They must deal with it as they see fit. I have gone with it as far as I can.¹

—J. Pierpont Morgan, November 3, 1907

Early on Saturday morning, November 2, J. P. Morgan called an emergency conference at the library. There was a new problem on Wall Street.

Collapse threatened one of the largest brokerage houses, and its failure promised to spark another wave of panic. The brokerage firm Moore & Schley, and its senior partner Grant B. Schley, had borrowed more than $30 million from numerous banks, trust companies, and other financial institutions in New York and elsewhere. To secure the loans, the debtors had used the stock of the Tennessee Coal, Iron & Railroad Company (commonly known at the time as Tennessee Coal and Iron, or simply TC&I) as collateral. However, the strained market conditions had raised questions about the value of the TC&I shares, and on Monday many of the banks would likely call in loans to Moore & Schley, and others. If the loans were called and creditors liquidated the TC&I shares en masse, then the market would be flooded with TC&I stock. TC&I’s price would plummet. The risk was that all this would cause Moore & Schley to fail, crash the stock market, and inflame again the financial panic.

Under ordinary circumstances, Moore & Schley’s loans would not have commanded much attention from the major banks and trust companies. However, the unusually heavy demands for cash by depositors now prompted lenders to demand truly liquid securities as collateral to back their loans. TC&I’s stock, it seemed, was not so liquid. In fact, the market for TC&I’s shares was thin. Only a few investors, including Grant Schley, owned the majority of TC&I’s shares. For months, Schley and his small pool of investors had been artificially supporting TC&I’s stock price. So, even though the stock had been trading steadily at $130 per share for some time, if the banks disposed of the stock, then its price would likely fall by at least $50 or $60 before any other buyers would emerge for it. By then, both Moore & Schley and the many other institutions holding TC&I securities as collateral for Moore & Schley’s loans would be in serious trouble.

J. P. Morgan was gravely concerned about this turn of events. “It is very serious,” he said. “If Moore and Schley go, there is no telling what the effect on Wall Street will be and on financial institutions of New York, and how many other houses will drop with it, and how many banks might be included in the consequences.”² Morgan quickly dispatched two reliable aides, Thomas Joyce from J. P. Morgan & Company and Richard Trimble from U.S. Steel, to examine the financial condition of Moore & Schley. He also told Grant Schley, the brother‐in‐law of his friend George F. Baker, president of the First National Bank, to join them.

Morgan continued the meeting at the library on November 2, discussing the general condition of TC&I and the magnitude of Moore & Schley’s loans held by his friends, associates, and bankers. The simplest method for saving the brokerage house would have been to raise a loan for about $25 million, but it was unlikely such an amount could be found, particularly for an institution that was already so highly leveraged. Moreover, credit conditions were dismal. However, Lewis Cass Ledyard, a lawyer representing the syndicate controlling TC&I and a friend of Morgan’s, had a bold idea. Upon hearing his daring and ultimately controversial proposal, Morgan adjourned the morning’s discussion and called for an immediate meeting of the finance committee of the United States Steel Corporation. He told them to come to the library by 2:30 that afternoon.

U.S. Steel

J. P. Morgan had been intimately connected with the United States Steel Corporation (USS). In 1901 Morgan, Elbert H. Gary, and Henry Clay Frick had created the company by combining various steel producers, including the extensive operations owned by Andrew Carnegie. By 1907, USS controlled leading shares of the nation’s steel markets, making it the largest steel producer in the world and the world’s largest corporation. Despite the recent market crash and ongoing financial panic, U.S. Steel was in robust condition. The company recently reported that its quarterly earnings had surpassed $43.8 million—the second most profitable period in its history—and that it could boast cash resources of $76 million.

Elbert Gary (known by all as “Judge” Gary for having served two terms as a county judge in Illinois) was a savvy chief executive and was sensitive to the financial crisis facing investors and depositors. He recognized a positive role for the company to play during the crisis, especially at a time when “big business” was regularly under fire. Speaking to U.S. Steel’s board of directors on Tuesday, October 29, at a meeting that included Morgan and Frick, Gary said:

There has existed during the last week a delirium of excitement. The feeling in a large measure has been without cause, and there is already a change for the better. If all of us do everything in our power to maintain a high standard for the conduct of affairs in our charge we can be of great benefit in restoring the confidence necessary to success.³

In response to the crisis, on Friday, November 1, U.S. Steel announced plans to pay its employees only 20 percent in cash and the remainder by check in small denominations at various banks. “This method of payment was decided upon because of the fact that the amount of currency in the banks of the country is limited,” Judge Gary said.⁴ It was hoped that U.S. Steel, which had a payroll of $3 million per week, could use its own cash hoard to provide much‐needed liquidity to the system. The announcement showed that having plenty of cash on the balance sheet was one thing; withdrawing the cash from banks to pay workers was another.

Finance Committee Discusses TC&I

By 3 p.m. on Saturday, November 2, the members of U.S. Steel’s finance committee convened at the library as Morgan had requested. Judge Gary and Henry Frick were present; the lawyers for Moore & Schley were gathered in an adjoining room. Lewis Cass Ledyard, the attorney for TC&I and Morgan’s friend, had suggested to Morgan at the morning meeting that perhaps U.S. Steel could save Moore & Schley if they would consider acquiring the Tennessee Coal, Iron & Railroad Company. That was the proposal Morgan had brought them all there to discuss. Right away the lawyers from the next room brought in reports and data regarding TC&I, which the board members from U.S. Steel studied for an hour.

The Tennessee Coal, Iron & Railroad Company was an independent steel producer based in northern Alabama. The company possessed coal and steel properties that extended through Alabama, Tennessee, and Georgia. By 1907, it owned an estimated 800 million tons of iron ore and 2 billion tons of coal, plus additional reserves of limestone, dolomite, and other raw materials necessary for the manufacture of steel. Significantly, the company’s ores were located within 25 miles of its furnaces—literally “sitting on its raw material”⁵—a geographic benefit many Northern steel mills did not have. Given its apparent advantages, TC&I was, by some estimates, at the forefront of a movement to consolidate the disparate Southern steel producers and was considered a potentially important competitor to U.S. Steel. As proof of its growing influence, not long before the Panic TC&I received an order for 150,000 tons of steel rails from the railroads controlled by E. H. Harriman, an order that would typically have been granted to U.S. Steel.

Tennessee Coal, Iron & Railroad had been among the original 12 companies that comprised the Dow Jones Industrial Average in 1896. Since then, its stock had become a notorious high‐flier on Wall Street, and rumors of mismanagement and malfeasance appeared often in the newspapers. The muckraking journalist Ida Tarbell reported that periodically TC&I was paying dividends from borrowed funds. “As for making money,” Tarbell wrote, “old‐timers tell you that the only department in the concern that ever ran at a profit was the company’s stores!”⁶ In 1906, a syndicate, which included Grant Schley, acquired control of TC&I.⁷ These new owners had begun to implement plans to rehabilitate the company’s plants, but doing so had depleted the company’s resources completely. By 1907, the company was left with $4 million of debt, of which $1.5 million was about to come due.

Despite TC&I’s attractive assets, Henry Frick was vehemently opposed to an acquisition of TC&I by U.S. Steel. He was convinced that the firm was an inefficient producer and that its costs of production were too high to be integrated successfully with U.S. Steel. Moreover, he understood that because of the high phosphorus content of TC&I’s ores, the steel it produced was generally of low quality. Morgan argued with him, saying that he felt the company’s coal and iron were at least worth the company’s capitalization.

Even so, Elbert Gary was skeptical, too, especially because he was already familiar with the condition of both Moore & Schley and TC&I. Just recently during the Panic, Moore & Schley had approached Gary himself for a loan, and he had exchanged $1.2 million of U.S. Steel gold bonds for $2 million of TC&I stock—now worth much less than what he had paid. Gary was, therefore, disinclined to extend himself or his company to aid either Moore & Schley or TC&I any further.

A Solution in Prospect

As the early morning sun rose above New York City on Sunday, November 3, 1907, the brass doors of Morgan’s library were finally unlocked. After the trust company presidents had given J. P. Morgan sufficient assurance that they would each subscribe to the new money pool to support the weaker trust companies, they were allowed to go home. As the bankers dispersed, George F. Baker, president of the First National Bank of New York, and Lewis Cass Ledyard, the attorney for the syndicate controlling the Tennessee Coal, Iron & Railroad Company, stopped to have a few words with Morgan. “You look tired,” Morgan chirped to Ledyard; their meeting at the library had been under way at least since Saturday morning. “Go home and get a good night’s rest,” Morgan added, “but be back here at nine o’clock sharp!”⁸ It was then 5 a.m.

Despite the promising discussions Morgan had engineered inside his library, the city’s newspaper reporters outside—and the public at large—were still largely in the dark. No statements had been released, and they were told only that the financiers were considering the general financial conditions. That was clearly insufficient. “[I]t became evident from the talk about the clubs that considerable alarm existed,” observed George W. Perkins, who had also attended the all‐night conference. “Stocks were being offered about town at from one to two points under the closing prices of Saturday. All sorts of rumors were flying about, and by noon it became clear that the failure of Moore & Schley on Monday and the closing of the Lincoln Trust Company would bring very general trouble.”⁹ The papers also reported that President Roosevelt was being urged to call for a special session of Congress to enact legislation and regulation for financial institutions. Perkins, as usual, went to see Morgan after breakfast, and they planned for another conference at the library to address the still‐unresolved problem of the vulnerable brokerage house Moore & Schley.

The day’s major meeting convened at 4:30 p.m. “Mr. Morgan, as usual, sat in his armchair facing the blazing wood fire in the big West Room,” Herbert Satterlee recalled.¹⁰  To Morgan’s right was a small table, and on the other side of this sat the city’s most senior bankers and Morgan’s most trusted advisers, including George Baker, James Stillman, and George Perkins. Of course, Grant Schley was also there, as well as Elbert H. Gary, Henry Clay Frick, and the finance committee of U.S. Steel Corporation. If Moore & Schley should suspend the next day, an indefinite number of brokerage houses and other financial institutions would collapse, too. Moore & Schley was too connected to fail. During the meeting, several bankers and financiers were intent on saving Moore & Schley, and they pressed its importance upon J. P. Morgan. Regarding the proposal for U.S. Steel to acquire TC&I, Morgan told them:

I have done what I can. I have never been more concerned over a situation than I am over this. I think this is the most serious thing we have had to meet in this panic yet, but I cannot urge upon the Steel Corporation to take this property. I hope they will do it, but I do not think I have the right to urge them or force it upon them if I could. They must deal with it as they see fit. I have gone with it as far as I can.¹¹

Gary and Frick remained strongly opposed to the acquisition plan. They felt it was an unworthy investment that U.S. Steel did not need, and they feared such a combination would open their company to accusations of attempting to create a monopoly in steel production. At the time, U.S. Steel claimed from 30 to 56 percent of the market across five major product lines. By early evening, the issue remained unresolved, and the steel executives planned to convene again at the library later that night.

A Rescue Emerges

After dinner, Morgan met with Thomas Joyce and Richard Trimble, whom he had delegated the day before to perform an in‐depth review of Moore & Schley’s books. After working more than 24 hours straight, they presented their findings at the library privately to Morgan, Baker, and Stillman. Morgan asked Joyce how much he estimated would be needed for Moore & Schley to avoid ruin. “About seventeen or possibly eighteen millions, sir,” Joyce responded.¹² With that, Morgan proclaimed that the three of them—himself, Baker, and Stillman—must raise the money at once; he announced he would take a third interest in the subscription, and he suggested that Baker and Stillman provide the remainder of the $18 million, which would be carried by their banks until U.S. Steel could arrange to take it over from them. Baker consented to Morgan’s plan right away, though Stillman was unhappy.

“Why, you haven’t had time to study those figures!” Stillman said.

“Well, I know my man,” Morgan replied. He handed the papers back to Joyce, concluding the discussion summarily. Reluctantly, Stillman agreed.¹³

Earlier in the day, George Perkins had been conferring with Grant B. Schley of Moore & Schley and John B. Topping, the president of the Tennessee Coal, Iron & Railroad Company, to determine the exact condition of TC&I. By the time the board members of U.S. Steel reconvened at Morgan’s library on Sunday evening, Perkins, Schley, and Topping had mustered significant evidence to show Gary and Frick that TC&I’s condition was not as compromised as they had assumed. They demonstrated that the company had nearly completed the construction of its new rail‐producing mill, which would enable TC&I to make rails more cheaply than had been previously possible. Again, the steel executives discussed their disposition toward an acquisition of the firm.

Finally, the finance committee of the United States Steel Corporation acceded to a new plan to acquire TC&I. USS would buy a majority of the company, but not by paying cash, as had been proposed earlier. U.S. Steel would instead exchange its own bonds for shares of TC&I stock at par. Specifically, USS would exchange each of its 60‐year, 5 percent sinking fund gold bonds,¹⁴ which had a par value of $11,904.76, for 100 shares of TC&I stock, which had a total par value of $10,000. Gary and Frick’s agreement to this deal was contingent on three important conditions being met. First, the Roosevelt administration must interpose no objections to the acquisition; second, this arrangement must “unquestionably save Moore & Schley”¹⁵ from failure; and third, formal arrangements must be concluded to attend to the city’s struggling trust companies.

Creditors were holding TC&I stock as collateral for loans to Moore & Schley and to the members of the syndicate that controlled TC&I—and the value of that collateral was considerably diminished because of the financial crisis. Therefore, the opportunity to exchange that stock for the gold‐backed bonds of U.S. Steel was enormously attractive. Few other companies could have achieved such a uniquely reassuring outcome for bankers, investors, and depositors. In addition, since the acquisition would be achieved entirely through an exchange of securities, the transaction would place no further demands on the nation’s already strained cash resources. With this arrangement, Grant Schley and his syndicate partners, as well as the firm, could pledge their new U.S. Steel securities as collateral for their various debts. Moore & Schley, numerous brokerages, the banks, and trust companies would be saved, all without the need for cash. The full board of U.S. Steel was scheduled to vote on this proposed deal in the next few days, on Wednesday, November 6. Based on J. P. Morgan’s leadership that weekend, it seemed that the second and third of Gary’s and Frick’s conditions could be met. Now, all that was required was the willingness of the Roosevelt administration to allow the deal to occur.

Would the Government Bar the Deal?

The issue was whether the acquisition would be considered a breach of the Sherman Antitrust Act. The Act declared illegal any business combination “in restraint of trade.” The law had not been invoked seriously in the first decade since enactment. More recently, President Theodore Roosevelt, the Bureau of Corporations, and the attorney general of the United States had been aggressively pursuing what they felt were the anticompetitive behaviors of large corporations. Given its massive size and scope, U.S. Steel would be an obvious target of their scrutiny. Gary and Frick were particularly sensitive to this risk.

“Before we go ahead with this,” Judge Gary told Morgan, “we must consult President Roosevelt.”

“But what has the president to do with it?” demanded Morgan.

“If we do this without consulting the administration,” persisted Gary, “a bill in equity might stop the sale, and in that case more harm than good would be done. He cannot say that we may or may not purchase, but we ought to know his attitude since he has a general direction of the law department of the United States.”

Morgan considered his point briefly. “Can you go at once?”¹⁶

Meeting with the President

At 10 p.m. on Sunday, Judge Gary called William Loeb, President Roosevelt’s private secretary, to request an interview with the president at the earliest possible time on Monday morning. Once Loeb agreed to a meeting, Gary’s men called the chief dispatcher of the Pennsylvania Railroad in Newark, New Jersey, telling him to arrange a special train comprised merely of a locomotive and a Pullman sleeper car, bound for direct travel to Washington, DC; all signalmen on the route would receive instructions that the one‐car special would pass through during the night. After concluding their discussions on Sunday at the library, Judge Gary and Henry Frick left at midnight in their cab and raced to New Jersey for their private, waiting train.¹⁷

Early Monday morning, November 4, cables from London indicated that the prices of American securities were falling; if prices in New York followed suit, many brokers would be unable to meet their margin requirements, putting even more pressure on houses like the troubled Moore & Schley. After only a few hours of sleep, the 70‐year‐old Morgan arose at 8:30 a.m. to wait for the crucial call from Washington. After breakfast, he instructed George Perkins to have an employee at the Corner establish an open phone connection with the White House so they could hear Roosevelt’s verdict immediately from Gary and Frick.

Gary and Frick had arrived in Washington early on Monday morning, anxious to see the president as soon as possible. For Morgan’s plan to work, they sought Roosevelt’s blessing for the TC&I deal before the stock exchange opened at 10 a.m. Upon reaching the White House at 8 o’clock, Loeb, the president’s secretary, firmly refused to admit the men from U.S. Steel immediately, saying that the president would see no one before 10 o’clock. This was more than the steel men were prepared to accept.

“But this is a serious matter,” pleaded Gary, “and I think that if you will tell him just what Mr. Frick and I are here for, he will see us.”¹⁸

At that moment, James Garfield, the Secretary of the Interior, arrived. Gary and Frick confided their problem to him and explained their urgent need to see the president. At once, Garfield conveyed their message to the president, and Roosevelt hastily interrupted his breakfast to see them. Since the attorney general was away from the city, Roosevelt asked Elihu Root, his Secretary of State, to review the matter with him.

At 9:45 a.m., Loeb told the men standing by at J. P. Morgan & Company in New York that Gary and Frick had just gone in to see the president. Right away, Perkins circulated news to Wall Street that a plan to save Moore & Schley and the trust companies was under discussion with the president.

Without further news, the market opened weakly at 10 a.m. At 10:15, Judge Gary stepped out of his conference with the president to say that Roosevelt was reading the matter favorably, then he returned to the portentous meeting. Finally, at 11 a.m., Gary announced that Roosevelt was fully in favor of the proposal. “It was necessary for me to decide on the instant, before the Stock Exchange opened,” Roosevelt later testified regarding this meeting, “for the situation in New York was such that any hour might be vital.”¹⁹ Gary quoted Roosevelt as replying to him, “I do not believe that anyone could justly criticize me for saying that I would not feel like objecting to the purchase under the circumstances.”²⁰

Roosevelt’s Decision

Perhaps sensing reactions that the TC&I deal might prompt, Roosevelt drafted a note to Attorney General Charles Bonaparte on November 4 summarizing what Gary and Frick had told him and his response. The note was remarkably matter of fact and devoid of either Roosevelt’s earlier rhetoric against “malefactors of great wealth” or of defensiveness of the controversy his decision would create. He wrote that:

[Gary and Frick] have just called upon me. They state that there is a certain business firm (the name of which I have not been told, but which is of real importance in New York business circles) which will undoubtedly fail this week if help is not given. Among its assets are a majority of the securities of the Tennessee Coal Company. Application has been urgently made to the Steel Corporation to purchase this stock as the only means of avoiding a failure. Judge Gary and Mr. Frick inform me that as a mere business transaction they do not care to purchase the stock; that under ordinary circumstances they would not consider purchasing the stock because but little benefit will come to the Steel Corporation from the purchase; that they are aware that the purchase will be used as a handle for attack upon them on the ground that they are striving to secure a monopoly of the business and prevent competition—not that this would represent what could honestly be said, but what might recklessly and untruthfully be said. They further inform me that as a matter of fact the policy of the Company has been to decline to acquire more than sixty per cent of the steel properties, and that this purpose has been persevered in for several years past, with the object of preventing these accusations, and as a matter of fact their proportion of steel properties has slightly decreased, so that it is below this sixty per cent, and the acquisition of the property in question will not raise it above sixty per cent. But they feel that it is immensely to their interest, as to the interest of every responsible businessman, to try to prevent a panic and general industrial smashup at this time, and that they are willing to go into this transaction, which they would not otherwise go into, because it seems the opinion of those best fitted to express judgment in New York that it will be an important factor in preventing a break that might be ruinous; and that bankers in New York who are now thus engaged in endeavoring to save the situation. But they asserted they did not wish to do this if I stated that it ought not to be done. I answered that while of course I could not advise them to take the action proposed, I felt it no public duty of mine to interpose any objection.²¹

As the note revealed, Roosevelt established no new principles about anti‐trust enforcement that might have justified his approval of the deal. Nor did he impose conditions on the future operation of U.S. Steel regarding pricing, labor, or investment policies that might have been used to justify the deal from the public interest standpoint. While his prompt approval amid a crisis was consistent with his identity as a Man of Action, it was also consistent with the observation of historians that Roosevelt tended to be guided more by gut feel than principled reflection.

Reaction

News of U.S. Steel’s new plan to acquire TC&I brought jubilation to Wall Street, saving many brokerages, banks, and trust companies. The initial response by the mainstream press endorsed Roosevelt’s decision. “The relief furnished by this transaction was instant and far‐reaching,” opined the Commercial and Financial Chronicle. “Institutions, whose solvency might at any moment have become impaired through the continued possession of Coal & Iron stock among their assets, have been reinstated through the conversion of the stock into bonds of the Steel Corporation. Accordingly, now their standing cannot be open to question or the object of suspicion.”²² On November 5, the New York Times headlined “Steel Trust’s Action That of Trust Company Pool Effectually Relieves the Situation” and reported that:

[T]he President has been much exercised by the danger of a widespread financial disturbance, and he has been eager to consult with his advisers as to any measures of relief and prevention that might be taken… . In such situation the President is always eager to consult with men who may be able to give him suggestions, and there is no doubt that he embraced the opportunity to secure the ideas of Messrs. Gary and Frick on the subject.²³

“TC&I Deal Is Helpful” read a headline in a backstory of the New York Times on November 7.²⁴ The same article opined, “If anything, the entry of [U.S. Steel] into the merchant iron market may be influential toward increasing co‐operation among sellers.”

After the first half‐hour of trading, prices on the stock exchange turned upward and stayed strong for the rest of November 4. It was the best day the exchange had seen since the troubles began.