
own well-being and affluence? Because the wise men of the "System" know
human nature, know that most men and women accept unquestioningly the
conditions they find surrounding them. Each day it is pounded into the
heads of the people through a hundred agencies that it is the greatest
and most flourishing of peoples and that the laws and customs which
regulate its lives and rights are the best in all the world. How shall
the people know that these glowing rumors, these propitious tidings, are
but the siren songs of the "System" under the spell of which it is
despoiled of its savings?
Ask yourselves, my friends, how much you know about those familiar
things which are part of your lives as are the sunshine, the grass, and
the flowers--your Bible, your money, your playing-cards. Each is an
institution so consecrated by custom that you accept it exactly for what
it meant to your father just as he took it from his own father a
generation before. That the Holy Book is God's message to His children,
the human race, we know because we have the words of our ancestors
therefor; the stamped silver and gold we take for granted as we do shoes
and clothes, because money is an essential factor in the social fabric
and the form in which it comes to us seems as inevitable as the moon or
our ten fingers; humanity has gone on for hundreds of years considering
the knave of greater value than the ten-spot and the ace of higher worth
than all the rest of the pack, because it is content to believe that the
rules that have been handed down apportioning these values are the best
that could be devised. With a hundred other elements and details of our
daily life, it is the same--we accept unreasoningly what we are told or
what is given us, with no look forward or back, and, engaged with the
thousand new toys and problems which Fate, the conjurer, shakes out of
his hat, we become bound by habit and blinded by precedent.
The love men have for the formulas and conventions of their daily lives
is the "System's" opportunity for plunder, and it is this fundamental
principle of humanity that makes my work so difficult. It would be as
easy to convince the masses that their playing-cards are all wrong and
that the ace is really of lower value than the two-spot as it is to
awaken them to the terrors of the conditions that are confronting them;
to compel them to realize that a despotism of dollars is being organized
among them; that the cherished institutions of generations are the
instruments by which a few daring schemers are concentrating into their
own hands the money of the nation, and that this concentration can have
no other result than the abject slavery of the American people.
END OF VOLUME
LAWSON AND HIS CRITICS
I
THE INSURANCE CONTROVERSY
In the July, 1904, number of _Everybody's Magazine_ I announced that I
proposed to give to the world a story concerned with events which had
taken place in real life--a true story.
I outlined it, giving the names of the persons and events it would deal
with.
These things happened:
The edition of the magazine was sold out in three days; my chapter was
printed in part or in full in nearly all the papers and periodicals of
the United States and Canada; many of the representative journals, even
in England, published long editorials on the subject, and with but few
exceptions, editorials and news comments were favorable.
I was urged to continue. My second chapter appeared.
The magazine, with an additional 100,000 copies, was sold out in two
days. The press took hold of the matter with even greater interest than
it had accorded my first chapter.
The third chapter met with a still more cordial reception. The edition
of the magazine, although increased another 100,000, sold out as before,
and my mail expanded to a degree that surprised me. In addition to
thousands of press notices and criticisms, I received ever so many
letters from all classes of Americans and Canadians--teachers of the
Word of God, and members of the flocks who are taught, earnest statesmen
and insincere politicians, millionnaires and paupers, anarchists,
socialists, municipal-ownershipists, and the hundred and one travelers
on the beaten highways and lowways of life, who, spurred by ambition or
unrest, pantingly seek a chance to blaze a way for the trudging millions
of the future to that goal of all ambitious and restless dreamers--a
people's Utopia. Nearly all appealed to me to give them the word as to
the ultimate intention of "Frenzied Finance"--"Is it only to point to
the sores, or will it prick them with its long sharp point and will its
double edge cut the flesh in which they are rooted?" Others required
further information or explanation about the subjects I had treated;
another section questioned my statements and found fault with my
disclosures. The volume of these communications and criticisms finally
became so large and they were so urgent in tone that I made up my mind
it was necessary to devise some fair and intelligent way to remove the
writers' difficulties and resolve their doubts. The modern surgeon finds
the preparation of a patient who is to go under the knife as important
as the operation itself. My readers, unacquainted with the intricate
details of finance and confused by the angry outcries and denials of
those I had attacked, required education _en route_ to be able to absorb
and digest the hard facts and strong statements I was dealing out to
them in monthly instalments. My publishers agreed with me as to the
necessity of dealing in some radical way with the emergency, and devoted
to my service additional pages in the back of _Everybody's Magazine_.
Here I decided to begin a department to be called "Lawson and His
Critics" in which I would solve the knotty problems my correspondents
presented to me, set right their misunderstandings, and reply fully to
those critics who had aspersed my motives or were attempting to
discredit my message.
I began the department in October, 1904, and though I have been most
seriously pressed for time, and in many instances have dealt imperfectly
with the problems treated, I must say that the task I set myself has
proved interesting and agreeable, and the letters the department evoked
have been a tremendous source of inspiration and encouragement to me
along the hail-stony road I had set myself to travel.
The bulk of the department during the months of 1904 was devoted to the
subject of insurance. In an early chapter of my story I said that the
three great insurance corporations, the New York Life, the Equitable,
and the Mutual Life of New York, were an integral part of the "System,"
and especially instanced the New York Life as one of the most pliable
tools of the "Made Dollar" makers. This statement, so mild and so vague
in view of subsequent developments, was the first move in the historic
controversy that has resulted in the extraordinary exposures that are
being made as this book goes to press. When that first pebble was
thrown, the surface of the insurance pond was as placid as a mountain
lake, unruffled by a ripple, and in it were reflected the benignant
faces of the noble philanthropists who consented to spend their days
conserving the interests of the widows and the orphans of America. The
people had grown so accustomed to regarding the McCalls, the Perkinses,
the Hydes, the McCurdys, and the Alexanders, whose eminent physiognomies
looked out at them from their insurance policies, as lofty and generous
souls far removed from thoughts of pelf or self-aggrandizement, that my
assertion caused consternation such as would occur in a Chinese temple
if some rough intruder struck the idol, before whom a congregation was
worshipping, with a stone. At once an avalanche of letters--protests,
demands for further facts, anxious appeals from policy-holders--poured
in upon me, and frankly I took up the subject, giving my readers exactly
what they desired.
NEW HAMPSHIRE TRACTION
In order that the controversy may be unfolded in the manner in which it
was first given to the public, I give here the first letter of the
series, and then follow directly along with those passages from
succeeding numbers that are devoted to the subject:
BUFFALO, N. Y., August 25, 1904.
MR. THOMAS W. LAWSON,
Boston, Mass.
_Dear Sir_: I have been astounded beyond measure at the
revelations you make in your second article regarding the
New York Life Insurance Company, because I have two policies
in that concern which I am keeping up for the protection of
my family. My confidence in the company has been shaken by
your revelations, and I wonder if much more can be said.
Perhaps it is best for clean life insurance to tell all
now--the rest will be the better for it. Do you really
believe the officers of the company personally profited from
using the "cash on hand" of the company? Go on in your
exposure; you are doing a meritorious work, and we poor
devils, plodders, will never cease to thank you for your
work. Should like to have you intimate if anything more
about New York Life is coming.
Yours truly,
---- ----
To this I replied: I desire to emphasize that the New York Life
Insurance Company, which I cited, is no different from the Equitable and
the Mutual Life, or many of the other large companies. They are links in
the chain of the "System"--necessary links in the device by which
dollars are "made," by which the savings of the people are sucked from
the people to the "System," the "Private Things."
I will, later in my story, dwell upon this tremendous phase of this
stupendous question, and will only say at the present time, as an answer
to such questions as "Buffalo's": The insurance companies use the
billions the people have placed with them to buy or create banks and
trust companies, the stocks of which are a large part of their assets.
They then use these banks and trust companies, which exist because of
the people's savings, in stock gambling enterprises, speculations as
unsafe and as frenzied as those of the wildest plunger of Wall Street. I
will give one illustration:
The New York Life Insurance Company's directors and managers created the
New York Security and Trust Company. $1,000,000 capital; $500,000
surplus--in all, $1,500,000. $150 per share, of which the insurance
company held about two-thirds. The Trust Company soon secured deposits
to the extent of about $50,000,000, and these it loaned out by
"financing" new and old enterprises. Among them was the New Hampshire
Traction. The Trust Company flourished. Its stock advanced in price to
over $1,300 per share, or over $13,000,000, and its different
speculative ventures prospered exceedingly. New Hampshire Traction kept
pace with the rest and simultaneously with them bounded upward in value
until the amount of this stock owned by the Trust Company represented a
value of between $5,000,000 and $6,000,000. There came a time when the
directors of the New York Life Insurance Company decided to dispose of
their stock in the Trust Company, and did so to a syndicate composed of
their own members, headed by John D. Rockefeller, at $800 per share.
Afterward the stock disposed of at $800 per share advanced to over
$1,300, or, with the third which had not been owned by the insurance
company but by the "insiders" and their friends, to a total of over
$13,000,000. Then came the slump, and the price of the New Hampshire
Traction fell to twenty-five cents on the dollar, and the Trust
Company's stock to less than $600.
If in all the histories of the wildcats of the wild catteries of Wall
Street a wilder case of "frenzied finance" can be discovered, I don't
know it, and yet this is only one of many I could quote, selected at
random. Boiled down, it means that what was bought at $150 went to
$1,400 and back to $590, and that it changed hands at $800 before it got
to $1,400, and that the plunger in this transaction, which made this
plunging possible, was one of the most conservative life insurance
companies in America.
I will answer "Buffalo's" question by asking another:
Suppose all the insurance companies have been doing business on the same
scale, and have tied up billions of the people's money in such schemes
as New Hampshire Traction, and the people, learning these facts, should
demand their savings to the extent of the $9,000,000,000 which they have
deposited in banks and trust companies, what would happen? What would
happen to the undigested securities, the insurance companies, the
people's savings, and the policies such as "Buffalo" says he has
purchased for the benefit of his family?
* * * * *
This statement precipitated a perfect flood of letters and queries,
growing more urgent as the month wore on. It was impossible to answer
all of them. I contented myself with replying to the letter of a
prominent Philadelphia church-man, a policy-holder in the New York
Life, who wrote as follows:
PHILADELPHIA, September 23, 1904.
MR. THOMAS W. LAWSON, Boston, Mass.
_My Dear Sir_: I have just finished reading the current
article on "Frenzied Finance," and like "Buffalo" I am
astounded at your statements regarding the "New York Life."
I, too, have a policy in that company and have been led to
believe that I was not only insured in the best and most
conservative company, but that I had a first-class and
perfectly _safe_ investment as well. This particular company
claims that not a dollar of its assets is invested in stocks
of any kind, and yet, to quote from your article:
"The insurance companies use the billions the people have
placed with them to buy or create banks and trust companies,
the stocks of which are a large part of their assets."
Either you are manifestly unfair or else the company is
guilty of deliberate falsehood for the purpose of deceiving
the public.
As a policy-holder and prospective sharer in the surplus of
the "New York Life," I am much interested in knowing whether
its statements in regard to its investments are to be relied
upon.
Will you take just a moment to answer the following
question? Is the "New York Life" telling a falsehood when it
states that not a dollar of its assets is invested in stocks
of any kind?
Very respectfully yours,
---- ----
I replied: The transaction in regard to the New York Security Company
and the New Hampshire Traction stocks was exactly as I set it forth. I
can imagine no one but an absolute idiot who would dare to set it forth
unless he knew he was dealing with facts.
Your high position in the church should, in my opinion, peculiarly fit
you to answer fairly your question, "Is the New York Life telling a
falsehood when it states that not a dollar of its assets is in stocks of
any kind?" when I unqualifiedly state the fact that the New York Life
owned the millions of the New York Security Company's stock; that it
paid $150 a share for them and sold them to a syndicate of its own
directors at $800 per share, and that the stock afterward sold at over
$1,300 per share, and still afterward dropped to less than $600 per
share. I did not wish to be unfair to the New York Life, or I should
have stated, what I shall endeavor to show before my story is ended,
that at the time the New York Life parted with these shares to their own
directors at $800 per share they were actually worth and could have been
sold for hundreds of dollars per share more.
THE HONESTY OF THE ONE MAN
At this the big insurance companies uncovered their guns, and soon the
air, the newspapers, and my mail were full of underwriting explosions.
It was necessary then to line up my forces and to go at the attack
seriously. So, having carefully thought out a campaign which my
knowledge of the men whom I was antagonizing taught me would bring
results, I began, in December, as follows:
When I began to write "Frenzied Finance" I specifically stated that I
should not concern myself with men, but with principles. I held that to
put an end to the plundering of the people required more than the
denunciation of individual criminals; that the real peril lay in the
financial device through which the plundering was done and the "machine"
developed for their operation. The "machine" is the tremendous
correlation of financial institutions and forces that I call the
"System," and the most potent factor in the "System" is the life
insurance combine--the three great insurance companies, the New York
Life, Mutual Life, and Equitable, with their billion of assets and the
brimming stream of gold flowing daily into their coffers. That I should
have to discuss the relation between the "System" and these great
institutions was inevitable; but, knowing how vitally interested the
public is in the preservation of the gigantic structures its savings
have erected, I had thought to treat this phase of my subject later on,
when my readers should be absolutely convinced by what had preceded it
of the honesty and fairness of my purpose. Moreover, it did not seem
possible to touch on life insurance conditions without involving the men
who direct the three great companies, and whom policy-holders and the
people at large have been taught to regard as men of wellnigh miraculous
sagacity, integrity, and beneficence. With these men I have had none but
the pleasantest relations, and determined as I am on the performance of
my task, I go about it with the reluctance a surgeon feels when, in
order to save a friend's life, he must amputate his limb.
A contingency has now arisen which compels me to depart from my rule and
to discuss much more frankly than I had purposed at this juncture, the
New York Life Insurance Company, the system which controls it, and its
president, John A. McCall, the "System's" representative.
In reply to the inquiries of an anxious policy-holder, who had taken
alarm at my statement that the funds of these great corporations were
under the control of the "System," I stated in the October issue of
_Everybody's Magazine_ that the New York Life was, as well as its
so-called competitors, the Equitable and the Mutual, as much a
participant in the frenzied speculation of the period as were the
plunging Wall Street stock gamblers; but in giving an illustration of
its methods (the New York Security and Trust Company and the New
Hampshire Traction Company) I selected a case which would not
unnecessarily alarm nervous people, for the transaction showed an
enormous profit as the result of a wild stock plunge, instead of an
enormous loss--some of the New York Life's other deals were much less
fortunate. When I stated that the New York Life disposed of its interest
in the Security Trust Company to its directors for four millions of
dollars, which represented a gain of over $3,000,000 on its original
investment, I was careful not to state that the shares for which they
paid $800 each were worth at the time $1,300 each, or $7,000,000 for
what was sold for $4,000,000--particularly careful to state that they
were afterward worth this additional amount.
Policy-holders in the three great life-insurance companies may argue:
"The man who is known to us policy-holders as the real head of the New
York Life is John A. McCall, its president. All that you may say about
the 'System's' votaries being in control may be so, but we depend on the
integrity and the character of this one man to protect our interests. He
is our representative, not the 'System's,' and our savings are surely
safe in his strong hands."
There is the point. In the great insurance corporations that are
"one-man run," the hundreds of thousands of policy-holders have but one
protection. This, notwithstanding the protection of the State laws, the
guardianship of the Insurance Department of the various States, and the
provisions of the company's charter and by-laws.
However impregnable may seem the safeguards which the law has built
round the administration of our great insurance companies, the fact
absolutely is that the honesty of "the one man" is the one potent
protection policy-holders may depend on. The others may be juggled with
as are the rules of the Stock Exchange, which say in thunder tones, "All
within our sacred walls is honest and honorable," when in reality if the
microbes of dishonor and dishonesty generated within Stock-Exchange
walls each busy week of every year should be collected and disseminated
throughout the land, they would give typhoid of the soul to our eighty
millions of Americans. So it becomes the duty of every policy-holder to
find out by such tests as he can apply, "Is 'the one man' who runs our
company an honest man or is he a dishonest man?" If "the one man" stands
their tests, if he emerges from their ordeal clean, strong, honest, as
they believed, then they may rest awhile in patience. But if he is
revealed as dishonest, then it behooves the policy-holders of that
company to take measures for the protection of their interests. The
welfare and happiness, perhaps the very lives of their mothers, their
wives, and their children depend on their action.
I was recently waited upon by an important man.
"Lawson, what are you doing in life insurance?" he asked.
"Giving facts about the life-insurance branch of a 'System' which is
foully plundering the people," I answered.
"What are you trying to do?"
"Educate the millions of life-insurance policy-holders to their present
peril; after they are educated, arouse them to quick, radical action."
"What are you going to do?" he asked.
"I am going to cause a life-insurance blaze that will make the
life-insurance policy-holders' world so light that every scoundrel with
a mask, dark-lantern, and suspicious-looking bag will stand out so
clearly that he cannot escape the consequences of his past deeds, nor
commit new ones."
"Have you figured the consequences to yourself?"
"Having no interest in what the consequences may be to myself in
performing what I have decided is a sacred duty, I have not."
"Let me show them to you. First let me ask, do you intend to confine
your criticisms to the New York Life Insurance Company?"
"I intend to bring out the facts, particularly as to the New York Life,
the Mutual Life, and the Equitable Life; and, so far as in my power
lies, as to every other life-insurance company in America that is
connected with the 'System.'"
"Are you actuated by any selfish motives--gain, revenge, or friendly
interest in certain life-insurance companies or banks or trust
companies?"
"My only interest is to perform a duty in righting a startling wrong,
and I would not undertake the terrible task if I could possibly avoid
it."
"I am sent to ask you these questions, to find out whether, if you are
only seeking to serve the policy-holders, and the insurance companies
can absolutely prove to you that your making public your facts will
cause terrible destruction to policy-holders' interests, you will
consent to forego the life-insurance branch of your story?"
"I know the facts. I have calmly, and I believe intelligently, reviewed
the effects of their being given to the world, and have concluded that
the damage to policy-holders and the people would, in any circumstances
or conditions, be greater because of my not doing what I have decided to
do than by my doing it. Therefore I will not in any circumstances
consent to stop until I have laid before the world those things I
consider it should know."
"Well and good. Let me show you what you are up against. The Equitable,
the New York Life, and Mutual Life Insurance Companies, and their
affiliated institutions and individuals, are to-day by all odds the
greatest power in the world, greater by all odds than any power that
can possibly be gathered together from those outside themselves, a power
so great that the effort of no man nor party of men outside themselves
can possibly prevail against their wishes."
"Stop where you are for a minute," I answered, "and let me run over to
you what I know I am up against, and then you can judge whether I
appreciate the difficulties of my task:
"First, the three companies I have named have absolute possession of
property and money in the form of assets of over $1,000,000,000--more
than half the combined assets of all the insurance companies of
America--and indirectly, through their affiliated institutions, of an
additional sum, the aggregate of which is much greater than the assets
of all the national banks of America and the great financial
institutions of Europe, such as the Banks of England, France, and
Germany. The three have a ready cash surplus of almost $200,000,000,
which is greater than the combined capital of the four greatest
institutions of Europe--the Banks of England, Russia, France, and
Germany. The income of these three companies is, each year, $100,000,000
greater than the combined capitals of the Banks of England, Russia,
France, and Germany--or about $250,000,000, $200,000,000 of which is
taken each year from their policy-holders in the form of premiums. Yet
from out of this income there is returned to their policy-holders each
year in dividends less than $15,000,000, and in total payments of all
kinds not over $100,000,000. And yet these three companies pay out each
year in what they call expenses to keep the concerns running
$50,000,000, paying to the officers of the companies $3,000,000 in
salaries, almost $1,000,000 to their lawyers, and a number of millions
in various forms of advertising.
"Second, the three companies are absolutely steered and controlled from
a common centre, and the men who do the steering and controlling are the
'System's' foremost votaries, Henry H. Rogers, William Rockefeller,
James Stillman, and J. Pierpont Morgan through George W. Perkins, a
partner in J. Pierpont Morgan & Co. Mr. Rogers, vice-president of the
Standard Oil Company, is a trustee of the Mutual Life and a director in
one of the largest trust companies owned by the three great insurance
companies, the Guaranty Trust Company of New York. William Rockefeller,
vice-president of the Standard Oil Company, is a trustee of the Mutual
Life and director in the National City--the 'Standard Oil'--Bank. James
Stillman is a trustee of the New York Life, and president of the
National City--the 'Standard Oil'--Bank of New York. George W. Perkins,
partner of J. Pierpont Morgan & Co., is vice-president and trustee of
the New York Life and a director in the National City--the 'Standard
Oil'--Bank; while John A. McCall, the president of the New York Life, is
a director in the National City--the 'Standard Oil'--Bank.
"These great institutions own a majority of the capital stock or have
absolute control of a number of the leading banks and trust companies of
New York and elsewhere; and such ownership shows conclusively the
linking together of the three great insurance companies. For instance,
the Equitable owns more than a majority of the stock of the Mercantile
Trust Company of New York, of a book value of about $4,500,000 and a
market value of almost $13,000,000; and of the Equitable Trust of New
York, of a book value of $5,500,000 and a market value of $9,000,000;
and of the Bank of Commerce of New York, of a book value of about
$8,000,000 and a market value of over $9,000,000; and in the directory
of the Mercantile Trust of New York and Equitable Trust is E. H.
Harriman, one of the leading 'Standard Oil' men and one of the active
votaries of the 'System,' while in the directory of the Bank of Commerce
are the president of the Mutual Life and seven other trustees of the
Mutual Life and three of the trustees of the New York Life.
"The Mutual Life owns stock of the Bank of Commerce, of a book value of
$4,500,000 and a market value of $7,500,000; of the United States
Mortgage & Trust Company, of a book value of $2,000,000 and a market
value of $4,500,000; and of the Guaranty Trust Company of New York, of a
book value of $1,250,000 and a market value of $5,500,000. The directors
of the United States Mortgage & Trust Company consist of eight trustees
of the Mutual Life, including its president, and two trustees of the
Equitable Life, while in the Guaranty Trust directory is the president
of the Mutual Life, Henry H. Rogers, and E. H. Harriman, 'Standard Oil'
votary and director in the Equitable.
"In addition to these financial institutions, the Mutual Life has about
$20,000,000 of its funds invested in the stock of twenty-five other
trust companies and national banks, while the Equitable has about
$10,000,000 invested in some fifteen other trust and banking
institutions.
"Third, the absolute control of the three great companies, and through
them of their subsidiary financial institutions, while supposed to be in
the hands of the policy-holders, is entirely beyond their regulation, as
all policy-holders of the three companies give over complete control of
their companies to the 'System' through the following machinery: The
control of the New York Life rests absolutely in President McCall, that
of the Mutual Life with President McCurdy. Originally these men were
elected to office by policy-holders' proxies, voted by the great general
agents; but so immeasurable has been the growth of these corporations
that only rebellion among policy-holders on an international scale could
oust from power the McCalls and the McCurdys. The control of the
Equitable Life rests in the $100,000 of capital stock which is almost
entirely owned by the men who elect themselves to manage the company.
"Therefore you will see that I fully comprehend that this power, which
you claim to be, and which undoubtedly is, the greatest on earth, is
absolutely, for all practical purposes, in the hands of three men, and
that any one who attempts to do anything contrary to what this power
allows will find himself opposed by practically unlimited money, which
can be used first to corrupt all sources of help, including State
insurance-law enforcers, and then to keep such corruptions from the
policy-holders by subsidizing the press. In other words, you see that I
fully comprehend that I, or any man or any body of men, would be
absolutely helpless in an attempt to correct present evils unless we
could do two things: First, show to the policy-holders of the great
insurance companies that they are absolutely in the hands and at the
mercy of 'one man,' and next, that this 'one man' is unscrupulous."
In other and different ways I had it forcibly impressed upon me that I
must go no further in connecting the life-insurance companies with
"frenzied financiering"; that while the "Standard Oil"-Amalgamated-City
Bank crowd might bide their time for reprisal and vengeance, the great
insurance companies must at any cost instantly squelch those rash souls
who dared to cross their paths. To all such warnings I replied that a
life-insurance company, especially great institutions with hundreds of
thousands of policy-holders, must be as far above suspicion as Caesar's
wife; that the security of the immense funds in their possession must be
as unassailable as the United States Constitution; but that immunity
from criticism could be secured only by honesty of purpose, honesty of
method, and honesty of results; and that I would follow "frenzied
finance" wherever it might lead, even if the exposure brought every
life-insurance concern in the country down to the ring-bolt of making
public confession of complicity. But with all my knowledge of the
"System's" weakness, I never dreamed of the condition of fatuity into
which the past few years of unbridled "frenzied finance" have plunged
its votaries. If the correspondence that follows here correctly
represents the purposes and the methods of great American life-insurance
companies, I ask my readers what quick, sharp, effective means should be
taken to call a halt and rescue the billions of the people's savings
before it is too late. And I ask all policy-holders in the great
insurance companies to weigh carefully what follows, that from it they
may decide the question.
As soon as it became fixed in the minds of the different interested
parties who had communicated with me that my purpose was unalterable,
queer things happened:
First, there appeared in the press of the country, under large, black
headlines, the startling confession of the editor of a New York
financial paper, who, conscience-stricken, admitted that he had been
engaged in the systematic blackmail of insurance companies and officials
and Wall Street institutions such as banks and trust companies. It was
a curious document, and even the casual reader must have wondered at the
mysterious lack of detail. The paper, I found out later, was one of the
innumerable swarm of journalistic insects generated, like mosquitoes, in
the financial swamps of Wall Street, destined to live a day and die as
they deliver their sting, and the attention given it was curiously out
of proportion to its importance. Among other queer things, the editor
announced that after printing his confession he would disappear; no
names were mentioned nor a fact printed which identified any one or
anything. All this could not happen without a motive, and I said to
myself, "The 'System' is planting a mine for some one." Not another word
appeared. I awaited developments. On October 8th I received the
following letters, which tell their own story:
FREMONT, OHIO, October 6, 1904.
MR. THOMAS W. LAWSON, Boston, Mass.
_My Dear Sir_: I have followed with intensest interest your
discussion of "Frenzied Finance." The _expose_ of the
"System," and its Machiavellian performances, was highly
interesting to me. I was associated with Attorney-General
Monnett in his effort to get testimony and the inside facts
concerning the trust and its operations in his prosecution
against that corporation for violating the Ohio anti-trust
law. At that time the books of the company were burned in
Cleveland, and, as stated in your article, the company now
relies upon the superior memory of Standard Oil.
I was well aware of the connection of certain life-insurance
companies with Morgan and the Rockefellers, but until your
public charge, was not familiar with the details. As I had
considerable money invested myself in New York Life
Insurance I wrote John A. McCall a bitter letter. In this
age of commercialism sentimental benevolence gets little
place. The common sentiments of humanity and appreciation of
responsibility admonish one in moderate circumstances or
even in affluence to invite the co-operation of others in
providing for those dependent upon the individual hazard of
life and fortune. Life insurance has come to be a sacred
thing. It is the substantial token and expression of
responsibility which a reasonable man dying leaves to those
dependent upon him. I so wrote Mr. McCall, and told him that
if the head of a great institution like the New York Life
Insurance Company would be guilty of such perfidy as charged
by you, the organization which would retain him in a
position of responsibility was undeserving of confidence or
patronage.
[Illustration: PHOTOGRAPH OF JOHN A. MCCALL'S REPLY TO H. C. DERAN, THE
POLICYHOLDER WHO HAD ASKED FOR A DENIAL OF MR. LAWSON'S CHARGES.]
I enclose for your inspection Mr. McCall's reply. This is
doubtless a sample of the sort of campaign waged throughout
the country by the "System."
I enclose stamped envelope for the return of the McCall
letter, as I purpose continuing the correspondence until I
force him to an issue.
You will observe the very palpable evasion of the issue. I
asked him if the details of the transaction described in
_Everybody's_, in which the New York Life Insurance figured
conspicuously, were true. He answered by saying that he made
money out of the trust company venture and retired. The fact
that New York Life money is so deposited as to suit the
convenience of the "System" in its heads--I win, tails--you
lose, operation, is a matter which has escaped the attention
of the astute financier. I have written him further, calling
his attention to the fact that his letter conveys no
information not heretofore made public in circular but that
my inquiry was directed to the particular transaction
alluded to in _Everybody's_, and requesting a flat
affirmation or denial.
Trusting that these facts may be of assistance to you, I am,
Yours very truly,
(Signed) H. C. DERAN.
I shall spare my readers the enclosures. They were newspaper slips,
printed on fairly thick paper, reproduced from unknown publications, and
obviously put forth to discredit me by implication. One, headed "A
Frenzied Financial Blackmailer," from the _Vigilant_, New York City,
September 30, 1904, presented the confession, previously referred to,
made by the editor of the _United States Investors' Guardian_, and an
editorial denouncing the blackmail of financial corporations. Another
slip was "Stamp out the Fake Financial Newspaper Publisher" from the
_Fourth Estate_, New York City, October 1, 1904, in which the wickedness
of the aforesaid editor came in for further moral castigation.
At once, as I read these letters and ran over the printed slips pinned
to Mr. McCall's, I realized the purpose of the blackmail editor's
confession and just how so much space came to be given it in the daily
papers. Insurance corporations are large advertisers[20] and enjoy great
popularity in the business offices of great newspapers. It is not said
in these clippings that either Mr. Lawson or _Everybody's Magazine_
belongs to that lowest order of criminal, the self-confessed
black-mailer, but the suggestion is obvious. Every policy-holder
throughout the world who received these enclosures attached to letters
from the greatest insurance president in America would instantly supply
the connection--"'Frenzied finance black-mailer'--that's intended for
Lawson, surely; 'Frenzied financial journal'--_Everybody's Magazine_,
beyond question."
Will my readers weigh carefully this awful charge:
"Thomas W. Lawson, in addition to being a frenzied financial
black-mailer, is attacking the New York Life Insurance Company because
he tried to secure insurance from that company, and that company would
not give it to him. His attack is made in the interest of some competing
company."
Again, I ask that it be kept in mind that all this is not said by an
insignificant and irresponsible trickster, but is deliberately put forth
by the greatest insurance president in America, over his signature, to
his policy-holder No. 826,152 and 957,006.
Soon afterward, in its issue of October 20th, a well-known organ of the
insurance companies, _The Spectator_, published in New York, had a long
article dealing with malicious attacks on our great insurance
corporations, specifically mentioning my accusation against the New York
Life. "Mr. Lawson was actuated by the meanest motives," says _The
Spectator_.
Extract from _The Spectator_, October 20, 1904:
Mr. Lawson, in the hypocritical role of a
would-be-reformed-speculator, is a figure calculated to stir
the risibilities of all who have watched his antics and read
his articles, _especially when each one of the companies he
mentions has repeatedly rejected him for insurance_.
Letters to policy-holders from the New York Life Insurance officers
poured in on me from different parts of the country, all containing the
same defence and the same accusations as the one above, and signed by
vice-presidents of the company as well as President McCall, showing
conclusively that this great corporation as a corporation had
deliberately adopted this method of meeting my serious yet
conservatively put business accusations.
President McCall's defence of the New York Life Insurance Company and
his reply to my accusations are now completely before my readers. Let us
see if there is not a chance here to determine the grave question, "Is
'_the one man_' who runs each of our great insurance companies honest?"
The facts are: During the past twenty years I have been importuned,
begged, and hounded by the several great insurance companies of the
United States to take out policies with them almost upon any terms I
might name. Of this statement I could present more photographic proof
than would fit in any one issue of this magazine, but most of it would
have no bearing on the point at issue.
In the present year (1904)--to go no further back--John A. McCall has
repeatedly urged me to come into the New York Life Insurance Company.
Absolute evidence of the truth of this assertion is presented below. Mr.
McCall's letter reproduced here would be accepted as complete proof in
any court of justice. In the correspondence that follows this first
letter it will be seen that Mr. McCall left no stone unturned in his
effort to get me into the New York Life Insurance Company. A duplicate
of the communication sent to my residence went on the same date to my
office. To quote his own words, "I hope you may" and "I may have the
pleasure of welcoming you either to new or increased membership in this
great mutual insurance investment." Then, his anxiety being so great,
after waiting four days for a reply he sent his special agent to argue
with me, and, on the following day, his Boston manager to urge me
further.
[Illustration: PHOTOGRAPH OF LETTER FROM JOHN A. MCCALL SOLICITING
INSURANCE, SENT TO MR. LAWSON'S HOUSE.]
[Illustration: PHOTOGRAPH OF HEADING AND SIGNATURE OF JOHN A. MCCALL'S
LETTER OF JANUARY 22D, SENT IN DUPLICATE TO MR. LAWSON'S OFFICE; OF
SPECIAL AGENT GILLESPIE'S LETTER OF JANUARY 27TH; OF MANAGER HAYES'S
LETTER OF JANUARY 28TH. THESE THREE LETTERS SOLICITING INSURANCE,
FOLLOWED EACH OTHER WITHIN A PERIOD OF SIX DAYS.]
Is it any wonder that I called the history I am writing "Frenzied
Finance"? The man who wrote the letter practically saying that I was a
black-mailer and that my reason for attacking the New York Life was my
anger because he would not take me into his company, and the man who
wrote the ones begging me to come in, are one and the same; and he
absolutely controls directly $400,000,000 of the people's savings in
the New York Life, and indirectly unnumbered millions in affiliated
institutions!
I think the case is complete. The policy-holders of the New York Life
have an opportunity to decide whether the "one man" who runs the great
institution in which their savings are invested is honest. In making up
their minds, I implore them not at the present time, or at least until
the question has been more fully ventilated, to allow their policies to
lapse. Under any and all circumstances they should keep up the payment
of their premiums, for the one thing especially desired and schemed for
by some of the "frenzied finance" insurance companies is a wholesale
lapse of policies.
Some few years ago the financial world learned with great interest of a
new and very useful invention in finance. A group of individuals who had
been buying large quantities of a certain stock at a low price, found
they could not, on account of the fact of its overcapitalization having
become known to the public, resell it; and they were, to use the
stock-gambling term, "hung up" with it because it was too water-logged
to float. It became necessary to disguise its identity. Here's how they
did it: They formed a "syndicate," to which they "turned over" their
stock at a good profit; the "syndicate" in its turn put it "in trust" by
simply depositing the stock certificate with a trust company, which in
its turn issued against the stocks thus held a new security, which it
called a "bond." For these a ready market was found, for the word "bond"
is still a term to conjure with in the world of finance.
This seemed such a serviceable arrangement that the originators soon had
many imitators. Many "syndicates" were formed, and many so-called
"bonds" were put on the market. In most cases the stocks were purchased
at a low price, turned into "trusts" at double their cost, and then paid
for by means of these certificates, dubbed "bonds." As one stock after
another was converted into syndicate certificates--"bonds"--the
familiarity of the procedure robbed it of its novelty and these "bonds"
were quoted and dealt in much as other and more tangible securities
bearing the same name. Perhaps this is why the startling announcement of
the New York Life Insurance Company made about this time, that it
proposed to sell all its stocks and thereafter hold nothing but bonds,
created so much less of a sensation than was anticipated. The term
"bond" had become vulgarized.
This excellent example would undoubtedly have had many followers but for
the humor of the Tobacco Trust. This robust institution, with an immense
amount of watered stock, audaciously poured it all but a small amount
into bonds, $157,000,000 of them, and with a fine trumpet-blast
proclaimed these "bonds" safe investments for widows, orphans, and
insurance companies. Even Wall Street, with its frenzied votaries and
its frenzied environment, was staggered. The culmination of these
conversion performances was the brilliant plan evolved by George W.
Perkins, the junior partner in the firm of J. Pierpont Morgan & Co.,
vice-president of the New York Life Insurance Company and expert
investor of its vast surplus, to have the United States Steel Trust
purchase some $200,000,000 worth of its own water-logged stock and
convert the same into more "absolutely safe bonds"; for its most
valuable services in the turning-over process the Morgan firm was to
have a commission of some forty millions of dollars. At this juncture
"frenzied finance" became gagged with its own froth, and I have not
space here to go further into the subject.
The New York Life Insurance Company declares to its agents,
policy-holders, and prospective policy-holders that it no longer holds
stock securities. In its last report to the Insurance Commissioners
there are set forth stock securities of the kind I have described above,
to the amount of fifty millions of dollars. I will give one
illustration:
"Northern Pacific--Great Northern--C., B. & Q. collateral 4s, book
value--$12,057,132.59, market value--$11,375,000."--(From the official
report to Insurance Commissioners.)
Now, these bonds are nothing more nor less than Chicago, Burlington and
Quincy stock of a par value of $100 per share, which shares were
purchased by individuals, and had "bonds" issued against them at $200
per share. (Northern Pacific and Great Northern stock in about the same
proportion.) In the sense in which the public look upon the old bonds of
railroads this "bond" is no more a bond than it is a Government bond. It
is nothing more nor less than a stock security, _and yet President
McCall says in his letter printed above and sent by him to
policy-holder DeRan that the New York Life does not and cannot invest
its surplus in stock securities_.
THE TRUE STORY OF HOW I WAS "BLACK-LISTED"
The publication of President McCall's letter and the charges which
accompanied it attracted so much attention that the "Big Three" were
flooded with letters from policy-holders demanding information. In the
January, 1904, issue of _Everybody's Magazine_, I continued the
controversy. After reviewing the conditions of the previous month's
argument, I went on:
In entering upon the exposure of the most powerful body of men in the
world, I knew quite well what I was "up against," and deliberately
decided that in the conduct of my fight I would use such strategy as I
believed proper to outwit so strong and so unscrupulous an adversary.
One can hang a dog as well with a cord as with a hawser, and in proving
my assertions I am quite willing that the insurance companies should
believe each play is my best card. I decline, however, to show my hand.
In reply to the charge that I was attacking the New York Life because I
had been refused insurance by that company, as positively stated in Mr.
McCall's letter, I reproduced a letter written and signed by President
John A. McCall, dated 1904, soliciting me to take out insurance in his
company. I printed parts of three other letters, one directed to my
office, also signed by Mr. McCall, another from the special agent, and a
third from the Boston agent of the New York Life, supplementing Mr.
McCall's letter and requesting the privilege of an interview.
This correspondence was put forth with a thorough understanding of its
nature. The publishers of _Everybody's Magazine_ and my own lawyers, to
whom I submitted it, both pointed out that the insurance companies would
undoubtedly take the ground that the McCall letter was no more than a
circular that had been sent out to a number of capitalists and had gone
to me by mistake. I replied that such a rejoinder would practically
amount to an admission that the statement and signature of the highest
officials of the New York Life were valueless and without significance,
which would place President McCall in an untenable position. If his
signature were valueless and without significance when appended to a
letter addressed to me, why not in other instances if the interests of
his corporation seemed to require such a disclaimer? Considering my
argument, would not such a confession have a pregnant bearing on the
proposition--is the "one man" honest, especially as I was equipped with
additional documents to offset further attempts on the part of the
insurance companies to show me up as a disappointed seeker after their
policies?
Here, specifically, are the details of my encounter with the
life-insurance institutions, and I pledge my word to my readers that
they constitute all the facts in this connection. They are well known to
the prominent men associated with the great companies whose duty it is
to keep track of just such transactions. Whoever knows by experience of
the incessant pursuit of business by the important insurance
corporations need not be told that a man in my position has had his
share of importuning by agents great and small. I have never sought life
insurance, for it has not appealed to me as an investment, but on three
separate occasions I have yielded to the persuasions of a friend
connected with one of the big institutions and have considered the
subject. The first time was in 1887, following a breakdown from
overwork. This illness my friend used as an argument to induce me to
take out insurance, and I went so far as to agree to submit to a private
medical examination by the leading physicians of his company for the
purpose of ascertaining if my breakdown, which for a brief time had left
a trace of paralysis in my left side, would bar me. This examination was
at my own expense, and it was expressly understood that, being private,
it should not constitute a record. The physician pronounced me a perfect
risk, but advised against going further inasmuch as a rigid rule of the
company precluded them from granting insurance to any one who had
suffered from this form of illness until seven years after the attack.
I was not disappointed except on account of my friend.
Five years later his solicitation was renewed and I was assured that the
officials of his company were so eager to have me that they would waive
the seven-year rule, which still had two years to run. This time I went
up before another medical examiner, and after the usual tests, was asked
the stereotyped question if I had ever previously been rejected for life
insurance. My friend replied for me--no. I, however, in spite of his
protests stated fully the conditions of my previous examination, which
the doctor assured me did not constitute an official rejection, and the
application was filled out. In the conversation that ensued, the doctor
said that it was safer to await the expiration of the seven years, and I
being still indifferent, except to my friend's interest, accepted the
apologies of the several people concerned for the trouble I had taken
and let it go at that.
Four years later, in 1896, after the attack of appendicitis which I
described in the December, 1904, instalment of "Frenzied Finance," again
my good friend the agent came to me and used the incident of my narrow
escape from death to impress upon me once more the desirability of
having a large policy of life insurance. Those who have read the
"System's" disclaimer, will remember that I had been blacklisted since
1892. There were the usual consultations with high officials of the
corporation, and when all preliminary bargains had been arranged, I
underwent a thorough examination in New York. This time, the seven-year
term having expired, I was pronounced a perfect risk. But my latest
illness had brought me up against another waiting rule, and once more
the subject was abandoned after the usual expressions of regret and
good-will. Since 1896 my connection with life-insurance companies has
been about the same as that of a molasses barrel with the industrious
flies in summer.
The interviews of 1892 and 1896 are both matters of record. My position
in each instance was well understood, and several insurance officials
who know the facts as well as I do have, since the publication of the
company's statement, come to me and offered to back up my assertions
with their own. American manhood is certainly not extinct when men are
willing to sacrifice their careers to set a wrong right.
The manner in which the great companies have met my rejoinder to
President McCall will afford my readers an excellent illustration of how
the "System" goes after a man who has excited its antagonism.
A few days after the publication of the December issue of _Everybody's
Magazine_, containing my fac-simile of President McCall's letter to
policy-holder DeRan and his two letters to me, the Life Insurance
Underwriters met and "resoluted" that I had applied for insurance in the
New York Life Insurance Company in 1892, and being asked if I had ever
been refused insurance, had replied in the negative. Investigation
showed that I had been refused four years before by two other companies,
whereupon my application was rejected and I was practically
black-listed, and so could not secure life insurance in any American
company. By way of corroborating this plausible story two letters,
purporting to have been written by agents of the two companies to their
head officers without my knowledge, were incorporated in the resolution.
The letters stated that the writers could secure me for a large amount
of insurance if the companies would accept the risk. The virtuous
corporations were alleged to have replied that Mr. Lawson had been
refused life insurance before, and for good reasons was not desired as a
risk. This resolution was then published throughout the press of America
in the news columns, and to all but those initiated in the desperate
practices of the "System" and its votaries, it was conclusive evidence
that an unprincipled man had been convicted, red-handed, of fraud.
You who read this statement of mine doubtless found the resolutions in
your own paper, and thought it ordinary news-matter printed because of
its public interest. This notice was an advertisement disguised as news,
and inserted through the "System's" professional character assassinator,
whose head-quarters are in Boston, a person who will occupy a prominent
part in the chapters of my story wherein I treat of the crimes of
Amalgamated. The publication cost the insurance companies $2.50 per
line of the policy-holders' money, while advertisements that I insert in
the course of my private business cost me but 75 cents per line.
HOW THE "SYSTEM" MAKES ITS PROFITS
It appeared that I had sinned still further, for had I not questioned
the virtue and integrity of the New York Life's securities? To
policy-holder DeRan, Mr. McCall had stated, over his own signature, that
the New York Life did not and could not own stock securities. (See the
DeRan letter on page 428.) I proved from the regular insurance reports
that millions of the New York Life's bonds were no more than disguised
stock securities, created by the new device of depositing stocks with a
trust company at an inflated price and issuing against them a receipt
which is arbitrarily called a "bond." I mentioned, as an illustration,
the Northern Pacific-Great Northern-C., B. & Q. Collateral 4s, created
out of the stock of the Chicago, Burlington & Quincy and other
railroads. I could have selected a much worse type of security, just as,
instead of the typewritten letter of Mr. McCall, I might have published
others of a more personal nature.
Against me out sallied 2d Vice-President Perkins, brother of George W.
Perkins, 1st Vice-President of the New York Life (J. Pierpont Morgan's
partner), and at a banquet in Philadelphia boldly answered my aspersions
by declaring that the bonds I named "are printed in the list of holdings
which the company publishes in detail, and has published for the last
five years, in order that its policy-holders may be informed of its
affairs in the minutest detail." The convincing logic of this rejoinder
the dullest will appreciate, but for a moment I must stop to remind Mr.
Perkins that the publicity on which he plumes himself is really not an
expression of the New York Life's individual frankness, but merely an
observance compelled by the law.
All this recapitulation has been for a purpose. My readers will bear in
mind before taking hold of my next exhibit that the great insurance
companies have published me as a falsifier, who since 1892 has been
refused insurance and black-listed for good reasons, and have claimed
that Mr. McCall's letters were circulars sent me by mistake. We are
still considering the problem--_are the men who run our great insurance
companies honest?_ Well, look at the reproduction on page 442 of a
document that is now in my possession and has always been since the date
when it was delivered to me by one of the three great representatives of
the "System," the Equitable Life Insurance Company.
This document speaks for itself. My readers are aware of the
negotiations and investigations which precede the making of an insurance
contract. To them and to the "System's" votaries I recommend the exhibit
and the underwriters' resolutions as a simple lesson in frenzied
finance.
My charge that the directors of the great life-insurance corporations of
America use the funds of the companies they control in stock speculation
for their personal benefit is but one contention in my argument against
the character of their management. Here I formally add another charge:
It is that in the placing of loans, in the purchase of properties and
securities, and in the underwriting of enterprises, there are enormous
profits made, directly and indirectly, which are pocketed by individuals
and are never shown on the books of the corporation.
The basis of life insurance is security. A policy-holder pays his
premium to enable the corporation accepting it to make good its contract
with him when death or time matures it. The vast sums in the possession
of the three great companies are accumulated to safeguard their
policy-holders, and should be invested only in securities of tried and
solid worth, which will bring in no more nor less than the going rate of
interest. There must be no experiments and, above all, no speculation.
But what do we find? The positions of managers and manipulators of these
huge hoards of the people's money have become the greatest financial
prizes of the day. New and ingenious methods of graft have been devised
in connection with them. The vast revenues of the insurance companies
have become the "System's" most potent instrument in working its will in
the stock world.
[Illustration]
[Illustration]
Their investments, largely in the securities of properties or
corporations in which the "System's" votaries have large interests, are
fertile sources of profit to the "insiders." The groups of banks and
trust companies affiliated with them are the medium through which access
to the coveted insurance funds is obtained, for these institutions are
allowed by law to use money for speculative purposes, which the
insurance concerns are prohibited from doing.
The immense opportunities for profit afforded by the control of these
great money hoards are taken advantage of in various ways. Let me
illustrate one or two of them. Rogers, Rockefeller, Stillman, and Morgan
buy the capital stock of three railways at a fair valuation, say,
$20,000,000 apiece, $60,000,000 for the three. Owning all, or nearly
all, the stock, they can put its price on the stock-exchanges to any
figure they desire, say, $60,000,000 for each railway, or $180,000,000
in all. They proceed to deposit the stocks of the three roads in a trust
company, issuing against them $180,000,000 of what they call "bonds." An
"underwriting" syndicate is then organized. This is composed of certain
individuals and corporations who agree that when these bonds are offered
to the public at $180,000,000, the portion the public does not buy, they
(the "underwriters") will purchase on the basis of $120,000,000; in
other words, they guarantee the sale of the bonds at $180,000,000. In
return they "make" on all the bonds sold the difference between the
price to them, $120,000,000, and the price the public pays,
$180,000,000. Let us assume that the public takes up the issue greedily
and the full price, $180,000,000, has been secured. The original owners,
Rogers, Rockefeller, etc., have made $60,000,000, the difference between
the first cost and $120,000,000, the cost to the "underwriters," while
the "underwriters" have made $60,000,000, the difference between
$120,000,000 and the $180,000,000, the cost to the people. In looking
over the list of subscribers to these bonds, you will note that the
largest purchases have been made for the great insurance corporations
and the banks and trust companies owned or controlled by them and "The
System." If, in the instance I am using for illustration, a president
or vice-president of one of the great insurance companies is known to be
willing to subscribe for, say, $10,000,000 for his insurance company;
$5,000,000 for his principal trust company, which is owned by the
insurance company; $1,000,000 apiece for five other banks and trust
companies, also owned or controlled by the insurance company; and can
influence five other affiliated institutions to subscribe for $1,000,000
apiece, he controls, as will readily be seen, a purchasing power of
$25,000,000, and is sought for as an underwriter, if he is not already
an owner. For this $25,000,000 which his institutions buy he "draws
down," as his personal profit, 33-1/3 per cent. "underwriters'"
commission, or over eight millions of dollars.
In taking this amount, he is not _robbing_ his insurance company, in the
common acceptance of the term in this era of "frenzied finance," though
he has absolutely appropriated to himself a profit which belongs to it
and not to him.
It must not be supposed that such transactions as this I have outlined
are conducted in the simple ABC fashion I have set down here for purpose
of illustration. No "one man" appears through any deal. The purchases
and sales are usually made through dummies, and the final recipient of
the "made millions" carefully conceals all the phases of his
participation.
Let us take another type of transaction. An insurance company owns two
adjoining pieces of unimproved city real estate, for which it paid
$250,000 apiece, but which are now worth $500,000 each. The directors of
the corporation formally decide to dispose of these holdings, and sell
the first piece to a trust company, which is owned or controlled by the
insurance company. One of the "System's" dummies or an officer or
director of the corporation agrees to take the other at the same price.
This is a perfectly legitimate transaction, and the insurance company
shows a half-million profit on its investment. The next step is this. On
its piece the trust company erects a two-million-dollar building,
procuring the money from the insurance company at a low rate of
interest. Thereupon the value of the adjoining piece bought by the
"System's" votary jumps fifty per cent., so he has made $250,000
without risking a dollar. At the same time there have been several other
profitable transactions between institutions and individuals. The agent
who disposed of the two pieces of real estate and who is "in" the
transaction receives a generous commission for making the sales; the
trust company's representative has his own "draw-down," and there are
further commissions to the agents who borrow and loan the money and
control the erection of the building.
My readers may well ask, Are these merely illustrations, or do such
things really take place? I unqualifiedly reply that deals similar to
these have occurred repeatedly and that the principle and procedure set
forth are the rule and not exceptional. Here is a minor episode of which
I have personal knowledge. A well-known man made direct application to
the Mutual Life Insurance Company for a loan of $400,000 on a valuable
city business block which he owned. He was told that the corporation had
no funds available for that purpose. The refusal was authoritative and
definite. A few days later a lawyer and real-estate agent came to his
office and said to him: "I'm informed that you want $400,000 on your
property. I can let you have it, or $500,000 if you need that much."
"Good," said the would-be borrower, "I will take it. Whose money is it?"
"The Mutual's."
"My dear fellow," said the would-be borrower, "how can that be? I was
there at the office a few days ago and was assured I could not have the
money."
"That's all right," was the answer. "Of course you could not get the
money. The right party did not see the right party. D'ye understand?"
He understood.
A recent issue of the _Insurance Register_, of Philadelphia, in
criticizing my comments on President McCall and life insurance, makes
the following significant admissions in regard to the conduct of these
great corporations:
While riding on the train on my way to my office this
morning a lawyer told me the following story: A client of
his, a real-estate agent, represented a corporation owning
and wishing to sell a valuable Chestnut Street property.
The price asked was $750,000. A representative of a New York
corporation called upon him and agreed to take the property,
but stipulated that the price named in the deed and
receipted for should be $850,000, the difference covering
his commission of $100,000. The Philadelphian, finding it
impossible to induce his clients to make this concession,
and the New York agent insisting upon it as indispensable to
the purchase, made a trip to New York to see the principal,
acquaint it with the facts, and find out whether or not some
arrangement could be made by which the buyer could take care
of its agent's commission. He was received by the manager of
the New York corporation, but when he stated that he
represented the owner of the Philadelphia property he was
instantly bowed out of the office, with the assurance: "We
never interfere with business in the hands of our agent."
The outcome was that the sale was not consummated, because
the officers of the Philadelphia corporation would not
receipt for $850,000 when they were to receive only
$750,000, for the reason that they could not square the
transaction with their stockholders, and the buyer's agent
would not consummate the deal without such a receipt,
because he could not square with his client and its
stockholders the payment of $850,000 with the consideration
of $750,000 mentioned in the deed. This story was told to
illustrate the proposition that every action has its
prompting motive, and my fellow-passenger imparted to me his
conclusion that the motive of the manager of the New York
corporation for refusing to listen to his client was that
"the scoundrel was in cohoots with the agents to share in
the commission and cheat his own company." The public will
in time come to look for motives, and we, fellow-editors,
and the managers of mutual life-insurance companies, will be
judged by what seems the most apparent motive for our
actions....
Any alliance between life insurance and this modern
speculative frenzy cannot be too deeply deprecated, nor too
strongly reprobated. Every true friend of honest life
insurance among insurance journals will demand that this
great business, of all businesses, must be kept free from
the contagion of corruption that has shamed finance, is
covering commerce with a blighting mildew, and threatens our
whole land with disaster as well as dishonor.
All this is preliminary to treating the case of the Prudential Insurance
Company. I want to say here that I do not know the corporation, any of
its officers, nor any one interested in the control or management of it,
and personally have never had the slightest connection with its
officers. I desire to prove through an outsider, some one of
unquestioned authority, that the great insurance companies are part of
the "System" and are engaged in manipulating the stock-market with the
funds their policy-holders put in their hands as a sacred trust. In so
far as the Prudential is concerned, rank and unsound as are the
transactions I am about to speak of, my investigations have proved to me
that this insurance corporation is only as a baby-carriage to a runaway
automobile compared with the three great representatives of the
"System," the New York Life, the Mutual, and the Equitable. Certain
critics have accused me of being unduly emphatic in my strictures on the
doings of the corporations of which I am treating. I will confess to a
secret amusement at being able, in this instance, to quote the language
of one of the most conservative insurance officials in America,
Frederick L. Cutting, for many years Insurance Commissioner for the
State of Massachusetts.
The Prudential Life Insurance Company has $2,000,000 capital stock. The
stock is owned and the company absolutely controlled by a few men. This
capital of $2,000,000 represents only $91,000 paid in in cash; the
balance has been derived from stock dividends; that is, profits that
have been made out of policy-holders. In addition to this enormous
amount, there has been paid ten per cent. in cash dividends annually, so
that for every thousand dollars paid in the stockholders hold $22,000 of
stock, upon which they receive annually $2,200, or, as Commissioner
Cutting puts it, "each year for ten years the stockholders have received
in cash dividends more than twice the original investment." I commend to
the policy-holders of the Prudential and other insurance corporations,
and to other honest men, these tremendous figures: every $1,000 invested
turned into $22,000, not in a gold or diamond mine, but in a
life-insurance company where every dollar comes from the policy-holder
who is supposed to pay in only enough to insure a promised payment plus
provision for honest expense.
The Prudential Company owned the stock of the Fidelity Trust Company,
the capital of which was $1,500,000, and the directors came before
Commissioner Cutting and informed him that they proposed to double up
the stock of the Fidelity Trust Company to $3,000,000; that the new
$1,500,000 at a par value of $100 was to be sold for $750 per share;
that the new stock was to be bought by the Prudential Company and the
Equitable Company; and that with the proceeds of the sale, the Trust
Company was to buy a control of the Prudential Company from its
directors. The motive of this transaction was as follows: The set of men
who absolutely controlled the Prudential, with its sixty millions of
assets belonging to its policy-holders, proposed to control it for all
time, but without tying up $7,000,000 of their own money in the
business. In other words, they desired to eat their pudding and yet have
it for continuous re-eating, and had found a way to accomplish this
heretofore impossible feat.
By this plan the men who controlled the Prudential Company, and thereby
the Trust Company, at the time the plan went into force, would forever
continue to manage and control both institutions, although not one of
them held a policy or any investment in the insurance company beyond the
one share of stock required by law to qualify as director.
If this scheme had been consummated it would have borne to "frenzied
finance" the same relationship that perpetual motion does to mechanics.
By it a few men could gamble forever with the entire assets of the
policy-holders of this corporation for their own personal benefit. If my
readers will imagine the same scheme applied to several other great
insurance companies and the men controlling them, the "System's"
votaries, they will recognize the "System's" ideal world, with all the
people in a condition of ideal servitude. However, this ingenious plan
was forestalled because there happened to be in control of the
life-insurance affairs of Massachusetts one of those old-fashioned
relics of American honesty--a man who thought more of the interests of
the people intrusted to his care than of the prospect of innumerable
"made dollars" which might have been his had he proved more amenable. It
is regrettable that he was not able to deprive the conspirators of their
power to juggle with the property of the corporation, for only two weeks
later they developed and executed an alternative device which
practically accomplished the result which the Massachusetts authorities
had declared illegal and the courts of New Jersey had enjoined.
There is food for thought here for the policy-holders of American
insurance corporations who have intrusted to the "System" and its
upholders the billions of their savings, to which they are adding every
year hundreds of millions. To them I recommend a reading of the
Forty-eighth Annual Report of the Massachusetts Insurance Commissioner,
dated January 1, 1903, and the decision of the New Jersey judge who
passed on the case. These men are surely not to be accused of exploiting
my story. Under the head of "Control of Life Insurance Companies" in the
Massachusetts Report will be found the following:
The Insurance Commissioner had the honor of addressing the
insurance committee of the General Court relative to the
control of life-insurance companies by other corporations or
by syndicates. For some years it has seemed to impartial
observers who are conversant with life-insurance matters,
and have also seen the eager quest by promoters for funds to
finance all kinds of enterprises, and the determined
struggle to grasp every opportunity for speculation, that
there would be no cause for wonder if covetous glances
should be turned toward the massive accumulations of
life-insurance companies. It is well, therefore, to pause
and ask what would be the chances for obtaining control of
them, and what might be the result of such control, and in
general whether the funds of such companies are imperilled
by modern methods.
Insurance corporations on a capital stock basis, on the
other hand, give their policy-holders no voice in their
management. To obtain control of such a company it is
necessary only to control by purchase or otherwise a
majority of its capital stock. If a "king of finance" should
start out with the determination to secure a majority of the
stock of such corporations, the chances are that in some
cases at least he would be successful. He might, it is true,
be obliged to pay more than the "book value" of the shares;
but perhaps _control_ of a company's assets would well be
worth twice or thrice or even more than what could be
figured out as the value of the stock on the books of the
company. On no other theory can the figure offered for
life-insurance company stock in some cases be accounted for,
since these offers are not warranted by the surplus nor by
the dividends paid, nor by both combined.
Is there aught to prevent a bold manipulator from entering
this inviting field and purchasing a controlling interest in
the stock of enough such life-insurance companies to make
their combined assets aggregate one hundred million dollars
of the more than six hundred millions of assets of stock
life-insurance companies doing business in Massachusetts?
This accomplished, he transfers his rights to a "trust," or
an association, or trust company, which is not only a bank
of deposit, but is also engaged in brokerage schemes, in
financing large enterprises and promoting all kinds of
corporate consolidations, and underwriting their stock for a
consideration. The central controlling trust company, or
whatever it may be, becomes a medium through which the
investments of the controlled insurance companies are made;
all sales of their securities pay tribute to its treasury;
all funds awaiting investment are deposited in its keeping;
the most valuable of their securities are turned into cash,
and then used by the controlling power for such purpose as
it sees fit. All these things are conceivable, and their
accomplishment would be a no greater task, seemingly, than
some of the gigantic "operations in finance" of the last few
years.
Judged by what has happened in other fields, this trust
would not only control these vast assets, if the plan should
be executed, but would control them without individual
liability on the part of its managers.
THE PRUDENTIAL MERGER CASE
Is there really any danger, it may be asked, that any trust
or syndicate will attempt to control the stock and assets of
life insurance in this way, or is this simply the
presentation of possibilities? As an answer to that question
here follows a plain, unvarnished story of what has been
attempted and what has taken place within the past year
between one of the life-insurance companies doing business
in Massachusetts and a trust company with which it has close
relations.
In October, 1902, the Insurance Commissioner received from
the president of the Prudential Insurance Company of America
a letter, transmitting a copy of a circular letter addressed
"To the field and home office staff" of the company. That
circular letter disclosed a plan of mutual control between
the insurance company and the Fidelity Trust Company, a
corporation organized under the laws of New Jersey. It
stated that:
"The capital of the Fidelity Trust Company is about to be
increased from $1,500,000 to $3,000,000, the new stock being
sold at $750 per share. This will result in giving the
Fidelity Trust Company a capital of $3,000,000, a surplus of
$13,000,000, and a considerable amount of undivided profits,
making this company, from the standpoint of capital and
surplus, as large if not larger than any similar institution
in the country. Sufficient of this stock will be taken by
the Prudential Insurance Company to give it, together with
its present very large holdings of Fidelity stock, absolute
control of that company. A very large portion of the balance
of said stock is to be taken by the Equitable Life Assurance
Society of New York, which will give to that company a very
substantial interest in the Fidelity Company, and therefore
justify it in materially increasing its business with the
Fidelity. The bulk of the new money thus to be received by
the Fidelity Trust Company is to be used by it in the
acquisition of a controlling interest in the entire capital
stock of the Prudential Insurance Company.... A contract has
been entered into between the Fidelity Trust Company and a
large majority of stockholders in interest of the
Prudential, in which the latter have contracted to sell
their holdings of Prudential stock, or as much as may be
necessary, to the Fidelity Trust Company on or before May
1st next, at $600 for every $100 of par value.... While by
this arrangement the Prudential Company will control the
Fidelity, and, on the other hand, the Fidelity will own a
majority of the capital stock of the Prudential, the annual
meetings of the two companies will be so arranged and other
arrangements be so made that the Prudential will forever be
the dominant factor, as of course it should be. The officers
of the Prudential are united in their belief that this move
is of the greatest possible interest to its stockholders, as
well as to all of its policy-holders and its great army of
employees. The consummation of this arrangement insures the
continuance of the present management of the Prudential,
both in its home office and in the field. The advantages of
the plans of the trust company are too obvious to need
comment. It is expected to consummate this entire
transaction between the two companies on or about February
1, 1903."
The Insurance Commissioner of Massachusetts, on receipt of this
circular, wrote United States Senator John H. Dryden, president of the
Prudential Insurance Company of America, declining to approve of the
proposed exchange of stock on the ground that the merger was
antagonistic to the interests of policy-holders, inasmuch as it forever
deprived them of the power to dislodge the management from the control
of the institution. The minority stockholders petitioned the New Jersey
courts for an injunction to restrain the Prudential and the Trust
Company's directors from carrying out the proceeding for mutual control,
and Vice-Chancellor Stevenson enjoined the corporation from executing
its project. However, the reciprocal control was effected by the sale of
enough Prudential stock to the Fidelity, whose capital was increased for
the purpose of purchasing it, so that the Fidelity lacks but eight
shares to control absolutely the Prudential. As the situation stands
now, the Prudential directors control the Fidelity, and the Fidelity
holdings, with eight shares more, control the Prudential. Practically
the ring is about as hard to break into as the plan enjoined. Those who
control the Fidelity can always "dominate" the insurance company.
Minority stockholders and policy-holders alike are practically in the
hands of the trust company for all time, and the insurance company's
assets can be managed as the majority of the trust company's directors
dictate.
The director goes on to explain the relations between a life-insurance
company and a trust company, which, in the light of recent exposures,
seems prophetic.
"The money value of intimate relations between a majority of
the directors of a life-insurance company and a trust
company may be easily comprehended. These relations are at
the beginning based on the needs of the insurance company,
which needs it is hard to define and limit, and accordingly
hard to say just where the provision for them becomes more
of an advantage to the trust company than to the insurance
company. Standards will differ, and change, too. But here,
let us say, is a great insurance company with over
$50,000,000 of assets which it has collected from its
policy-holders, and which are needed for carrying out their
contracts, and which safety requires shall be held in sound
investments. Such an insurance company has to have a large
and active bank account. It must deposit checks and all
forms of paper promises or orders for collection, and for
the payment of expenses and claims must have a large sum of
ready money. This is the absolute need; but the directors
are not bound by any legal requirements to limit their
deposits to just what will reasonably suffice as a margin to
pay current claims and expenses, nor are they required to
patronize any particular banks. They conclude, let us say,
that 'it will be safer' to take some banking institution for
such depository which they 'know about,' and of which,
perchance, some of them are directors, or in which, at all
events, they are stockholders. If no such trust company is
at hand, it is very easy to start one, and easy for the
directors of the insurance company to be in 'on the ground
floor.' The insurance company then begins to bestow its
patronage. The trust company, which is thus supplied with
funds, begins to feel the effects of this attention; by the
use of its big deposits large dividends are earned. A 'boom'
begins, and the director who 'had the sagacity' to invest in
the stock of the trust company when it was around about par,
sees his holdings advance by rapid strides until he is
offered perhaps ten times as much for his stock as its par
value. He has seen this stock advance in value in proportion
to the amount of funds of the insurance company which the
trust company had at its command. It has been worth much to
him 'to be on the inside,' and will be worth much in the
future for him to be on the inside if any new trust company
is to be a depository; the bigger the deposit, the more it
will be worth to him."
All thinking people, after reading these extracts from Insurance
Commissioner Cutting's report, will ask: "Why have we never heard of
this before?" I can only answer that he found it impossible to get any
part of the warning contained in it before the people. It should be
remembered that the insurance companies annually spend millions of
dollars with the daily, weekly, and monthly press--and it is unnecessary
for me to say more. My own advertisement calling attention to the
life-insurance chapters in the last issue of _Everybody's Magazine_ was
refused by some of the leading dailies of New York, Boston, Cleveland,
and Pittsburg. When I called on the managing editor of one of
Pittsburg's leading dailies for an explanation of the publication's
declination, he said: "Don't mention me or you'll get me into trouble.
Our copy for the advertisement was a day late and the insurance combine
had time to get in its work. The local managers sent a representative to
all the papers warning them not to run your stuff, under penalty of
losing the big full-page annual from each of the three big companies, as
well as the numerous fliers through the year." One hears of the
sagacious ostrich which, when pursued by an enemy, hides its head in the
sand. The ostrich is wise in comparison with the "System's" votaries in
the year 1904.
THE VULTURES FEEDING
Owing to the claims of other subjects on my space, I left the subject of
life insurance for a few months. In the meantime President Alexander
began his grapple with President Jimmy Hyde for the control of the
millions of the Equitable Life--the historic entanglement which has had
such dire consequences for all concerned. In the April, 1905, issue of
The Critics I wrote as follows:
When first I touched on the subject of life insurance and called
attention to the manner in which the three great companies were juggling
with the immense funds entrusted to them by their policy-holders, the
"System" raised a great outcry, declaring that I was unsettling the
confidence of the people in a sacred institution. At this moment we have
the chief officials of one of these huge organizations engaged in a
desperate and disgraceful struggle among themselves for its control.
All thought of the widow and the orphan, against whom they declared my
hand had been raised, has been forgotten in the mad fight for supremacy
over the accumulated millions in stocks, bonds, and in trust companies,
from the secret manipulation of which the great private fortunes of
successful underwriters are derived.
Before definitely grappling with the evils of the insurance trust, I
hesitated a long time. I realized my words would cause terror or
distrust among policy-holders and perhaps induce some misguided ones to
abandon their insurance. After long consideration, however, I became
convinced that what I had to say would in the long run benefit all
policy-holders, insure the greater safety of their funds, reduce their
annual premium-payments, and perhaps bring about the restitution of the
vast amounts which in the past had been diverted from them to private
individuals. The response to my criticism was a flood of abuse. Instead
of meeting my charges, the big companies denounced me for a liar and a
misrepresenter, and the insurance journals and subsidized press declared
that the things I had charged were impossible. Now, the president of the
Equitable Life Insurance Company is openly accusing a leading member of
his board of trustees, who is one of the foremost votaries of the
"System," of loading the company with twenty-two millions of securities,
which, as a member of the finance committee of the corporation, he had
purchased for himself in his capacity as head of a great banking-house.
On the other hand, the president and his associates, who have hitherto
swayed the destinies of the institution, are accused by the other party
of conspiring to mutualize the institution, not for the benefit of the
policy-holders, but to conceal the traces of past misdeeds. Before this
chapter is in the hands of my readers the officers and directors of this
great insurance company may be before the courts and a condition of
affairs spread out for the public's gaze such as will make my charges
seem, in comparison with the actual truth, as chestnut-burrs to
porcupines' quills.
One result achieved so far is an awakening of the people's attention to
the evils of present conditions; but let them beware of the remedies
suggested. The "System" is quick to adjust itself to storms it cannot
control, and there are many signs abroad that it is trimming its sails
to fly before the present blow, ready when it shall abate to switch back
to its old course, and, under fresh canvas, make up for lost time.
Already we have Senator Dryden, representing New Jersey and the
Prudential Life Insurance Company in the United States Senate,
introducing a bill for Federal supervision of life insurance, and the
"System's" hirelings throughout the land are clamorously agitating the
passage of some such measure. It behooves the public to scrutinize
carefully the form of reform which these patriots approve. It may be
taken for granted that they will initiate nothing that will interfere
with their grip on the millions of the policy-holders or will divert fat
pickings and commissions from their own pockets. Once I asked a leading
votary of the "System":
"What would you do if by any chance the Government decided to get into
the railway business, and took a railway or so to see how government
control would work?"
"Oh," was the reply, "we'd manage that all right! As soon as we saw it
coming, the stocks and bonds of the roads wanted would go up, so that by
the time Uncle Sam got ready to buy, it would be the fattest sale we
could possibly make. After that it would not be difficult to disgust the
Government with its bargain, and before long the people would be glad to
sell the property back to us, and we'd find a way to get it at slaughter
prices."
The reformation of the big insurance companies is sadly needed, but
reformation of a more drastic kind than they'll be willing to administer
to themselves. To begin with, there should be a relentless probing of
their stock transactions of the last fifteen years, followed by the
passage of some simple laws regulating their investments. The
relationship between these institutions and the "System" would then at
once of necessity terminate, and we could say good-by to the _regime_
under which the expenses of the Big Three have enormously increased and
their dividends to policy-holders have steadily declined while during
the same period the private fortunes of their officers and controllers
have flourished amazingly.
I have been repeatedly asked to define the conditions that make it
possible for these immense private fortunes to be gathered, within the
law. An examination of the figures that follow will reveal the
far-reaching possibilities that reside in the direction of the billion
of assets of the great insurance companies.
The last issued New York report (1903) shows that the three leading
companies had in uninvested funds, all told, $70,212,453. Of this sum
total there was "deposited in trust companies and banks drawing
interest"--at the _close_ of the year:
Equitable $25,617,668
Mutual 22,439,396
New York 17,731,710
-----------
$65,788,774
the balance, $4,423,679, being on deposit without interest.
The above aggregate represents 71.7 per cent. of the uninvested
interest-bearing funds of twenty-eight companies--leaving but 28.3 per
cent. for the remaining twenty-five (in which, by the way, is included
$6,801,789 of the Prudential, as large in proportion as the funds of the
Big Three, with which it is associated).
This sum, at the two-per-cent. interest allowed by the trust companies,
returned to the insurance companies $1,315,775, while it earned for the
trust companies in the different speculations in which they were
engaged, from five to twenty per cent., or an annual profit of
$1,973,663 to $11,184,079, over and above the interest paid the
insurance companies for its use.
But who owns the trust companies? you ask. Some are owned jointly by the
three great insurance corporations and their directors, others by the
directors alone. The men who control the Big Three organize these
flexible depositary institutions, allotting half or more of their stocks
to themselves, the balance to the insurance companies, or keeping all
the stock themselves, for the purpose of manipulating the stupendous
sums in the treasuries of the insurance companies. The trust company is
the irrigating canal of Wall Street, the insurance company the
reservoir. For the development of the various schemes of consolidation,
trustification, and amalgamation in which Wall Street profits are made,
money is required in large quantities. When the soil is ready for the
seed, when negotiations have been sufficiently matured, the trust
company's sluice is tapped and the gold flows out. And gold which makes
a $225 crop sprout, where previously only a $100 crop grew, is a
valuable commodity, for the use of which large compensation is given the
engineers. Thus the men who hold the treasury-keys of the Big Three, and
who decide how the accumulated premiums of the policy-holders shall be
used and where deposited, are actually the owners of these trust
companies and of other corporations and trusts which borrow the money
the trust companies have on deposit from the insurance companies.
The hackneyed defence of the insurance companies to this accusation is
that great corporations, such as they are, must keep on hand, ready for
emergencies, enormous amounts of cash. This is a futile argument, for in
the nature of things the daily receipts of each of the Big Three are
larger than the expenditures. We are also told "We keep large amounts,
ready to take advantage of a sudden smash in the market." This sounds
well, but cloaks one of the most vicious practices of these great
institutions, and another of the insider's opportunities for private
graft. It means that the officers of the great insurance corporations
are ever ready for a stock gamble with the sacred funds of their
policy-holders; that is, they admit their willingness to use the
people's savings to make sure-thing gambling-profits from those
unfortunates who must throw over their stocks and bonds because of the
"System's" manipulations.
Imagine, my honest, old-fashioned reader, the millions of insurance
funds used in this way! Let me give you a picture of how it is done. I
have seen it worked a score of times. The stock-market is crashing,
dropping tens of millions a minute, and business men are saying: "Oh, if
we only had cash to buy, but we can not get it! The banks will not loan
at any price. Rates have gone up to 100 to 150 per cent. and no cash is
in sight." No one has money but the big insurance companies and the
"System's" votaries.
Suddenly mysterious buying appears--hundreds of thousands of shares of
stock, and bonds in million blocks. The crash has been stayed; the panic
is over; stocks are bounding upward again; millions are being made by
the mysterious buyers with each tick of the clock, and presently it is
common knowledge that all the insurance insiders have cleaned up
millions, and--of course, the company has made something, but the
biggest profits have been won by the men who, having previously
personally loaded up, were able to throw the unlimited buying power of
the policy-holders' millions into the gap. Talk of loaded dice, or any
of the sure-thing gambling devices! They are lily-white business schemes
compared with this method of plundering the people.
Again we are authoritatively informed that the great companies have so
much cash on hand that it is impossible to find investments for it save
at a low rate of interest. The fallacy here is obvious. If these
institutions have grown so unwieldy that they cannot conduct their
business as ably as the smaller companies, the latter are the ones to
insure with, because, right along, they are deriving larger returns from
their invested funds than the big companies. There are scores of ways,
however, by which the sixty-five millions could be made to earn even
larger dividends than do the funds in stocks and bonds. Let the Big
Three offer the use of their big cash balances by public
competition--under the most conservative conditions that can be
prescribed. Instantly the net returns will double.
All insurance policy-holders are familiar with the specious circulars
and letters presenting statements of business done and investments made,
which are sent out from the head offices of the great companies at odd
intervals on the plea: "We want our policy-holders to know everything we
are doing at all times." The public is assured at other intervals that
there can be no secret or inside deals in the affairs of insurance
companies because of the close examinations they are subjected to by the
Insurance Departments of the various States. The insurance officials
say: "All our facts and figures are vouched for by so many different
sets of auditors and State Departments that they must be exact truths."
To what extent is the public actually safeguarded by these
investigations?
Some months ago I called attention to the fact that the directors of the
New York Life Insurance Company had sold to themselves the stock of the
New York Security & Trust Company at from three to four millions less
than the property would have commanded from outsiders. Here is another
transaction which requires explanation:
In 1901, ostensibly in order to maintain its position in the German
states--I will explain later on what I mean by "ostensibly"--the
insurance company disposed of its remaining holdings of stocks, the same
having a book value of $2,965,000 and a market value of $5,471,000, as
per report of 1900. These stocks, with possibly sales of some other
securities, realized an actual profit of $5,839,087 instead of
$3,075,392 as per the company's _sworn_ report to the several State
Insurance Departments.
Rather a queer proceeding, you say. Why should it do such a thing? Had
some one stolen the extra profit? Or what? This is what was done: The
company had simply availed itself of the opportunity to conceal an
actual cash profit of $2,763,715 in order that it might sequestrate
assets to that amount unnoticed by its policy-holders or the
departments. The sum so sequestrated was made up of balances due from
agents--presumed, as in all such cases, to be amply secured by pledge of
renewal contracts--to the amount of $1,919,734, and $843,891 charged off
depreciation of real estate. (See Massachusetts Report, 1902, pages
158-159.)
This illegal suppression of most important transactions, directly
affecting, as will be seen later, the interests of policy-holders, would
have remained a sealed book but for the careful audit of the
Massachusetts Department, which revealed the fact, unnoticed by that of
any other State (note in this one instance the boasted careful
supervision and boasted double and triple auditing of all accounts
before publication!), that the item "Agents' Balances," amounting in
the preceding year to $1,527,123, had disappeared altogether from
assets. This led to a prompt request from the Massachusetts Department
for explanation.
The honorable business men of the New York Life, who pay out so many
hundreds of thousands of dollars each year advertising the fact that
they are sitting up o' nights to find new ways to acquaint the
policy-holders with the innermost secrets of the company, finding there
was no avenue of escape from their dilemma, quickly realized that the
Massachusetts Department meant to have the facts, and publish them, too.
Their own "faked" report was already before the public in the published
reports of two departments, those of Connecticut and New York.
There was but one course open to avert the terrific scandal that was
inevitable upon publication of the Massachusetts Report, and that was to
head off and forestall adverse comment and criticism, as far as
possible, by making a clean breast of it. No time was lost in preparing
a letter of explanation to the Department. This answered the purpose of
the Department, which did not care to press the matter, having
accomplished its main object.
Now for the moral, or the iniquity, rather, of the preceding, the wrong
to policy-holders, which has been so completely ignored and passed over
by the insurance press and all hands: Either the company had, as at
least supposedly it has in all such cases, ample security for its
advances to agents in the pledges of their renewal contracts, or it had
not. On the former hypothesis, that $1,900,000-odd was a sound and valid
asset, earning a good rate of interest. On the latter, the company
simply squandered this amount of trust funds belonging to its trusting
policy-holders in its mad rush for business at whatever cost; or--In
either case the money has gone from sight so far as any sign or
indication appears to the contrary since.
And before leaving this point, it may be well to ask, "Has the New York
Life Insurance Company altogether discontinued these advances to
agents?" If not, how and where are they accounted for? An answer may be
found, possibly, in the comparatively meagre underwriting profits of the
company, growing relatively smaller and beautifully less with each
succeeding year. I say it may possibly be found here, because this is
the only place the item could be buried; but I am reasonably sure that
it is not buried here, and that these advances to agents are being
continued on a scale as large as, or larger than ever, for the agents
could not have been shut off and the business increased at one and the
same time.
Again, during the last two months of 1904, or at a time when my story,
"Frenzied Finance," began to get in its work all over the world, I
received from many quarters information that the Big Three had
instructed their leading agents to get in a great lot of new risks "at
any cost," so that the total business for the year would show such
increase as to discredit my claim that the policy-holders were getting
"scared." I watched the game with much interest, knowing that bunco
would out in time, by whomever worked. During these months I read from
week to week of this great policy, or that record-breaking risk just
landed by this or that agent. One in particular made me chuckle at its
transparency. A certain friend of the New York Life, a Wall Street man,
"has just taken out a $2,000,000 policy." About the same time I began to
receive information of the remarkable offers that were being made to
prospective customers, offers which probably meant an indirect rebate of
perhaps the full first year's premium; and I got to thinking and
reaching back into my memory-box, and I raked out a number of instances
of the same kind of offers which had been made to me in the past, and I
ruminated to myself how all this was possible; for even if the Big Three
were bold enough to get around the law against such practices, it
puzzled me how they could pay to their agent the big cash commissions
that new business called for. Presently as I waited I read, as did the
rest of the world, the big January full-page advertisements of the New
York Life to its policy-holders, calling their attention to the increase
of $15,000,000 new business over the year before. Then I took another
think and did a little work, with the following result:
A JOLT FOR THE NEW YORK LIFE
The "Brown Book of Life Insurance Economics" shows that the sum laid by
annually for future tontine or other dividends ranged in the ten years
ending with 1903 from $2,936,026 to a minimum of $956,597, these amounts
being savings after payment of dividends. In 1904, however, for the
first time in the tontine history of the company--also the first year of
maturity of non-forfeitable tontine contracts with their largely reduced
dividends--the dividends paid and credited, $6,018,202, actually
exceeded the year's earnings, as shown by the company's sworn statement,
by $76,595.
I want to call policy-holders' attention right here to what this means
to those who are now being beguiled into taking policies on the strength
of "adjusted" estimates placed by the company in its agents' hands,
showing dividend results ranging from fifteen to fifty per cent. higher
than those of 1904, with, however, the saving (?) clause that, depending
upon future unforeseeable conditions, the same "may be higher or may be
lower." It may be added that, but for a profit realized from sale of
securities, the company's gross surplus would have shown shrinkage.
In order to realize what such a showing means, let us make a comparison,
using the figures of a well-known Western company (partly tontine, but
operated on diametrically opposite lines from the New York Life), for
the three years 1901-03, this company being barely four-tenths the size
of the New York Life as regards outstanding business:
COMPARISON OF TOTALS, THREE YEARS, 1901-03
Dividend Laid by for future
earnings. Dividends. dividends.
New York Life $16,826,289 $13,189,278 $3,636,091
Western Company 17,788,820 12,284,255 5,504,565
----------- ----------- ----------
-$962,531 +$905,023 -$1,867,574
After mulling these over, I dug further in regard to the "prosperity" as
shown by the business of 1904. The company boasts of its enormous volume
of new business, $345,722,000, which is $15,000,000 in excess of the
1903 business. Here is the story: While this new business was being
secured, the
Total terminations were $162,326,114
Less those inevitable terminations by death
or maturity of endowments 26,767,873
------------
Waste by lapse, surrender, etc. $135,558,241
And when we add the lapsed policies which
continued in force, under the "extended-insurance"
provision 89,938,500
------------
We have the total waste of $225,496,741
and this, reduced to its actual significance, means that of the total
actual terminations, 83.6 per cent. was _actual waste_ and only 16.4 per
cent. legitimate terminations, while the great bulk of the last item of
$89,938,500, upon which premium payments have ceased, must run off the
books in the near future; and this is what goes on from year to year,
more than keeping pace with the boasted increase in volume of new
business. The public never sees this side of the question.
When I got to this point in my deductions, I was brought face to face
with the tremendous expense of acquiring new business. Then I saw the
light--why it was necessary to wipe off the books nearly two millions of
what were considered good assets, that is, pledges from agents of their
renewal commissions against which advances had been made, and where the
new business came from, and how it was possible to make rebates when the
law says they shall not be made. An agent induces a friend to have a
policy written, for which the agent practically pays the premium out of
his commission, and thereupon has advanced to him large sums against the
future premiums which are to be paid by the policy-holder, who has no
intention of paying them, and allows his policy to lapse. Heavens! What
a vista of plundering opportunities the bare thought opens up! Somebody
has to pay.
THE MILLION-DOLLAR POLICY
In the May number I inserted the following letter:
FORT WORTH, TEXAS, February 16, 1905.
THOMAS W. LAWSON, ESQ., Boston, Mass.
_Dear Sir_: I have read and will continue to read your
articles on "Frenzied Finance," published in _Everybody's
Magazine_, with a great deal of interest. I have noted
especially your statements in reference to the big
life-insurance companies, as I am a policy-holder in both
the New York Life and the Equitable.
Under the heading of "Lawson and His Critics," in
_Everybody's_ for January, you give your side as to the
assertion on the part of the insurance companies that you
have been refused life insurance, among other things
publishing a fac-simile of a contract of life insurance
between yourself and the Equitable Life Assurance Society
for $1,000,000. On my first reading of your article, I was
certainly impressed with the fact that you had $1,000,000 of
insurance with this company. On a second reading, I note
that you do not say in so many words that this is a policy
in force, but you say: "Well, look at this reproduction of
the document that is now in my possession and always has
been since the date when it was delivered to me by one of
the great representatives of the 'System,' The Equitable
Life Assurance Society." This statement taken in connection
with others, conveys the idea that you are insured in the
company named.
In conversation with a gentleman a few days since, who
claims to know whereof he speaks, having gotten his
information direct from New York, he stated that you had no
policy in the Equitable Life Assurance Society for
$1,000,000, or any other amount, and that the reproduction
referred to above, was of a _sample copy_ of a policy, and
not a real contract.
As your editor states that you will answer any pertinent
question, I will ask the following, trusting that you may
consider it pertinent: Have you a valid subsisting policy in
the Equitable Life Assurance Society for $1,000,000, the
fac-simile of which appears in _Everybody's Magazine_ for
January, 1905?
Trusting you will favor me with a reply, I am,
Very truly, ----
I answered:
Since the chapter which contained the fac-simile of the million-dollar
policy was published I have received many letters similar to the above,
but have not answered any because I wished to see how far the insurance
people would go in this matter. Finding I did not reply to the
different attempts they made in their subsidized journals to draw me
out, they grew bolder, until the use of this million-dollar policy has
become the chief defence of the Big Three companies. I want my readers
to think this point over and weigh its significance carefully. In a
previous chapter I called attention to the fact that there is nothing to
protect the policy-holder from being robbed of the amounts he has
invested to insure his family from poverty after his death but the
honesty of the men who really control the big insurance companies as
absolutely as any of their policy-holders do their personal affairs. If
these men are honest, policy-holders in their companies may rest easy
for the time being; but if they are dishonest, the policy-holders should
call them to account, for these men have it absolutely in their power to
make way with the funds of the companies they manage until there will
not be a dollar left for policy-holders.
Therefore the one thing for policy-holders to settle, the one vital
thing is, Are these men honest, or are they tricksters and liars?
To settle this point they must be weighed in the same way that all other
men and women in this world are weighed--by the simple, ordinary
standards: Do they lie? Do they trick? Do they cheat?
When I made my charges in my first chapters against the votaries of the
"System" who controlled the insurance companies, they met my specific
charges as dishonest men would meet them, not as honest men would. They
impugned my motives, and specifically charged that my reason for
attacking them was that I had been blacklisted by all insurance
companies and could not get insurance from any of them.