Irresistible Temptations 1923 - When Wealthy Isn't Wealth Enough

Barbara Goldsmith, award-winning author, wrote an interesting piece for The Daily Beast this week entitled, What the Richest Men in the World Don’t Know. With the swindles and Ponzi schemes washing to the shore these days, it seems appropriate to revisit the deals gone bad in 1923. I excerpt here a short version of the story that describes nine very wealthy men and what they have to teach us about financial ethics. All manners of ethics, if truth be told. But be sure and catch the footnote below.

Greed vs. Fear has long been the economic equation and when financial gain becomes too quick and easy, too good to be true, it invariably is. In retrospect, the bandwagon right now is full to the brim with “I told you so” pundits and analysts, who inform us, as if this were the first time, that in the past eight years we came to live above our means, on credit, were manipulated by blind investments we did not understand. Some of us undoubtedly suspected something might be wrong, but what the heck—let the good times roll.

And the good times did roll for a while …

In 1923, an important meeting was held at the Edgewater Beach Hotel in Chicago. Attending were nine of the world’s most successful and wealthiest financiers of the day. A quarter century later, they were all either dead, broke, or in prison.

Charles Schwab went bankrupt. He left as his legacy a syphilitic wife and a cigar smoke-filled mansion at 73rd Street and Riverside Drive.

Present were:

Charles M. Schwab, President of the largest independent steel company (Bethlehem Steel). (Not to be confused with Charles R. Schwab that founded the brokerage firm. gd)

Samuel Insull, President of the largest utility company (Edison General Electric).

Howard Hobson, President of the largest gas company (Associated Gas & Electric System)

Arthur Cutten, The great wheat speculator.

Richard Whitney, President of the New York Stock Exchange.

Albert Fall, A member of President Hoover’s Cabinet.

Jesse Livermore, The greatest “bear” on Wall Street.

Ivar Kreuger, Financier and head of the world’s greatest monopoly (The “Match King”).

Leon Fraser, President of the First National Bank of New York and the Bank of International Settlements.

So happened to the men on this list?

An incorruptible former New York Assistant District Attorney, Ferdinand Pecora, became a national hero by exposing the likes of Ivar Kreuger, once thought to be the richest man in the world, who had swindled investors out of a $100 million. Kreuger killed himself in March 1932.

Leon Fraser and Jesse Livermore also committed suicide.

Arthur Cutten, under indictment for tax evasion and manipulating the market, fled the country and died in poverty.

Samuel Insull, who had sold stock to his family and friends below the market enabling them to reap millions when they sold was indicted, fled to France, and died of a heart attack in a Paris Métro.

Richard Whitney had used his name, influence, and position to gull many friends into giving him money to support his luxurious lifestyle and then turned to embezzlement. He went to Sing Sing prison.

Albert Fall also went to prison but was pardoned so he could die at home.

Howard Hopson was committed to an insane asylum.

Charles Schwab went bankrupt. He left as his legacy a syphilitic wife and a cigar smoke-filled mansion at 73rd Street and Riverside Drive. Schwab smuggled a Botticelli out of his house, which was later sold by Joseph Duveen and said to sustain Schwab for the last years of his life.

Almost every one investigated for being a swindler or for a failed Ponzi or Pyramid scheme maintained that if the market had held just a little bit longer they would have paid off all investments, as if that made it alright. Many enterprises had started out legitimately, but like alcoholics or drug addicts, the temptations of time and place were irresistible.

Footnote: This is a very nice story that fits perfectly in today's headlines. But I'm confused about one thing. Barbara Goldsmith related the story of this fictional 1923 meeting of titans as a ... well let me quote from her Daily Beast piece:

Flash back. On Monday, April 4, 1983, my father had a fatal heart attack. I left the hospital with his overcoat, Patek Philippe wristwatch, and his well-worn black leather wallet. Inside was about $70 held by a paper clip, various cards, and a piece of paper cracking at the folds. It read:
Food For Thought
In 1923, a very important meeting was held at the Edgewater Beach Hotel in Chicago. Attending this meeting were nine of the world’s most successful financiers. Those present were:

Her story continues on as I relay above. If you want to know the rest of the story, click here. At least according to Snopes.com this piece has been in circulation since about 1948 in several different forms. It is also their opinion that it is highly unlikely that such a meeting ever took place.

Perhaps Barbara Goldmith's father did indeed carry a tattered copy of this story around in his worn black leather wallet. Who am I to second guess? The moral of the story stands. How about Barbara?